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Ecommerce Fraud Prevention: Best Practices

As businesses rely more on online sales to grow and reach new markets, they face a challenge: payment fraud. Fraudsters are getting smarter, and online retailers must adapt to safeguard their profits and maintain customer trust. This article delves into why understanding and tackling ecommerce fraud is important. It covers the different types of fraud, what to look out for, and strategies to ensure a safe shopping experience for customers across all channels.

What is Ecommerce Fraud?

Ecommerce fraud is when criminal activities occur during online shopping. This includes criminals taking advantage of weak spots in online shopping systems or tricking businesses and customers to get access to personal or money-related information without permission. It’s a big problem because it can hurt businesses and customers by causing unauthorized transactions, money loss, and harm to a company’s reputation. This is a serious issue for any online business as it can damage customer trust, security, and the overall success of the business, while also making the customer’s experience bad.

Which Businesses Should Worry About Ecommerce Store Fraud?

Businesses operating online face the potential threat of ecommerce fraud, but certain sectors need to be especially mindful due to the nature of their operations.

Online Retailers

Businesses engaged in selling products or services directly through websites or online platforms are particularly susceptible. The high volume of transactions and the collection of sensitive customer information make them attractive targets for fraudsters.

Payment Processors

Companies that facilitate payment transactions, including credit card processing services, carry a significant responsibility for ensuring the security and accuracy of financial transactions. Consequently, they need to be extra vigilant against fraudulent activities.

Digital Content Providers

Enterprises offering digital products, such as streaming services, e-books, or software, are attractive targets for ecommerce fraud. Cybercriminals may attempt to gain unauthorized access to valuable digital content or distribute it illegally.

Subscription-Based Services

Businesses operating on a subscription model, such as online courses, software-as-a-service (SaaS) providers, or membership sites, should be concerned about fraudulent sign-ups or unauthorized access to their premium services.

Marketplaces and Auction Sites

Online platforms that facilitate transactions between multiple sellers and buyers, like e-commerce marketplaces or auction sites, need to be vigilant against various fraudulent activities. This includes fake listings, counterfeit products, or deceptive transactions.

Travel and Event Booking Sites

Businesses involved in booking services for travel, hotels, or events are particularly vulnerable. They must be watchful for fraudulent activities such as false bookings or the use of stolen credit card information for reservations.

While the mentioned business types are particularly at risk, it’s important to recognize that ecommerce fraud can potentially impact any online business. As more businesses across diverse sectors embrace online transactions, the need for vigilance and protective measures against ecommerce fraud becomes increasingly paramount.

Common Types of Ecommerce Fraud

Ecommerce fraud comes in various forms, and its threat landscape is far from uniform, adapting continuously to changes in technology and online business practices. Staying informed about the evolving tactics employed by fraudulent actors is necessary for both businesses and customers.

Identity Theft

This occurs when a fraudster illicitly obtains personal information such as names, addresses, or credit card details to make unauthorized purchases or open fraudulent accounts. Victims often face financial repercussions and damage to their credit scores.

Credit Card Fraud

Unauthorized use of credit or debit cards or their information is a common type of fraud. Hackers employ various techniques such as phishing or skimming to gain access to card details and conduct illicit transactions.

Chargeback Fraud

Also known as “friendly fraud,” chargeback fraud involves a customer falsely claiming they did not receive a purchased product or service to secure a refund from their bank. This deceptive practice can lead to financial losses for businesses.

Account Takeover Fraud

In instances of account takeover, fraudsters gain unauthorized access to user accounts through hacking, phishing, or the use of stolen credentials. Once inside, they make unauthorized purchases or alterations, causing distress to the account holder.

Phishing and Social Engineering

Fraudsters employ deceptive emails, messages, or websites to trick users into divulging sensitive information or login credentials. This information is then exploited for fraudulent activities, making users unwittingly complicit in the fraud.

Refund Fraud

In refund fraud scenarios, criminals pose as customers and request refunds for products or services they never legitimately purchased. This often involves providing fake order details or utilizing stolen account information.

Affiliate Fraud

Fraudulent actors exploit affiliate marketing programs by generating fake traffic, clicks, or sales to receive illegitimate commissions. This undermines the integrity of these programs and leads to financial losses for businesses.

Counterfeit or Fake Products

Counterfeit products are imitation or unauthorized replicas presented as the real thing. Consumers unknowingly purchase these items, often leading to dissatisfaction and potential harm, especially when dealing with counterfeit medications or electronics.

Drop-Shipping Fraud

In drop-shipping fraud, a fraudulent entity poses as a legitimate supplier but fails to fulfill orders, leaving the retailer to manage customer complaints and absorb financial losses.

Fraud Detection: 8 Ways To Identify Online Fraud Trends

Detecting ecommerce fraud as an online seller involves staying alert to certain signs. Keep in mind that fraudsters are clever, adapting to defenses set up by merchants. Below are common warning signals.

