How to Combat e-commerce Fraud and Secure Online Sales

Fraud’s been tricking people since way back. Back in 300 B.C, a Greek merchant named Hegestratos tried to cash in by sinking his own ship for insurance money. That was the first known fraud in history. The guy’s plan flopped, he got caught, and ended up drowning. The plan backfired!

Hegestratos is sinking his own ship for insurance money

Jump to the 1990s, and fraudsters found a new playground: the Internet. Early on, they figured out how to swipe credit card info online. They’d buy stuff using someone else’s card, even hitting up celebrities. It was a whole new level of theft, all done with a few keystrokes.

From ancient schemes to modern-day digital cons, fraud’s always evolving. It’s a constant game of cat and mouse, with businesses always having to catch up to the latest tricks.

Losses to online payment frauds worldwide 2020-2023. Source:

Losses to online payment fraud in 2020-2023. Source:

Let’s take a look at the fraud landscape of 2024 and how online retailers can protect themselves and their customers from fraudsters.

Current Landscape of eCommerce Fraud

eCommerce fraud is a growing problem, with fraudsters using tricky methods to steal from online shoppers and businesses. Here’s what’s happening:

  1. Tricky Techniques: Fraudsters are using sneaky methods to commit eCommerce fraud and avoid security measures when making fraudulent transactions. They might use fake credit card details or stolen credit card information to deceive online merchants.
  2. Fake Identities: Fraudsters create fake identities by mixing real and fake information. This makes it challenging for businesses to identify fraudulent transactions and protect customers’ personal and financial information.
  3. Stealing Accounts: Fraudsters steal people’s login information to get into their accounts. Once they’re in, they can buy things using the victim’s account or steal personal information like credit card details, contributing to online payment fraud.
  4. Dodgy Returns and Chargebacks: Some fraudsters cheat online stores by returning items they never bought or disputing charges they made. This puts a strain on businesses as they lose money on fraudulent transactions and deal with chargebacks.
  5. Mobile Risks: With more people shopping on their phones, fraudsters are finding new ways to cheat through mobile apps and payment systems. They might use fake apps or steal payment information through insecure connections, leading to increased instances of eCommerce fraud.
  6. Deepfake Dangers: Deepfake technology creates convincing fake images and videos. Fraudsters can use these to impersonate others or create fake evidence for fraudulent activities, further complicating efforts to identify fraudulent transactions.
  7. Global Fraud Networks: Fraudsters work together across the world, making it harder to catch them. They might share stolen information or collaborate on scams, affecting online merchants and consumers worldwide.
  8. Fighting Back Together: Businesses, banks, and regulators are teaming up to fight fraud. They share information about known fraudsters, use advanced security measures, and invest in technologies like machine learning to identify fraudulent transactions and prevent eCommerce fraud.

Combating eCommerce Fraud with Technology

In online retail, eCommerce fraud is a big problem, including issues like fraudulent purchases and stolen identities. Businesses are fighting back with technology, including AI, to spot and stop fraud quickly.

Adapting AI technology and machine learning is at the forefront of preventing eCommerce fraud in 2024. It works by scanning through tons of data to find unusual patterns, such as weird buying habits or payments, which could point to fraud. This constant vigilance by AI helps catch fraud early, preventing harm.

Case study:
Rakuten France is a big marketplace in France with over seventeen million members and nineteen million visits each month. They used to have a big problem with bots attacking them, which took a lot of effort to fight off.
Then, they started using an AI technology for fraud detection by DataDome, and those problems stopped. Now, Rakuten France is safe from these attacks in real-time, saving their internet space and giving their tech team more time to work on other important stuff.
Source: DataDome blog
Rakuten France marketplace

The Rakuten France marketplace

Monitoring how users behave is crucial for catching fraudulent purchases. Businesses look at normal shopping actions to know what’s typical. When something doesn’t match up, it could mean someone is committing identity fraud. Combining AI with these observations allows companies to detect fraud in real time, making it easier to prevent eCommerce fraud.

Natural language processing (NLP) also plays a major role here, as it lends a helping hand in interpreting a massive amount of language-related data through word and text analysis. Basically, it “reads” a text by processing different patterns (causal, numeric, time) and assertions from a huge block of textual big data. By doing so, it uncovers typical keywords or descriptions linked to fraudulent activity.

Dr. Jeremy Nunn, Doctor of Information Technology specializing in data integration and AI. Source: Forbes.

