Research Hub > E-Commerce Fraud: How to Detect It and Tips to Protect Your Organization
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E-Commerce Fraud: How to Detect It and Tips to Protect Your Organization

Wondering what e-Commerce or online retail fraud looks like? This guide lists the most common types of e-Commerce fraud to look out for and helpful strategies you can use to combat and reduce the frequency and impact of fraud on your business.

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What's Inside

 In an era of digitization, online retailers are quickly becoming easy targets for cybercriminals to steal massive amounts of information. Retailers are facing a tough balancing act between proactively seeking out fraud and delivering an exceptional customer experience. Your customers expect easy, safe online transactions and if it’s not delivered, there’s a risk to quickly lose their loyalty. If you operate or own an online store, learning to spot fraud early on is vital and crucial to protect it from hitting your bottom line.

Wondering what e-commerce or online retail fraud looks like? While there are numerous schemes that fraudsters can use, this guide lists the most common types of e-commerce fraud to look out for and helpful strategies you can use to combat and reduce the frequency and impact of fraud on your business.

Common Types of E-Commerce Fraud

Fraudsters are a creative bunch and are always looking for new ways to steal and take advantage of online merchants. To prevent fraud and to protect your brand, you need to be aware of the common types of e-commerce fraud that you might have to deal with. Here are some of the common types of fraudulent activities that torment online merchants everywhere.

Identity Theft

Identity theft is one of the most well-known types of e-commerce fraud. Identity theft takes place when a cybercriminal steals someone’s personal data and uses it to make unauthorized purchases or transactions as the victim. However, identity theft isn’t just limited to stealing credit card information. Fraudsters will also steal and use other types of identification information at their disposal, such as social security numbers, email accounts, user accounts, addresses, names, personal devices, and even IP addresses, to pose as the real customer. As a result, identity theft does more damage than just compromise customer accounts – it also costs those customers their time by forcing them to meticulously change account passwords and contacting their financial institutions to have fraudulent charges revoked. It’s unfortunate, but identity theft is a pervasive type of fraud that affects thousands of customers and businesses every day. 

Chargeback Fraud

Also known as “friendly fraud”, chargeback fraud can mistakenly occur or be intentional. It is when a customer, legitimate or otherwise, keeps a product that was purchased from an online merchant, then challenges the charges by asking the company to issue them a refund, falsely claiming they never received the item or that it was damaged during shipping. The merchant must then issue the customer a refund, re-deliver the item, or face a chargeback. Chargebacks involve the recoupment of funds from the merchant by the issuing bank, which are given back to the customer. Chargebacks are a common problem with e-commerce retailers.

Billing Fraud

Billing fraud is another common type of fraud. It occurs when a fraudster ties a suspected victim’s address to a payment account that’s used to buy the stolen goods.  The items are typically bought using the victim’s billing address but shipped to an address where the fraudster can pick the items up. The unfortunate thing is that billing fraud isn’t location-specific and can happen anywhere across the country. 

Triangulation Fraud

The increase of online marketplaces around the globe provides consumers and sellers unlimited opportunities for buying and selling goods at the click of a mouse. The convenience of these online marketplaces, however, can create a unique type of fraudulent activity in the e-commerce space called triangulation fraud. This type of fraud is both quick and easy for a cybercriminal to set up a fake website to trick the consumer into making a false purchase. It starts when a fraudster puts up a fake website that appears in ads or is sent to a user’s email address. What’s the catch? These goods don’t exist, and, of course, are never shipped to the customer. Instead, the customer suffers the loss of their credit card or bank information and from not receiving the goods that they purchased. The fraudster gets ahold of the customer’s credit card credentials and uses them to make fraudulent purchases themselves. Triangulation fraud victimizes several parties involved – the consumer, the seller, and the merchant.

This type of fraud is extremely damaging to consumer confidence. The seller is also impacted since they were recruited to list their merchandise on the fraudster’s fake website and will suffer harm to their reviews and online reputation. Ultimately, the greatest impact of triangulation fraud for merchants is the chargebacks that are waiting to happen, resulting in the merchants taking a financial hit to their bottom line.

How Can You Spot E-Commerce Fraud?

Being an e-commerce business comes with its own set of unique challenges. For one, it can be difficult to validate a real customer, and you can also face a lot of issues that arise from unauthorized transactions, resulting in financial loss. Fraud can be difficult to recognize, and fraudsters have evolved and become more sophisticated in their schemes, but they often leave tracks. Below are several tips that can help you detect fraud.

