5 Types of fraudulent schemes that can occur in ecommerce in 2019

As the popularity and trust of people in eCommerce stores is increasing day by day, the cases of fraudulent activities have also elevated in parallel. Year after year, the internet is getting exposed to new eCommerce risks and payment frauds. In fact, in the US itself, the growth rate of eCommerce frauds is almost twice the growth rate of eCommerce sales. To be exact, sales growth was 16% in 2017, while the same time-frame reported a 30% rise in eCommerce frauds (source).

What is an eCommerce fraud?

E-Commerce fraud occurs when shoppers purchase products from web-shops with unauthorized payment mediums. Buyers use dark methods to purchase a product without actually paying for it. With an aim to purchase a product for free, buyers might use the methods like-

• Manipulating the loopholes in websites and banking laws.
• Stealing payment information via altered methods.

Is eCommerce scam limited to fraudulent customers alone?

Payment frauds by customers is just an example of B2C frauds. As an eCommerce business, you are exposed to B2B eCommerce scams as well. Not just your customers can scam you, but your B2B partners like logistic, affiliate, or drop shipping partners can similarly leverage the loopholes to commit complex eCommerce frauds.  So, yes, eCommerce fraud is not just limited to scams by customers.

Most threatening frauds for your eCommerce business in 2019

We have seen an unlimited number of eCommerce scams, occurring through limitless ways in the past year. We have seen eCommerce websites shutting down their COD options, discontinuing EMI payments, and suing fraud customers. 2019 too is not safe from the scams. In fact, eCommerce scams in 2019 will be more in number, and possibly more sophisticated. Here is a list of top 5 eCommerce risks of frauds your business might have in 2019-

1. Chargeback fraud

Chargeback fraud is a classic example of how customers use loopholes to Cyber-shoplift and go unharmed by the law. Ultimately the loss, occurs to the eCommerce website. A chargeback fraud happens in two ways-

One– A customer does not understand the thin difference between merchant-issued refund and bank-issued refund. As a result, he/she directly files a chargeback with the bank without even consulting the eCommerce merchant. This is also called as friendly fraud.

Two– A customer knowingly raises a chargeback with the bank instead of a refund request to the merchant.

In both the cases, when the bank approves the chargeback, the merchant becomes liable to issue the refund. Things go wrong when, customers state fake reasons to raise the bank-issued charge-back. For example, despite having the product already delivered to them, customers may state the charge-back reasons as “order was not fulfilled; product was defective; wrong product delivered; etc.”.  Here,

• The bank roll-backs the transaction and issues a refund to the customer
• The bank is not responsible for checking-
  • If defective product was returned to the merchant?
  • Or the product was actually defective or wrong?

Because of the chargeback, the merchant loses-

• The sale amount
• The sold product
• The shipping expense
• The transaction fee to payment processor

2. Affiliate fraud

This is one of the best examples of B2B frauds still happening in eCommerce. Affiliate programs of many eCommerce websites consider sales-count to pay commissions to their affiliate partners. However, they miss considering the return and refund scenarios. Now, the scammers use the loopholes to commit affiliate scam in three possible ways-

One– Using malicious methods, affiliate partners manipulate the automated data collection by an affiliate link and make the sales count much more than what actually been sold.  Ultimately, merchants become obliged to pay huge commissions.

Two– Affiliates place orders through the traced links and get the commission. However, they use the loopholes in return policies and place return requests of the purchased products. Ultimately, receiving commissions without actually making a sale.

Three– Affiliates place orders through the traced links via COD payment method and receive the corresponding commissions from the merchant. However, they mention fake delivery addresses. Ultimately, merchant does not deliver the product but remains bound to pay the affiliate commissions.

3. Triangulation fraud

The triangulation fraud was actually first noticed on eBay. However, it doesn’t mean it cannot happen on any other eCommerce or marketplace site. If there is a loophole in your marketplace software, scammers can easily use identity theft to commit triangulate fraud on your store. It happens in three steps by including three different parties in it- that’s why the name triangulation fraud.

Step 1: The fraudulent seller creates a normal eBay shop and lists a product on a very cheap rate. A legitimate buyer places the order and pays to the fraud’s PayPal account.

Step 2: The fraud purchases the same product from another legitimate seller, mentions the delivery address of the legitimate buyer from step 1, and pays for the product using a stolen credit or debit card information.

Step 3: The legitimate buyer receives the product from the legitimate seller. The fraud walks away with the money in his PayPal account from the legitimate buyer. The stolen credit card’s owner gets a huge bill.

In all this, the first person to get scammed is the credit card owner. Once the card owner realizes the unauthorized payment made through his card, he raises a chargeback with the bank. Things get bad for the legitimate seller who has to issue a refund to the cardholder, but the cardholder never actually ordered anything. As a result, the legitimate seller loses both the money and the product.

Such frauds mostly go unnoticed by the sellers until they face a charge-back. Since, buyers actually get the ordered products delivered, they make the payment, but payments are ultimately received by the fraud sellers. So buyers don’t even realize being part of a complex eCommerce fraud.

4. Card testing fraud

Card testing fraud is a complex phenomenon that occurs in the attempt to steal a credit card information with trial and errors. Such scammers commit multiple trail and errors to test the validity of a card number without actually possessing it physically.

Step 1: Scammers target the websites that give different responses for specific type of decline errors. For example, in case you type a wrong card number, the website might give a message –“payment decline for wrong card number”. Similarly, they might give a similar message for wrong validity details- “invalid card validity details” etc.

Step 2: In case, the failure message is about validity details only, it can assure the scammer that he/she has to just find the validity details, as the card number is correct already. Same goes for vice versa.

Step 3: Once, gained the correct details, scammer uses the card to make payments on other websites, or do triangulate frauds. Ultimately, other websites suffer.

Such frauds occur with the help of the bots, which automate the trial-errors and record the correct details. As a website owner, if your eCommerce platform, or marketplace software is not equipped with fraud prevention tactics, you can easily become the victim of the card testing and triangulate fraud.

5. Merchant identity fraud

This is one of the biggest scams that involves the B2C activities but affects the B2B scenarios as well. Cyber scammers setup nice looking web-shops with costly products priced low. Customers get enticed with the price and order products from these stores. However, the fraud sellers never ship the product to the customer and just disappear.

This whole process affects the eCommerce system in two ways-

One– I did if payment before the delivery, I lose my money. Though I can retrieve it through a charge-back, but most of the eCommerce customers are not aware of it.

Two– Even if I do not make payment before delivery, the scam boosts my fears for eCommerce risks. It ultimately spoils my trust in even the legitimate eCommerce startups.

Such frauds mainly aim at striking the legitimate eCommerce stores. Scammers occasionally run it to deplete the wholesale industry, people’s trust in genuine online retailers.

Is your store safe?

Have you ever come across any of these frauds? If not, sooner or later these scams will or try to make a way to your web-shop too.  Save yourself from the pain and take required measures to prevent these frauds to happen with your own business. If you are thinking about starting a new marketplace site, make sure you equip your marketplace software with the technical measures and your R&D team is equipped with the required business knowledge.

While you cannot do much about many of the scams like identity theft, and there is still a lot that you can do to prevent scams like card testing, etc. I was checking on the web and found this awesome article on how an eCommerce site became a victim of affiliate fraud but recovered quickly with correct measures. You can also do something like that with your eCommerce business.

If you liked this article and would like to engage with other small business entrepreneurs selling on marketplaces, join our . You can also find us on , , , and or sign up for our newsletter below.