Adding extra steps before a purchase can go through is important, too. This might include double-checking information or using biometrics, like fingerprints, for verification. These steps make it harder for fraudsters to succeed.

Teaching customers about the risks of eCommerce fraud is crucial. By knowing what to look out for, shoppers can avoid scams, making it less likely for fraud to happen.

Choosing business software that’s both trusted and secure is absolutely essential. eCommerce software, in particular, needs to be up-to-date with the latest security standards and should regularly receive updates from the software provider. It’s all about ensuring the highest level of protection and staying ahead in the game of online security.

Sergei Gerasimov, CS-Cart Product Owner
As the Product Owner at CS-Cart, I really get how crucial security is for online shopping. It’s not just about keeping the business safe. It’s about making sure our customers feel secure, too.
We do a lot to make sure that happens. We partner with only trusted payment gateways that encrypt transactions to keep things tight. We encrypt all the sensitive data, so it stays safe. Plus, we’re always updating our software to stay one step ahead of any new threats.
Sticking to the rules is our thing—whether they’re about security or privacy. We make sure CS-Cart ticks all the boxes on legal and ethical standards. It’s all about making sure our platform is not just safe, but also right on the mark with what’s expected in the online world.

Types of eCommerce Fraud, Consequences, and Prevention Explained

eCommerce fraud is a big headache for online marketplaces and their customers. It comes in different flavors, each with its own tricks. Let’s break them down.

Hegestratos has stolen a poor citizen’s credit card and wants to buy a new ship

1. Classic Online Credit Card Fraud

This is when someone uses another person’s credit card details, stolen or obtained through phishing scams, to make unauthorized purchases online. It’s like finding a wallet but using it to buy stuff online instead of returning it.

What bad can happen: Retailers face chargeback fraud, losing both the product and the money. Victims deal with the hassle of disputing charges and securing their accounts, potentially affecting their credit score.

How to prevent: Use eСommerce fraud prevention tools that use machine learning for fraud detection. These tools spot unusual transactions with stolen credit card details. Add two-factor authentication (2FA) to protect customer data. Teach customers how to keep their info safe and spot phishing.

2. Card Testing Fraud

Imagine a thief with a list of stolen credit card numbers from data breaches. They’ll try making small purchases online to see which cards work. Once they find a card that goes through, they start making bigger buys.

What bad can happen: Small, unnoticed transactions can accumulate significant losses over time. It also increases the risk of valid cards being blocked due to suspicious activity, frustrating legitimate card owners.

How to prevent: Block card testing by catching small, repeated transactions with stolen credit card numbers. Set alerts for too many tries from one IP address. Use CAPTCHAs to stop automated tests, protecting legitimate customers.

3. Chargeback Fraud

Here, a customer makes a purchase, receives it, but then claims to their bank they never did, leading to a chargeback. This type of “friendly fraud” hits shops hard, not just on the product but also the cash.

What bad can happen: Businesses endure financial losses from refunded payments and lost merchandise. They may also face increased processing fees and a higher risk of having their merchant accounts closed due to excessive chargebacks.

How to prevent: Inform customers about their orders to prevent this kind of eCommerce fraud. Use clear photos and descriptions. Have a good return policy. Respond quickly to avoid chargebacks. Use eCommerce fraud prevention tools for alerts and fast dispute handling.

4. Account Takeover (ATO) Fraud

A scammer gets into someone’s shopping account by tricking them into giving up their password or through identity theft. Then, they start buying stuff with the account’s saved payment info.

What bad can happen: Customers suffer privacy invasion and unauthorized transactions, leading to a loss of trust in the affected platform. Retailers experience financial losses and damage to their reputation due to compromised customer service.

How to prevent: Strengthen passwords and change them often for customer data safety. Use 2FA. Monitor for strange activity on accounts. Educate on unique passwords and phishing to protect from stolen credit card use.

5. Refund Fraud

A fraudster uses stolen personal or financial information to buy something and then asks for a refund, but not back to the original card. Instead, they get the refund on a different card they control, pocketing the money.

What bad can happen: Direct financial loss for retailers from issuing unwarranted refunds. It also complicates the return process, potentially leading to stricter return policies that may inconvenience honest customers.

How to prevent: Review refund requests, especially if they’re for a different card, to catch stolen credit card details. Require ID or the original card for refunds. Limit refunds to the same card to detect fraud.

