Preventing E-commerce Fraud

The exponential growth of e-commerce activity in recent years has reshaped the world of retail, offering unparalleled convenience and an endless array of products at consumers' fingertips. However, this digital boom has been accompanied by a significant surge in fraudulent activities that can pose serious financial risks to businesses.  

As online retail becomes the norm rather than the exception, preventing e-commerce fraud has become a critical priority. In this article, we’ll identify common types of fraud, explore available fraud prevention tools, and discuss further steps merchants can take to secure their revenue.

Common Types of E-commerce Fraud 

Just as the world of e-commerce is diverse and ever-evolving, so are the methods employed by fraudsters to exploit it. By understanding the tactics used by these cybercriminals, businesses can arm themselves with the knowledge needed to identify potential threats and take appropriate action. Let’s take a look at some of the most common forms of e-commerce fraud. 

Credit Card Fraud 

Credit card fraud occurs when unscrupulous individuals use stolen credit card information to perform unauthorized purchases online. These credentials are often bought and sold on the dark web, turning what was once opportunistic theft into a major illegal business.

fraud Prevention- Proven Strategies to prevent e-commerce fraud For merchants, the results of credit card fraud typically include the loss of the product, the payment, the fulfillment costs, and an additional chargeback fee. In total, this can often add up to more than twice the original transaction amount. 

Card Testing 

Card testing is a type of fraud where cybercriminals use online store platforms to test the validity of stolen credit card information. The fraudsters make small transactions to see if the card details work. Once confirmed, these details can be used on other platforms or sold on the dark web for a higher price. 

Account Takeover  

Account takeover fraud occurs when fraudsters gain unauthorized access to a customer's account through means such as phishing, data breaches, or credential stuffing. Once they gain control of the account, they can make unauthorized purchases, change the shipping address, or even alter the login credentials, thereby locking out the actual user.

This form of fraud not only leads to financial losses but can also seriously damage a retailer's reputation and relationship with their customers.

Triangulation Fraud 

Triangulation fraud is a complex form of e-commerce fraud involving three points: the victim (who provides the payment), the fraudulent seller (who collects the payment details), and the legitimate online retailer (where the actual goods are purchased). The criminal sets up a fake online storefront offering high-demand goods at low prices.

When customers purchase these items, the fraudster uses stolen credit card information to buy the goods from a legitimate e-commerce store and has them shipped to the customer. This often prevents the victim from immediately discovering the fraud, since they received the product they ordered. 

Promo Abuse 

Promo abuse is a type of e-commerce fraud that is often overlooked, as it's not illegal in a traditional sense. It involves customers or automated bots exploiting promotional offers by creating multiple accounts or finding loopholes in the terms and conditions.

Manage Chargeback In-House Or OutshoreWhile it may not seem as harmful as other forms of fraud, promo abuse can lead to significant financial losses for businesses running the promotions, skew marketing data, and reduce the availability of special offers for genuine customers. 

Friendly Fraud 

Friendly fraud, also known as chargeback fraud, is one of the most difficult types of e-commerce fraud to detect and prevent. This is because it involves legitimate customers who make a purchase, receive the product or service, and then dispute the charge with their credit card company.

The reasons for disputes can vary - they might claim the product was never delivered, or they didn't recognize or authorize the purchase. Although sometimes these claims are genuine mistakes, they can often be fraudulent attempts to secure a refund while keeping the purchased goods. 

Effective Fraud Prevention Tools for E-commerce 

Fraud prevention in the realm of e-commerce necessitates the use of sophisticated tools and techniques that can detect and deter fraudulent activities.  


The Address Verification Service (AVS) is a simple yet effective tool in identifying potential fraudulent transactions. When a purchase is made, the AVS checks the billing address provided by the customer against the address on file with the credit card company. If there's a mismatch, it could be an indication of a fraudulent transaction, prompting further investigation. 

CVV Matching 

Another basic, but crucial, tool is Card Verification Value (CVV) matching. During a transaction, customers are required to enter the CVV - a three or four-digit number on their credit card - to verify they possess the physical card.

Since merchants are prohibited from retaining this number in their records, this tool adds an additional layer of security, making it harder for fraudsters to make purchases with stolen card information alone. 

Velocity Checking 

Velocity checking tools can play a significant role in preventing card testing schemes and stopping fraudsters in their tracks. These tools monitor the frequency of transactions from a single IP address or credit card number over a specific time.

If numerous transactions are attempted within a short time frame - a common sign of card testing - it can flag a potential fraud threat.


Geolocation is another powerful tool for detecting potential e-commerce fraud. It involves identifying the physical location of the customer at the time of the transaction.

By cross-referencing the location of the IP address used to make the purchase with the billing or shipping address, retailers can spot significant discrepancies that may signal fraudulent activity. 

Risk Scoring 

Risk scoring models use advanced algorithms to evaluate the potential risk of each transaction. They analyze various transaction details - such as the purchase amount, location, the device used, or the speed of transaction details entered - and determine a risk score based on historical fraud data. Transactions with high risk scores may be flagged for additional verification or rejected entirely, helping businesses identify and prevent fraudulent activities proactively. 

Fraud Prevention: A Cornerstone of Chargeback Management 

Preventing fraudulent activities is a critical aspect of managing an e-commerce business, but it's just one piece of a much larger puzzle.

A comprehensive chargeback management strategy goes beyond fraud prevention to incorporate exceptional customer service practices that resolve disputes before they escalate into chargebacks. It also involves proactive analysis of transaction data to identify trends or potential issues that might be leading to an increased number of chargebacks. Furthermore, a solid chargeback management strategy includes effectively fighting false chargeback claims to recover lost revenue. 


As the digital marketplace continues to evolve and grow, businesses must remain vigilant and proactive in their approach to preventing e-commerce fraud. By understanding the various types of fraud that can occur and employing a range of robust prevention tools, businesses can significantly reduce the risk of financial loss due to fraudulent transactions.

Yet, it's equally important to remember that fraud prevention is just one part of a holistic chargeback management strategy. As we navigate through this era of e-commerce, securing the digital marketplace is not just about protecting the bottom line - it's about maintaining customer trust, preserving brand reputation, and ultimately ensuring the sustainable growth of the business in an increasingly digital world. 

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