We’ve mapped out the twists and turns in the evolution of e-commerce since the pandemic first hit the world, a pivotal event that fast-tracked the shift to online shopping by a good five years. However, in 2024, global e-commerce fraud losses have skyrocketed to $48 billion, with North American merchants feeling overwhelmed, as they’re expected to shoulder 42% of that total loss.

Unfortunately, the number of online retail fraud cases keeps growing, with scammers constantly upping their game and devising ever more cunning schemes. As a result, e-commerce merchants need to keep their guard up, putting effective defenses in place to secure online transactions. Letting their guard down could cost them dearly—not only in terms of financial losses but also in losing customer trust and tarnishing their hard-earned reputations. Therefore, having robust fraud detection solutions should be at the top of the to-do list for every online merchant.

Below, we’ll dive into the types of affiliate fraud that online merchants are most vulnerable to and point out the key features to look for when picking e-commerce fraud prevention software.

Additionally, we’ll examine the best practices for e-commerce fraud detection and credit card fraud prevention and discuss the best software options that guarantee accurate fraud detection and transactional email security for e-commerce businesses.

7 Common Types of E-commerce Fraud

Payment Fraud

Online retail fraud is when a scammer uses stolen credit cards to snap up goods and resell them for a profit. Card-not-present (CNP) transactions are the most vulnerable in this scenario. To fly under the radar, the fraudster might ship the products to reshippers or use a residential proxy to disguise their identity.

Account Takeover (ATO)

Account takeover occurs when a fraudster uses stolen credentials to break into customer accounts, giving them carte blanche to drain funds, pilfer loyalty points, and swipe customer data.

These criminals often pull out all the stops to break into accounts, using tactics like:

• Phishing for personally identifiable information (PII) or login credentials
• Credential stuffing
• Purchasing credentials on the “dark web”

Many customers save their preferred payment method for smoother transactions, but this also plays right into the hands of cybercriminals looking to breach online store security.

You might think skipping the saved payment method provides extra payment fraud protection, but that’s not always the best bet. Manually entering payment details can increase the risk of falling prey to scams, making it a walk in the park for criminals to sidestep basic fraud detection and gain access to customer accounts.

ATO isn’t exclusive to e-commerce scams; it’s a serious issue across all industries, where hackers exploit stolen credentials to gain unauthorized access. Over the next five years, merchants could see losses of more than $343 billion from fraud, with account takeover attacks leading the charge.

Friendly Fraud or Chargeback Abuse

There’s nothing friendly about friendly fraud, the most common form of e-commerce fraud. Also called chargeback abuse, this occurs when a consumer disputes a legitimate transaction through the issuer or payment processor to score a refund. It happens for any of the following reasons:

• Honest mistakes: A cardholder disputes charges they don't recognize, often because a family member or friend went on a spending spree without letting them know.
• Taking advantage of the system: A customer might try to weaponize the refund process out of buyer’s remorse or because they disapprove of a store policy.
• Chargeback online store fraud: A sneaky customer plays dirty by requesting a chargeback, falsely claiming they never got the package or that the product is faulty.

Essentially, they’re trying to have their cake and eat it too!

Synthetic Identity Theft

Synthetic identity theft is a sneaky type of fraud where real personal information, like a date of birth or government ID, is mixed with fake details to create a bogus identity.

Being one of the e-commerce scams, this fraud is the fastest-growing financial crime in the U.S., making up nearly 80% of all identity fraud and costing U.S. lenders around $6 billion each year.

E-Gift Card Fraud

E-gift card fraud is as straightforward as it gets; a scammer nabs payment info and buys an e-gift card, then resells it to pocket the money and the consumer's payment details. Meanwhile, the consumer is left high and dry, disputing the charge with their issuer, which ultimately leads to a chargeback for the merchant.

Affiliate Fraud

Affiliate fraud happens when scammers use shady tactics to rake in commission payments through affiliate marketing programs. Despite stringent terms and conditions, this type of fraud still slips through the cracks of fraud detection. The usual suspects include cost-per-click, cost-per-lead, cost-per-install, and cost-per-sale models. Ultimately, it’s a lose-lose as affiliate fraud eats away at merchant profits and marketing budgets.

Triangulation Fraud

Triangulation fraud implies a fraudster setting up a fake e-commerce store to sell items at lower prices—all to steal credit card information. Once the data is compromised, the fraudster forwards the transaction to an unsuspecting merchant, who ends up charging the customer a second time. The outcome? A chargeback that, as you might guess, hits the merchant right in the wallet.

E-Сommerce Fraud Prevention: 9 Best Practices

A recent survey revealed that 70% of e-commerce companies use three or more tools to strike a balance between fraud prevention and a smooth customer experience at every touchpoint. So, your best bet is to stay ahead of the fraudsters in 2024 and to layer your fraud prevention strategy.

Here are some practical steps to improve your online business security:

Keep Security in Check

Spotting e-commerce scams is like finding a needle in a haystack if you’re not always alert to such things. Regularly audit your security measures to ensure there are no gaps to sneak through.

