E-commerce fraud is where fraudsters carry out malicious activities aimed at exploiting online stores. Most commonly fraudsters carry out this type of fraud by purchasing things online with stolen bank card numbers. With Black Friday and the Christmas season approaching it is increasingly important for both retailers and members of the general public to be vigilant and to educate themselves about the online scams that are out there. This not only reduces the chances of getting defrauded but the business cyber security will be more effective at avoiding malicious actions from outsiders.
Transaction fraud is where a fraudster uses stolen bank card details to purchase items at the expense of the victim they have stolen the card details from. Transaction fraud is also known as card not present (CNP) fraud. If the victim complains to the website the goods were purchased or their bank the retailer will have to issue the victim a refund, through what is known as a chargeback. If the online retailer gets too many chargeback requests the card networks they use to process payments will label them as a ‘high fraud target’. This means that card networks will charge the retailer a higher processing fee for each transaction the online retailer makes.
How to Avoid Getting Your Card Details Stolen
When you are shopping in brick and mortar stores make sure that you can see your bank card at all times, fraudsters may try to take your bank card out of site so they can clone your card. This takes the banking details of your card and copies them onto a blank card or machine that can be used to buy things using your bank account.
How Can Online Retailers Reduce Transaction Fraud
As a retailer, you should always make sure that you are keeping customers’ banking information safe and secure as this sensitive information. You should also keep records of all suspected fraudulent activity and report these to your authorization centre. Additionally, you should be increasingly cautious about high-value transactions. In these circumstances, you should insist that you will deliver the items to the address that is connected with the banking card. This reduces the risk of transaction fraud.
Return fraud is where fraudsters take advantage of online retailers’ return policies in an attempt to gain a financial advantage, there are a number of different types of return fraud including:
- Receipt Fraud: This involves fraudsters using reused, stolen or falsified receipts in an attempt to return merchandise for financial gain. Fraudsters also return goods that have been bought at another store at a lower price and attempt to return it at your store that charges a higher price for the same item, meaning that the fraudster gains a profit from doing so.
- Switch Fraud: This involves purchasing a working item and replacing it with a damaged or defective identical item and then attempting to return the item to the store you have bought it from.
- Bricking: Fraudsters buy a working item and strip it of valuable components, this often renders the item unusable. Then the fraudster returns the item to get their money back, whilst keeping the valuable components they have stripped from the item.
- Open Box Fraud: This is where a fraudster buys an item and returns it opened with the intent to repurchase it at a lower price under the store’s open box policies.
- Inventory Depletion: Competitors of online stores can purchase the entire stock of the rival competition, meaning that the stock is no longer available for customers to purchase. This can lead to customers choosing different online stores to purchase items from, which may benefit the retailer that committed the inventory depletion.
Wardrobing is where somebody buys an item with the intention of using it for a short time period, such as buying a piece of clothing for an event they have coming up and then returning the item once they have worn the item to the event. Previously some people may have been put off this tactic when shopping in a brick and mortar store where they would have to interact and explain to the shopkeeper why they did not want the item; but these days with the advent of online shopping people often just need to fill out a tick box asking why they don’t want to keep the item, making it much less hassle-free to return things. As a result, wardrobing is one of the most common types of e-commerce fraud.
How Can Online Retailers Reduce Return Fraud And Wardrobing?
- Analysing Data From Past Return Fraud Cases: You can identify behavioural patterns or red flags specific to their industry. This can help retailers develop policies that help to protect their businesses against return fraud.
- Educating And Training Staff: Through training your staff should be able to recognise what a normal amount of items being returned looks like and what is an abnormal amount of items being returned. Accounts that have abnormally high returns can be investigated and you may be able to put a limit on the amount of items they can return in the future.
- Automated Fraud Detection Assistance: Using Machine Learning Or Artificial Intelligence To Identify Behavior That Indicates Fraud
Account Takeover Fraud
Many online retailers offer customers the option to store their bank details on their site for an easier checkout next time. If a fraudster is able to gain access to this account they are then able to make purchases using the victim’s banking details. Additionally, once a fraudster has gained access to an account they can use personal information such as name and address information to aid them in additional acts of fraud.
Bonus Abuse Fraud
Online shopping is a competitive environment, this leads to online retailers hoping to attract customers by offering coupons and bonus offers when they sign up to the mailing list. Sometimes people sign up for new accounts each time they shop at the online store to get an extra bit of discount, this effectively means that a discount has been given out to a customer who is not technically valid to receive it. This means that you have sold an item for a reduced price when you could have sold it for a full price, leading to your bottom line being less fruitful.
E-commerce fraud remains a concern for online retailers who should be taking preventative and reactive measures against e-commerce fraud. E-commerce websites are rewarded for taking these measures by having fewer instances of fraud meaning that they will be defrauded out of less of their bottom line. Additionally, having less fraud means that the retailer will be seen as a ‘lower fraud target’ which means that they will be charged less in transaction fees. If you love this article, take a look at our discussion of cryptocurrency mistakes to help you avoid fraud in this industry.