How to Prevent Ecommerce Fraud

In recent years, the global market has undergone a significant shift in the ecommerce industry, driven primarily by the COVID-19 pandemic. 

Digitalization has grown rapidly, and consumer shopping habits have shifted online. A recent Statista study showed that in 2021, more than 2.14 billion people purchased goods or services online, while global ecommerce retail sales reached $4.28 trillion.

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However, as ecommerce markets and online shopping have expanded, fraudulent activity has also increased. Your online business may become a frequent target of cyberattacks and fraud. 

A Statista report estimated that global ecommerce losses from online payment fraud reached $20 billion in 2021. Unfortunately, the cost of fraud as a percentage of revenue continues to rise each year.

The Scope of Ecommerce Fraud

According to a Juniper Research study, online retailers could lose more than $206 billion between 2021 and 2025 due to card-not-present (CNP) fraud.

During the pandemic, as online sales increased, so did financial crime, leading to a rise in account takeover fraud and the use of synthetic identities. Fraudsters often focus on items with high resale value, such as expensive physical goods. However, digital goods and services, such as video games, streaming services, or software, can also be attractive targets.

Fraudsters also prefer easy targets, such as new merchants who may unknowingly accept sales without taking sufficient precautions or having appropriate security measures in place. To protect your business, you and your team need to learn about ecommerce fraud and work with a partner that specializes in fraud prevention tools and mitigation techniques.

Most Common Types of Ecommerce Fraud

1. Card-not-present (CNP) fraud or payment fraud: 

This type of fraud occurs when a fraudster makes an unauthorized credit card transaction without possessing the physical card. The details needed for this type of fraud, such as the cardholder's name, billing address, card number, three-digit security code, and expiration date, may be stolen electronically through phishing scams or purchased on underground marketplaces. If the fraudster receives the goods, the legitimate cardholder will eventually discover the unauthorized transaction and may file a chargeback, resulting in a loss for you as the merchant.

2. Friendly fraud or chargeback fraud: 

This type of fraud occurs when someone makes a purchase and then files a chargeback to receive a refund while keeping the product. The cardholder may claim they never received the product or did not order it. This type of fraud not only causes financial losses but also negatively affects your business, since a high number of chargebacks could result in fines or the loss of your ability to accept credit cards.

3. Card testing: 

This type of fraud occurs when a fraudster gains access to numerous credit card numbers and repeatedly makes small purchases at the same store to identify which cards are valid before committing larger-scale fraud. Fraudsters typically choose online stores without authentication or security measures, and they often use bots and scripts to carry out this activity quickly.

Why Are Ecommerce Merchants Particularly Vulnerable to Fraud?

Ecommerce fraud can happen in many ways, and there are several reasons why your business may be vulnerable. However, the main reason is that it is easy for the fraudster and difficult for you as the target. 

Because ecommerce transactions cannot use chip and PIN, and card ownership cannot be established with the same degree of accuracy, preventing fraud requires greater effort. Tools such as 3D Secure authentication are useful, but adoption varies by country, and they may add some friction to the user experience.

Ecommerce Fraud Prevention Best Practices

The health of your ecommerce business depends not only on detecting fraudulent activity when it occurs, but also on finding the best fraud prevention tactics to keep your business and customers safe. Some best practices you can adopt to help prevent fraud include:

Know where your customer base is located: 

When you receive high-value orders from countries that do not typically generate sales, it may be a good idea to take extra precautions before fulfilling them.

Know your customer base's typical purchasing patterns: 

Unusual transactions may indicate fraud, so you should review those orders more carefully.

Require a CVV and billing address for every order: 

Requesting the CVV and a complete billing address can help combat fraud by using Address Verification Systems (AVS) when available.

Use 3D Secure 2.0 authentication: 

Implementing the latest version of 3D Secure can provide an additional layer of security without slowing down commerce.

Implement CAPTCHA or customer authentication: 

CAPTCHA is an effective solution against card testing fraud and can be configured to adapt to your customers' behavior.

Communicate with your users: 

Staying up to date on your customers' order status, shipping details, and previous orders strengthens your checkout process against fraud and increases buyer confidence.

Why Fraud Prevention Requires Teamwork

Stopping fraud is crucial to protecting your revenue. When your business processes and fulfills fraudulent orders, the negative impact is twofold: lost revenue from refunds and chargebacks, and lost products from fulfilling those orders. 

Your involvement is essential because no one knows your customers better than you do. By understanding who your customers are—and who they are not—adding a secondary layer of protection to your checkout process, and working with your partner, you can prevent as much fraud as possible while continuing to fulfill legitimate orders.

Tilopay can be your ally. We offer advanced fraud detection and prevention tools that integrate technologies such as artificial intelligence and real-time analytics to identify suspicious activity before it affects your business. With Tilopay, you can optimize your fraud prevention strategy, reduce risk, and ensure that both you and your customers enjoy a secure, reliable payment experience.

Partnering with the right payment service providers is the next step toward optimizing your fraud prevention strategies and ultimately keeping both your business and your customers safe.