Scams, Refunds, Theft: How to Deal with Ecommerce Fraud

sThe Fraud Problem

There are a few things that keep ecommerce owners up at night: supply chain disruptions, website outages, fraud. 

Ecommerce fraud is an issue for any store, from credit card fraud to customers returning empty boxes.

You’re going to learn the basics of ecommerce fraud, as well as the following: 

  • What are the types of frauds store owners can encounter? 
  • Why does this happen?
  • How can you prevent this fraud in the first place? 

Whether you’re a veteran in the industry or new around the block, fraud can hit any store and it’s best to be prepared before you get hit with a huge scam order. 

You may think fraud won’t affect you, or that it’s hyped up. But consider that losses due to fraud are estimated to be $20 billion in 2021. That’s a staggering amount!

Types of Fraud

Criminals are crafty, to put it nicely. They have invented, and continue to invent, ways to defraud stores out of products and money. 

When we think of fraud, we typically think of a stolen credit card, this type of fraud is actually quite hard to detect if the scammer has a valid card number. These card numbers can be bought and sold on the dark web quite easily. 

The trick with these dark web credit card number purchases is that, often, not all of the stolen numbers actually work. Scammers will then do “card testing”, another form of fraud, to see which of the cards is still active. They often buy a small, low-cost item which both helps to get past unsuspecting card owners, who might miss a small charge, and ecommerce store owners, who often only notice irregularly large orders. 

Refund Fraud

There are multiple types of ways to defraud a store via refunds. One way is when a customer, legitimately or not, believes they should be issued a refund and they have not received one. They will then issue a chargeback through their credit card company. 

One way to manage these is with a chargeback management tool. These services can even investigate each case and try to resolve the situation on your behalf. Other tools may work to approve authentic chargebacks and prevent refunding fraudulent ones. 

Another type of refund fraud is termed “wardrobing”. This is when a customer purchases an item with the intention of using it and returning it, often clothing such as a suit for a wedding. Unfortunately this is difficult to detect or prevent, unless the customer has done this multiple times in the past.

Free, Free, Free

Similarly, customers may purchase an item with the intention of getting it for free. They will ask for a refund, claiming they never received the item. It is hard to know when customers’ claims are legitimate in cases like these. It’s best to use a shipping service that requires a signature upon delivery, but that’s not always feasible. 

These fraudsters may even “return” the package, claiming it was defective when they ask for a refund, and the package is empty or the item is stripped of parts. 

A scary form of refund fraud (well, any form is scary) mainly affects sellers on major platforms like Amazon. This is a big reason it’s in your best interest to also have a presence outside of these big platforms. This type of fraud involves competitors sabotaging your business by buying up your inventory and then returning it at the last minute. The aim is to hurt your business and get your account suspended. 

Other Forms of Fraud

Some more complex forms of fraud that criminals have devised include interception fraud. This involves a stolen credit card, but the scammer will keep the billing and shipping address the same as on the card, to bypass fraud detection software. They will then try to intercept the package at the location. They may also try to write to the store’s or the shipper’s customer service team to get the shipping address changed. 

Triangulation fraud is rather labor intensive, but involves a scammer opening up an ecommerce store selling popular items at low prices. Whenever they get a sale, they will use stolen credit card numbers to buy the products from a legitimate store and ship those to the customer. 

Lastly, there is affiliate fraud, affecting stores with an affiliate program. Fraudsters will try to game the affiliate program by buying up URLs similar to the store’s actual URL (think and They will then use their URL to redirect to your store, but with their affiliate link attached.

Affiliate fraudsters may also deceive you by appearing to be a popular influencer on a social media site. You reach out to them because they have, say, 40,000 followers in your niche. But those followers and all interactions on their content are bought, it’s meant to achieve the look of a real “influencer” in order to get free items from companies or sponsorships.  

How to Prevent Fraud

It’s not likely we’ll ever 100% prevent fraud, but there are plenty of ways to reduce it. 

One of the biggest ways is to use fraud detection software. This will help flag transactions that are suspicious. It can also work to prevent credit card testing. You likely don’t have the time to be combing through every order, as much as you’d like to be the fraud detective. This type of software is a good start to automating fraud detection. 

You should also be performing security audits regularly. The last thing your store needs is a breach of sensitive customer and payment information. Plan on a schedule for performing these, because it’s essential that your store keeps up with the latest trends in the world of fraud. 

PCI compliance is required, but ensure you maintain compliance so that all credit card transactions are secure. 

Address verification services will ensure that the billing address matches that of the cardholder. It’s an easy way to flag a transaction as potentially fraudulent. Similarly, you can match IP addresses with credit card addresses. This will detect the general region the card is being used in. So if someone is using a US credit card in Russia, you might need to decline the transaction and do some investigation. 

Along with address verification is to have a policy of not shipping to PO boxes or virtual addresses or freight forwarders. This means that each order will have to be tied to a physical address. Fraudsters often use these virtual addresses or PO boxes to avoid tying their purchases to their actual location and identity. 

Lastly, you can have a clear policy about offering store credit for returns. This can help limit the amount of refund fraud you experience, since scammers often want the cash. 

There are other ways to reduce and detect fraud. Scammers are getting more and more sophisticated so it’s important that someone on your team is able to keep up with the latest types of fraud or that you hire an external group to ensure your store is doing all it can to prevent fraud. 

It’s unfortunate that stores must deal with these types of situations. But the more you can do now, especially during the holidays (a prime season for scammers) the better. You’ll rest easier knowing you’re doing all that you can. 


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