6. Interception Fraud

The scam here is buying stuff with a stolen card, but then making sure the delivery never reaches the card owner’s address. The fraudster either changes the delivery address after the purchase or grabs the package from the doorstep.

What bad can happen: Retailers lose out on both merchandise and revenue, and the rightful card owners may face delays in detecting the fraud. This type of fraud undermines the integrity of the delivery process, eroding customer trust.

How to prevent: Require signatures for delivery to ensure the legitimate customer receives their items. Offer in-store pickup. Provide tracking info to prevent theft of items bought with a stolen credit card. Confirm addresses for valuable orders.

7. Identity Theft

This goes beyond credit cards. The scammer uses someone else’s identity to make purchases. It’s like putting on a disguise, but for online shopping.

What bad can happen: Severe privacy breaches for the victims, along with the potential for long-term financial and reputational damage. Businesses face chargebacks and the loss of customer confidence, which can be devastating for brand loyalty.

How to prevent: Encrypt customer data for safety. Follow data protection laws. Regularly check security. Educate on identity theft signs. Verify identity for new or expensive orders, ensuring the buyer is the legitimate customer.

Bizarre case of return fraud:
There’s this crazy story from Saks Fifth Avenue. A customer ordered a Dolce & Gabbana ashtray but got a can of tuna instead. It turns out this wasn’t just a mix-up. It was a return fraud case.
This is how bad online fraud got. By 2023, nearly 14% of all returns were actually scams, adding up to a whopping $101 billion loss. Saks, like many others, had to crack down on their return policies to stop these fraudsters in their tracks.
@howdyfolks72 @Saks Fifth Avenue ♬ original sound – howdyfolks

Future Trends and Challenges in eCommerce Fraud Prevention

We’re seeing two big changes helping us beat eCommerce fraud: new regulations and smart tech like blockchain and DeFi. Here’s the lowdown.

Tightening the Reins with New Regulations

With more account takeover fraud happening, stricter rules are making online stores and marketplaces tighten up. The Strong Customer Authentication (SCA) rule in Europe is making businesses enhance the security of online and contactless offline payments and use tougher security checks to stop fraud from stolen credit cards and personal info. Privacy laws like GDPR and CCPA are making everyone be more careful with data, pushing online shops to use better tech to spot fraud early.

Leveraging Blockchain and DeFi

Blockchain and DeFi are becoming big players in stopping eCommerce fraud. Blockchain’s superpower is that once something’s recorded, it can’t be changed, making transactions safer and easier to track. DeFi is all about cutting out the middleman in financial transactions, which helps stop fraudsters from finding a way in.

These tools are great for spotting potential fraud, like when someone tries to take over an account or use a stolen card. By spreading out the risk, DeFi lowers the chances of fraud in online shopping.

As we move forward, following new regulations and using tech like blockchain will be crucial in the fight against eCommerce fraud. It’s all about making online shopping safer for everyone.

eCommerce Fraud: Recap

Let’s wrap up our look into eСommerce fraud, from old tricks to today’s online scams. Here’s what we’ve covered:

  • Fraud Always Changes: From the early scam by Hegestratos to modern Internet fraud, tricksters keep finding new ways to cheat systems. Now, they’re using tech to pull off scams, challenging online shops.
  • Tech to the Rescue: Fighting fraud today means using the latest technology. AI, blockchain, ML, and DeFi are key for spotting fraud and keeping payments safe. These tools catch strange activity and help secure data.
  • Rules and Places Matter: New laws like Europe’s SCA and privacy rules like GDPR are making businesses step up their fraud defense. Where fraudsters are also influences what scams happen, making companies adjust their tactics accordingly.
  • Understanding and Stopping Fraud: Knowing the different types of fraud helps businesses protect themselves. This means using detection tools, making sure customers are who they say they are, teaching shoppers about scams, and following security laws.
  • Looking Ahead: As online shopping grows, so will fraud attempts. Staying safe means keeping up with new tech, being alert to threats, and adapting to changes.

In short, keeping eCommerce sites safe from fraud is an ongoing effort. It needs constant attention, the right tech, and a readiness to adapt to new challenges. By learning from past and present scams, businesses can get ready for the future, making online shopping safer for everyone.

About the author:
Yan Anderson is a seasoned eCommerce expert at CS-Cart, with more than 10 years in the field. He’s skilled in developing, managing, and scaling online marketplaces, making him adept at simplifying complex topics. Yan is passionate about teaching others, offering clear insights into the latest trends, technologies, and best practices in global eCommerce.