Location, Location, Location

It’s a well-known phrase in real estate but keeping an eye on where online transactions are coming from and going can help you spot fraud early. The most secure transactions are the ones where the customer’s shipping address, billing address, and IP addresses are the same, or at least near each other. Transactions that show long distances between these addresses should be inspected more carefully. 

Shipping Destination of Stolen Goods

Fraudsters need a way to get their stolen goods that they purchased. They will often ship the products to addresses other than the billing address. There is a much higher risk of fraud when orders have different shipping and billing addresses that aren’t associated with each other. It’s one thing if an order is going to, say, a branch office or another known address of a customer, but if the billing address is in Minnesota and the shipping address is in Singapore, that could be a sign of fraud. Also be mindful if the shipping destination of the goods happens to be a re-shipper or a freight forwarding company, that is a big red flag that needs to be further investigated.

Abnormal Purchasing Behavior

If a fraudster is successful in using stolen credit card information to make unauthorized purchases, they will continue to make subsequent purchase attempts again and again until they are finally caught and stopped. If you happen to come across multiple failed purchase attempts for orders on your site with different credit card numbers, the odds of a non-fraudulent transaction coming out of those purchases are very slim. In this case, it is very critical to analyze this unusual behavior and connect the dots to the fraudulent activities that are potentially going on. 

Search Engines Are Your Friend

Count on search engines to help you spot e-commerce fraud. If you come across any common fraudulent techniques, such as abnormally large order values and/or quantities, suspicious attempts in using overseas addresses, or purchases with a different delivery address, start to raise your eyebrows. When in doubt, use search engines. With search engines, you can look up any customer names, shipping addresses, or email addresses in question. A quick search could yield a fast result to confirm your suspicions of the customer’s legitimacy and if there are any associated social media accounts. Internet searches also unfold a batch of public records that are tied to the customer, which could help make you feel more comfortable about shipping the order.

Tips to Prevent E-Commerce Fraud

Virtually every online merchant will encounter fraud in one way or another. No matter what industry or niche you operate in, it is critical for all business owners to do what they can to protect their e-commerce business and their customers’ shopping security Below are some helpful tips to prevent and combat e-commerce fraud.

Prioritize Fraud Prevention

It’s very easy for fraud be overlooked if you don’t know what to look for. Awareness and education are critical to protect your customers and business. It is key to make it a priority that your staff and customers are knowledgeable on security issues and abnormal purchasing behaviors that indicate fraud. Smaller businesses can educate their staff by offering free fraud prevention training courses. Major retailers would need AI-driven fraud prevention solutions to analyze large volumes of transactions to find patterns of fraud and use those patterns to reject or flag fraudulent transactions as it happens in real-time. For smaller businesses and large retailers, fraud prevention solutions will look a bit different from one another, but regardless of your business’s size, prioritizing fraud prevention will always be the best first steps you can take in protecting your e-commerce store. 

Set Product Volume Limits

It may sound counterintuitive since you do not want to discourage customers from shopping, but consider setting limits on the volume of purchase transactions every day. Setting volume limits can be effective in reducing fraud by targeting accounts that either spend a high amount of money within a single purchase or accounts that make multiple purchases at a time. Fraudsters will move on if they aren’t given the purchase volume opportunity to exploit your business to the fullest capacity. 

Regularly Monitor Your Transactions

Protect your online store from suspicious fraudulent activity by keeping a close eye on your customers’ transactions on a regular basis. Monitoring these transactions for red flags, such as inconsistent shipping and billing information, and the physical locations of your customers is the best way to immediately detect any strange activity that could be taking place. Detection is a great and effective tool for fraud prevention.

Require Card Verification Value (CVV) Numbers

The three- and four-digit security codes that are present on the back of all major credit and debit cards is called the Card Security Code (CSC) or Card Verification Value (CVV). When you require all purchasers to provide this code on every transaction, it helps ensure that the customers physically have the actual credit card in hand. Utilizing this code requirement on each purchase as an additional security measure will keep your online store and customers safe and secure, reducing the chances of fraud. 


E-commerce fraud is a growing, serious issue that can impact any online retailer, large or small, at any time. Lost revenue is a serious consequence from fraud, as well as causing serious damage to an online retailer's brand, image and reputation. The tips provided here are meant to ensure that your online business stays protected and continues to run smoothly. But if you’re finding it hard to keep up with scrutinizing orders and detecting fraud, a cybersecurity partner can help reduce instances of online fraud and protect the information of your customers.