Are customer's passwords and logins up to the required standards? Do they change them often? Can you trust everyone who has access to critical information? Is your antivirus software constantly scanning for malware? In addition, don’t forget to encrypt any communication that involves sensitive customer or business data.

Set Purchase Limits

Familiarize yourself with the usual spending habits of your customers and set an upper limit on purchases. This way, if a scammer tries to place an order that doubles the usual amount, you can nip it in the bud with a special fraudulent transaction detection. It’s a great way to minimize the risk without putting your everyday customers through the wringer.

Invest in Chargeback Protection

Chargeback protection is like having a safety net that catches the liability for illegal transactions and payment disputes, taking the burden off e-commerce stores and passing it to the service providers. This service runs on autopilot, scrutinizing transactions with a fine-tooth comb and using risk models and real-time analysis to give the green light or stop them based on how risky things look.

So, when a dispute rears its ugly head, you won't be left holding the bag for chargeback fees or conditional refunds. Thanks to the chargeback protection provider’s guarantee, you get reimbursed. In some cases, they’ll go to bat for you, challenging the dispute charges and making sure you get back any revenue that fraudsters might have swiped.

With chargeback protection in your corner, e-commerce stores can smoothen the dispute management process, lower the chances of getting stung by bogus chargeback requests, and spot fraudulent transactions before they wreak havoc. This, in turn, keeps your e-commerce cyber security robust.

Try Not To Hoard Customers’ Data

Nobody can steal what you don’t have. So, keep customers’ data collection to a bare minimum. It means you should gather what’s necessary for billing and steer clear of unnecessary details like social security numbers or birth dates. For whatever data you collect, go above and beyond to keep it under lock and key.

Use CAPTCHA

Throwing CAPTCHA into the mix is like putting a padlock on your door when it comes to account creation, login, or checkout processes. It’s an extra layer of e-commerce cyber security that ensures the cost is clear by blocking automated bots trying to pull a fast one with fraudulent activities.

Develop Device Intelligence and Browser Fingerprinting

Device intelligence is all about gathering the nuts and bolts of a device (both the software and hardware side of things online customers use for making purchases). Then, collect this data and create a unique fingerprint to secure online payment methods. This fingerprint acts like the device's calling card, allowing it to be recognized whenever it hops online. By using device and browser fingerprinting, along with tools like VPN fraud detection, incognito mode “sniffing,” and IP geolocation, device intelligence keeps tabs on what's what.

Furthermore, e-commerce traders can use this savvy technology to stay one step ahead of fraudsters and nip trouble in advance. Whether it's fake account creation, account takeovers (ATOs), promo abuse, phishing, or social engineering, secure commerce tools keep an eye for anything fishy.

When a user logs in, the fingerprinting technology checks the device’s unique traits against what’s on their database. However, if the device’s details don't pass the “sniff test” and something seems suspicious, the system raises a red flag, calling out the potential fraudster.

Team Up With a Trusted Payment Processor

To enhance their fraud detection processes, merchants should focus on selling and delivering top-notch customer service in the bustling digital marketplace that includes transactional security.

By handing off e-commerce fraud detection checks to a third-party payment processor, merchants can keep chargebacks (and even friendly fraud) on a short leash and dodge the headaches of security compliance and data storage. This is a lifesaver, especially as customers become increasingly jittery about sharing their payment details in an era where data breaches are a dime a dozen.

Invest in HTTPS

HTTPS is like the bread and butter of e-commerce fraud prevention. It’s a souped-up version of the basic HTTP, encrypting data and protecting credit card info. However, HTTPS keeps requiring buying an SSL certificate to get the job done.

Invest in E-Commerce Fraud Prevention Software

One of the best cards you can play is to ensure your online business security with special cybersecurity tools. If customers can’t trust you to protect their sensitive info, they’ll steer clear of your business, no matter how stellar your products are.

Many e-commerce platforms come with built-in security features to keep both you and your customers safe. Do thorough online research before choosing a reliable e-commerce fraud prevention software.

Rather than going it alone and juggling security on your own, lean on a software platform that can take that weight off your shoulders and give you peace of mind.

Leverage E-Commerce Fraud Prevention & Detection

Since online business owners can’t check a customer’s identity face-to-face, scammers find it easier to use stolen payment card information and breach online store security. On top of that, fraudsters have tech tools like bots up their sleeve, making it easier for them to fly under the radar and carry out their schemes undetected.

Consumers may want things to run like clockwork, but they also need to be vigilant. Merchants who integrate security solutions that don’t throw a wrench in the customer experience are the ones who win this game.

The first order of business is picking the right e-commerce fraud prevention software. Fortunately, there’s no shortage of these tools in the digital market. AI technologies, risk-scoring capabilities, behavioral analysis, and extensive data networks equip merchants with the tools to quickly and precisely evaluate the risk linked to consumers during onboarding and transactions.