eCommerce fraud – Everything you need to know

Today, businesses are reaching the zenith of success, hitting the jackpots of earnings, and expanding their trade territories beyond the geographical boundaries.

It has been anticipated that by the year 2030, the businesses would have grown by around 150%. But as each coin has two sides, this news of joy brings a reason for concern. 

With the increase in the businesses, there has been an increase in commercial frauds as well. Especially when the transactions are conducted online, the vulnerability of eCommerce fraud expands like a forest fire.

Now, the time has come when fraud isn’t something we hear on TV or read in the newspaper, but it has become something we see in front of us. From big businesses to small shopkeepers, almost all are suffering from this problem, which further intensifies the need to look into the issue and bring out the prevention methods. Let’s get started.

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What is fraud?

In business and technical terms, fraud can be defined as the intentional false representation of a fact for some personal benefit. The primary purpose of fraud is to daze another party and take advantage of the situation while giving a blow to the deceived party. The profits so earned can be in the form of 

• Sensitive information
• Money
• Goods

Fraud can occur due to a person’s actions or words, which may mold facts to the benefits of a fraudulent person. When fraud happens over the business, it is called a payment fraud and includes all types of illegal or false transactions.

Payment fraud is an ancient issue and has been seen since trade took its formal form. The classic example of payment fraud is stealing physical payment cards and making payments without the knowledge of the original owner of the card. To the sadness, it still exists.

eCommerce fraud, on the other hand, can be defined as making an illegal or false transaction in a webshop. The main difference between a physical and eCommerce fraud is that for physical fraud, one needs to steal the card, and for eCommerce fraud, just the information of the card is required; in this world, data can be extracted from it on the web.

The hackers, then either use the data themselves or sell it to the cyber thieves who further make the fraudulent transactions.

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Types of e-Frauds

There can be different variations to the e-Frauds. Here are the types of e-Frauds most common nowadays.

• Chargeback fraud

It is one of the most kinds of frauds in which a person purchases a product online through a credit card and then puts a claim for money refund on the false ground of either double payment error or product not being received.

• Identity theft

As the name suggests, this fraud is committed by the imposters who take out the personal details of a person and make the purchase on behalf of that person. This can bring loss to both the seller and the buyer as the buyer can file for a refund after noticing some ghost activities in his account.

• Return fraud

In this kind of fraud, the fraudster asks for a refund of a product claiming it was never received or requested return by keeping the original product and swapping it with the fake product. This brings a massive loss to the merchant as he has to pay off the refund amount, and there is also a loss of the inventory.

• Credit card fraud

This fraud happens when someone makes an online purchase from a stolen credit card or by taking over the account of a genuine user.

• Merchant fraud

In this kind of fraud, the fraudster makes a fake merchant account and shows himself as doing legitimate business. He then launders the money stolen through the credit cards through this business and stays away from the prying eyes of online cops.

• Phishing

It is a method in which a fraudster extracts the account and the credit card information from a genuine user through an email or a message. He disguises himself as a legitimate business and offers the data from the victim through watery mouth offers.

• Clean fraud

In this kind of fraud, the fraudster is extraordinarily cautious and gets all the information about the victim along with the payment details. He extracts the money in the most natural way to stay safe from raising any alarms.

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Why does the fraud take place?

In this digital world, a large amount of financial information is stored and transferred online. And it has become an easy target for the hackers to extract and take benefit of.

Hackers have proven to be two steps ahead of all the reforms taken to take them down. We can narrow down to two reasons why such frauds have become a continuous thing.

• It is easy to steal online data by hackers who are further available to the fraudsters at the right price. 
• Also, due to being new in its demonic shape, the administration has a naive approach to it when it comes to prosecution.

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How does fraud take place?

The fraudsters have tech-savvy links with those who have a routine of obtaining actionable information from the internet. The most common drill followed by hackers is to pose as a legitimate representative of the financial account and the credit card and then by using various means to steal the personal data. 

These means can be –

• Online auctions
• Emails
• Phone calls
• Texting malware to smartphones
• Redirecting the traffic to a fraudulent site
• Instant messaging

Cyber thieves work in the teams to break the firewalls of the system and rob the internet of sensitive information.

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What does an eCommerce fraud cost a merchant?

The year 2016 observed a cyber fraud that cost around $16 billion to the merchants in the US alone.

However, the costs of fraud go beyond money.

Merchants also have to face the cost of shipping and the insurance charges for the fraudulent purchases, fee of chargebacks from the payment process, third party false detections, prevention services, and whatnot.

