With the exponential growth of e-commerce market there has been a sudden spike in e-commerce frauds and cyber attacks. E-commerce sales reached almost $630+ billion in 2020. The higher revenues mean bigger losses due to fraud. According to a recent study a hacker group managed to steal over 1 million credit card data by breaking into over 500 e-commerce sites resulting in fraud losses of over 5 million USD.

In 2020, almost three-quarters of business cited fraud as growing concern and nearly two-thirds reported the same or higher level of fraudulent losses. Frauds are not limited to big e-commerce players but are worrisome for small business owners as well. Fraudsters are highly active during festive season, so it is important to keep an eye on suspicious orders.

Some of the most prevalent frauds are:

  1. The friendly fraud: This fraud has risen significantly in recent past. Unlike it’s name it’s not that friendly. It occurs when a customer purchases a product with their own card and claims to have never received the product or that they never made the charge. On receiving this claim, merchant is forced to refund/re-deliver product or face a chargeback.
  2. The clean fraud: This is most common of all the frauds. It occurs when a purchase is made with stolen card and identity. Fraudsters gain access to card details/personal account information of customers and use them to make fraudulent purchases. Clean fraud is the ultimate doppelgänger because it looks like a legitimate transaction with good shipping, billing, and IP addresses as well as complete and verified card data.
  3. The shipping fraud: This is closely related to clean fraud where in fraudsters manage to track and re-direct the shipment to different address. The legitimate customer never receives the products although merchant has shipped it.
  4. The Triangulation fraud: Triangulation refers to the case in which the fraudster creates a fake online storefront, selling goods at cheap prices. This storefront has the sole purpose of gathering credit card data. The fraudster then orders the goods at a real merchant and have them sent to the original customer. This forces customer to pay twice, one for cheaper product at storefront and another one actual price to the real merchant.

Implications of fraud
• Fraud often leads to chargebacks. A chargeback is a sum that must be returned by the merchant to the cardholder after a fraudulent transaction.
• Processing a chargeback includes operational costs such as transaction fees, legal fees, currency conversions etc.
• Another loss is the product sold to the fraudster – the merchant will not get the “sold” product back.
• If the merchant incurs many chargebacks the result can, at worst, be that he can’t find an acquirer to process his payments, as he is considered a high-risk customer.

Categories: General


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