E-Commerce Payment Frauds: How To Handle Them

What is E-Commerce Payment Frauds?

E-Commerce Payment Frauds, also known as “e-commerce payment fraud,” refers to fraudulent activities that occur in association with online transactions.

It involves the unauthorised use of financial information like credit/debit card details to make purchases without the customer’s consent. With the rapid growth of e-commerce, cases of e-commerce payment fraud have also increased significantly.

Why is E-commerce Fraud Common?

e-commerce fraud has become prevalent for several reasons. The sheer volume of online transactions and the global reach of e-commerce provide more opportunities for fraudsters to strike. Additionally, the anonymous nature of online shopping makes it easier for criminals to exploit vulnerabilities in payment processing systems. According to a report by Juniper Research, global e-commerce losses to online payment fraud have exceeded $48 billion by 2023, showcasing the significant financial impact on the industry.

Main Types of E-commerce Fraud

The main types of e-commerce payment fraud that merchants need to be aware of include:

1) Online Theft Fraud:

Criminals can steal people’s identities online through various techniques. They may trick users into providing details via phishing scams, malware, hacking vulnerable websites, or gaining access to networks and servers holding customer data. 

Once a person’s name, payment information and account passwords are in their hands, thieves can seamlessly pretend to be that customer to make purchases. For companies, the fraudsters appear as legitimate users, making identity theft online challenging to identify.

2) Credit Card Fraud:

Credit card fraud allows criminals to live beyond their means by using numbers other than their own. Through clever tricks or luck, they acquire card details not meant for them, hoping to enjoy items before their misuse is uncovered. 

While losses result, these actions feed desires in the moment. Only when the bill arrives does the truth come to light for all involved. This causes losses for both businesses and individuals.

3) Takeover Fraud:

Account takeover fraud involves criminals accessing legitimate customer accounts through stolen login credentials. With access, fraudsters can view payment details and histories to glean more information. 

They exploit this private data by making unauthorised purchases or withdrawals in the customer’s name. This violation of privacy understandably shakes the victim’s trust in the security of their online accounts.

4) Chargeback Fraud 

Chargeback fraud involves customers intentionally disputing legitimate transactions. It’s when people change their mind about a purchase but falsely claim they didn’t authorise it. This unfairly burdens merchants with costs and can damage businesses if abused. 

Merchants understandably want to avoid losses, but responding to chargebacks patiently and understandingly helps maintain goodwill on both ends. Empathy is vital – people make mistakes, and chargebacks alone don’t mean wrongdoing.

5) Card Cracking Or Card Testing

Card cracking involves obtaining valid card numbers and testing purchase limits through multiple small transactions. Crackers can determine active accounts and those with available balances by iteratively charging different cards. 

They aim to maximise successful charges before thresholds flag the activity as fraudulent. The process exposes weaknesses that, once closed, make such experimentation less fruitful.

6) Triangulation Fraud:

Triangulation fraud is a method some use to move goods purchased online across international borders in an indirect route. By having items first shipped to an intermediary in another nation, those engaging in this strategy hope to disguise the starting point of the transaction and the destination.

This complicates efforts to understand transaction details fully and capitalises on the complexity of global trade networks.

7) Refund Fraud:

Refund fraud involves deceiving the merchant to obtain product refunds unlawfully. Criminals purchase items online and then contact the seller, claiming the items were never received or are faulty, to get refunds issued. 

They may send back empty boxes or different items to complete the scam. This scam costs online retailers millions each year through no fault of their own due to the dishonest actions of a few.

How to Handle E-commerce Payment Fraud:

Here are some steps merchants can take to handle e-commerce payment fraud effectively:

1) Monitor For Suspicious Activities:

Watch for unusual behaviours on your site, like multiple purchases from one device in a short time or addresses that seem invalid upon delivery. Staying observant through active monitoring can provide clues about odd activity that requires a closer look.

2) Multi-Factor Authentication (MFA)

Multi-factor authentication involves authenticating users through multiple means to complete transactions. By utilising various identifying factors about users and their sessions, merchants can be assured of the authenticity of the conducted business.

3) Verify Orders: 

After receiving an order, examine the purchase closely for any inconsistencies in the information, such as the billing address or buyer’s name. If something seems amiss, reach out respectfully to customers to validate the transaction before fulfilment.

4) Maintain a Clear Refund and Chargeback Policy

Set refund terms transparently so shoppers can see them upfront. Address chargeback claims respectfully and according to the steps you outlined. Strive for a resolution that leaves both parties feeling the issue was managed professionally.

How to Prevent E-Commerce Payment Fraud

Here are some proactive measures merchants can implement to help prevent e-commerce payment fraud:

1) Tokenisation and Encryption:

Tokenisation and encryption help ensure sensitive financial information is handled respectfully in online purchases. Tokenisation substitutes cards with codes, and encryption garbles data so that it can only be read by authorised parties in the transaction.

2) Use Address Verification Service (AVS):

By utilising Address Verification Services, merchants can gain added reassurance that the transaction details match bank records. This alignment helps maintain the best possible customer experience from start to finish of the online shopping journey.

3) Compliance:

PCI Compliance requires businesses to protect customer payment data by following strict security standards. It aims to ensure all payment processing systems are adequately secured according to industry best practices.

4) Educating The Merchant:

Payment processors should regularly update merchants on new fraud trends and technologies. By educating merchants on the latest scammer’s techniques, they can better understand the online shopping experience from a customer’s perspective.

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Conclusion:

e-commerce payment fraud continues to pose significant financial and reputational risks for online merchants. With proactive monitoring, manual reviews, address verification, and advanced fraud prevention solutions, merchants can substantially reduce fraudulent transactions. 

Merchants must remain vigilant and update their fraud detection strategies to stay ahead of cybercriminals’ evolving tactics. Merchants can take a holistic approach involving people, processes, and technology to secure transactions and build customer trust in their brand.

FAQs

1) What is e-commerce payment fraud?

e-commerce payment fraud refers to fraudulent activities associated with online transactions. It involves the unauthorised use of financial information like credit/debit card details to make purchases without the customer’s consent.

2) Why is e-commerce fraud common?

e-commerce fraud has become prevalent due to the large volume of online transactions, the global reach of e-commerce, and the anonymous nature of online shopping, which provides more opportunities for fraudsters.

3) What are the main types of e-commerce fraud?

The main types are online theft fraud, credit card fraud, account takeover fraud, chargeback fraud, card cracking, triangulation fraud, and refund fraud.

4) How can merchants handle e-commerce payment fraud?

Merchants can monitor for suspicious activities, implement multi-factor authentication, verify orders, and maintain a clear refund and chargeback policy.

5) How can merchants prevent e-commerce payment fraud?

Merchants can use tokenisation and encryption, address verification services, comply with PCI standards, and educate themselves on the latest fraud trends.