Merchants have to integrate anti-fraud systems, which can cost more than their usual expenses. We can say that the fear of fraud cost more than the frauds themselves.

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Which major economies are most prone to fraud?

The majority of the 300 million fraud bot attacks during Q2 2017 originated in Germany, the US, China, Vietnam, India, Russia, and Brazil.

Countries that are prone to cross-border cyber attacks are Austria, Australia, the UK, Germany, and the US.

Japan came out to be the hotspot of cyber frauds in 2017, mainly originating from France, Italy, and the US.

Mexico, Spain, Russia, France, the US, and the Netherlands have the highest frequency of chargeback fraud.

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What lures the fraudsters?

The fraudsters are known to get lured by the targets with the likes of

• Clothing
• Airline tickets or other travel sellable
• Electronics
• Luxury items
• Digital contents like gaming subscriptions

Wholesomely, fraudsters go with the things which are easy to re-sell in cash or use some of them for their use and are untrackable.

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How to spot a fraud?

Hackers are known to leave no trail behind their work and operate in full incognito. But still, some behavioral patterns can be recognized to spot a fraud. These are –

• First-time customers
• Multiple transactions in a short period
• Bigger than usual orders
• Payment information input with capital letters
• Fast shipping
• Several cards being used from the same IP address
• Unusual locations
• The difference in the shipping and billing addresses
• Bulk purchases
• Multiple shipping addresses

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Fraud mitigation techniques

It is challenging to defend yourself from the tech-savvy hackers who are ready to quench their thirst for a crime with your personal information. 

However, you can keep yourself safe from all the dangers by regularly updating your system network security from time to time. Antivirus softwares and firewalls are developed primarily to provide you immunity from those wishing to break down your guard and steal your confidentiality. 

Keeping them updated can help a lot in staying safe from the prying eyes of the hackers.

There are numerous other ways to keep yourself safe from financial fraud. These are – 

• Staying aware of the latest fraud trends
• Requiring customers to authenticate the account before making any kind of payments
• Partnering with a verified payment processor
• Always running security checks with the help of antivirus softwares
• Encrypting confidential information and transaction details
• Establishing various policies regarding access to confidential information
• Ensuring the change of credentials frequently.

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What is the number of purchases which result in chargebacks?

Chargeback ratio can be defined as the number of chargebacks received by a merchant to his regular amount of orders.

The overall estimate of the chargeback ratio of online merchants is 0.60%. If you are suffering from a number higher than that, you might be in trouble.

Another reason for the chargeback ratio to be this low is that if it exceeds 1%, the banks charge an overhead penalty to the merchants, which adds on to the expenses.

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What are typical chargeback ratios for different product categories?

The chargeback ratio may vary from vertical to vertical of the business. It depends upon the type of product and its involvement with the public. Here is a rough estimate of the chargeback ratios for different verticals.

• Gaming: 0.43%
• Softwares: 0.66%
• Travel: 0.50%
• Digital content and media: 0.56%
• Financial services: 0.66%
• Retail: 0.50%

The merchants, as discussed before, tend to keep their chargeback ratios below 1% to stay away from the needless add-on expenses from the banks.

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Most common reasons for chargebacks

The most common reason concocted by the fraudsters is saying that the purchase was made from a stolen card. There are many other reasons which are used by the people to file for a chargeback. These are:

• The product was never received
• The customer was billed twice for the same product
• Wrong product shipped
• Unsatisfactory product
• The product didn’t match the product description mentioned online.

There is always a chance that the chargeback is filed with some hidden non-legal motive behind, but there is a good chance that it is an honest mistake, and chargeback is necessary.

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Chargeback prevention methods

Layering your system with the firewalls and keeping a close eye on the analytic are the keys to successful fraud protection.

It has been suggested to have at least 2 to 3 layers of security to monitor the user’s device, their browsing behavior, credit card processing, and other similar activities to authenticate the account.

As such kinds of frauds are on a high rise, the merchant needs to stay updated with the ongoing fraud trends to identify them the moment they feel so. The merchants should also observe the chargeback ratio and stay updated with the antivirus softwares. 

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eCommerce Fraud protection by MagnoStack

For the past many years, MagnoStack has helped retailers boost their sales and eliminate the chances of fraud by their awareness and counter-fraud techniques, which are appreciated globally.

Our solutions can protect the merchants from serious frauds as we use the sorting methods to measure the vulnerability, and then we take the actions accordingly. 

We also review the process manually so that the suspects are checked and rechecked, and we make sure that no dirty deal goes through us. If you feel your business needs the best online protection from the frauds and other black-hat activities, you are in the right place. 

Give us a call, and let’s settle the matter right away!