  1. Inconsistent Order Data – Look out for discrepancies like mismatched zip codes and cities or differences between the shopper’s IP address and email address.
  2. Larger-Than-Average Order – Be cautious if the order significantly exceeds your customer’s typical spending habits. Watch for bulk purchases of the same item and requests for expedited shipping.
  3. Unusual Location – Take note if a customer, who typically shops from a North American IP address, suddenly places an order from an unexpected location like North Africa.
  4. Multiple Shipping Addresses – Be wary when a buyer uses one billing address for multiple purchases but sends the products to different locations.
  5. Many Transactions in a Short Timeframe – Stay vigilant if there’s a sudden spree of back-to-back purchases, especially outside the holiday season.
  6. Multiple Orders, Many Credit Cards – Exercise caution if someone makes several purchases using different credit cards, whether within a day or over an extended period.
  7. Multiple Declined Transactions – Be on guard if the purchaser repeatedly attempts transactions, failing to provide correct card details despite multiple tries.
  8. Strings of Orders from a New Country – Pay attention to a surge in orders from a previously untouched location, especially if it seems unusual, like receiving numerous orders from a new country in a short timeframe.

15 Best Practices to Prevent Ecommerce Fraud

Enhancing ecommerce fraud prevention involves employing a multifaceted approach of prevention strategies to safeguard both your business and the trust of your customers.

Utilize AI/ML

Leverage the power of Artificial Intelligence (AI) and Machine Learning (ML) to actively monitor online activities. By understanding your store’s normal traffic patterns, these technologies can detect anomalies, such as sudden spikes that may indicate denial-of-inventory attempts. Advanced ecommerce fraud prevention software employs AI/ML to establish baselines, track unusual behavior, and adapt to seasonal variations. This software also extends its coverage to protect against business credit card fraud.

Integrate Data Sources

Combine data from various sources to gain a comprehensive view of potential fraud issues. Detecting irregularities in purchases made through social media or identifying trends in fraudulent activities across different seasons allows for proactive fraud prevention.

Monitor Security

Maintain a robust security posture by regularly checking SSL certificates, monitoring for malware, creating reliable backups, and scanning for vulnerabilities. Compliance with the Payment Card Industry Data Security Standard (PCI DSS) is crucial for securing online payments, preventing fines and penalties.

Identify Risks

Implement controls and monitoring mechanisms to identify and mitigate risks associated with specific IP addresses or geographic locations known for fraudulent activities. Recognizing patterns associated with higher risks allows for a more targeted and effective response.

Timely Updates

Stay ahead of cyber threats by promptly updating crucial elements such as your Content Management System (CMS), shopping-cart plugins, and website themes. Regular updates help patch vulnerabilities and fortify your defenses against potential exploits.

User Authentication

Implement multi-factor authentication (MFA) to ensure a secure login process. By adding an extra layer of verification, MFA reduces the risk of account takeovers, requiring users to answer challenge questions or provide additional proof before accessing their accounts.

Customize Policies

Tailor legal policies to suit different selling channels. For instance, policies for social media platforms may need adjustments compared to those used for your primary ecommerce platform. Customizing policies enhances protection against specific types of fraud, especially friendly fraud.

Manual Review

While it may not be feasible to review every order before fulfillment, conducting spot checks and manual reviews of suspicious orders can uncover irregular patterns. For instance, noticing multiple small purchases from one customer might prompt a direct call to verify the transactions.

Choose Payment Processor Wisely

Selecting a reputable payment processor is crucial for minimizing fraud risk. A reliable processor should offer protective measures and robust fraud prevention tools. Thoroughly review their fraud detection systems to ensure comprehensive coverage.

Require CVV

Enhance transaction security by requiring the Card Verification Value (CVV) during checkout. This additional step adds a layer of protection, as it necessitates the customer to have their physical card on hand to provide the required number.


Secure data-in-transit by utilizing Hypertext Transfer Protocol Secure (HTTPS). This encryption protocol protects customer information, including names, addresses, and payment card numbers, during online transactions, ensuring the confidentiality of sensitive data.

Minimize Data Collection

Fraud management extends beyond safeguarding your business; it also involves protecting your customers. Minimize the data collected to only what is necessary to complete a transaction. For example, if running a loyalty/rewards program, avoid unnecessary requests for information like birth dates to limit the potential impact of a data breach.

Set Purchase Limits

Establishing maximum transaction limits based on average transaction numbers and revenue helps mitigate risks associated with automated bots and card testing. Preventing excessive transactions within a short timeframe adds an extra layer of defense against fraudulent activities.

Compare IP and Billing Address

While IP addresses may not be foolproof identifiers, cross-referencing them with billing addresses provides an additional layer of validation. If a customer’s billing address is in one geographic region and their IP address is in another, it may indicate potential fraud. In such cases, reaching out to the customer for verification before completing the transaction can be a prudent step.

Use Address Verification Services (AVS)

Incorporate Address Verification Services (AVS) to compare the billing address provided by the customer with the address on file at the bank. A mismatch triggers additional verification steps or a temporary hold on the payment, ensuring a higher level of confidence in the transaction’s legitimacy. AVS acts as a safeguard against unauthorized transactions and adds an extra layer of security in the payment process.


While it’s true that fraudsters are becoming more sophisticated in targeting online merchants, especially with the increasing popularity of ecommerce, there’s a positive side to the story. Ecommerce merchants are also becoming more advanced in their fraud detection and prevention best practices.

Armed with this understanding, you can implement effective steps to help prevent fraud on your online store. This empowerment comes from staying informed, adopting advanced detection techniques, and consistently refining your strategies to stay a step ahead of evolving fraudulent tactics in the dynamic online landscape.