eCommerce fraud

Best Practices for Merchants to Prevent E-Commerce Fraud

Ecommerce in the U.S. grew by 44% in 2020, to more than $862 billion. For eCommerce conducted on a smartphone in the U.S., aka mCommerce, the numbers are even more impressive. eCommerce sales are forecast to balloon to $432 billion, up more than 30% annually from $148 billion in 2018.

These figures cannot be ignored by security experts, merchants, or merchant service providers because schemers and fraudsters are not ignoring them. As the trend towards cashless payments and online transactions accelerates, so does the potential for e-commerce fraud, especially in innovative and fluid industries such as eCommerce and payments. Granted, the security safeguards need to strike a balance between security risks and the customer experience. Below are some best practices for a merchant to implement to prevent eCommerce fraud risk and offer a frictionless experience for the consumer.

How To Prevent E-Commerce Fraud

Look out for the warning signs.

Card-not-present fraud

This is one of the most common fraud types that eCommerce owners face regularly. It occurs when a remotely located person makes a fraudulent payment with a card. In eCommerce, card-not-present (CNP) fraud is prevalent and concerning. The fraudster can commit this fraud in different ways. They can either make an online purchase or purchase through telephone orders and use someone else’s card.

Card-not-present frauds not only lead to losses but also destroy an online business’s reputation. To prevent such frauds, eCommerce store owners should stay updated and regularly take effective measures.

There are many reasons why eCommerce stores face so many CNP frauds, and vulnerability is one of them. In a physical store, face-to-face interaction occurs while presenting a card, which deters such fraud. But in an online store, this is not the case. Fraudsters always try to find a vulnerability in the online system to exploit it.

With technological innovation, fraudsters are becoming more sophisticated. They use modern tools to mimic legitimate customers, using stolen personal information to appear as authorized card users.

eCommerce owners should always use the best and most technologically advanced fraud prevention tools to stay ahead of the fraudsters.

Multiple Transactions in a Short Time

One of the most prominent red flags indicating fraud is the occurrence of multiple transactions within a short time frame. Regarding eCommerce fraud, this behavior can often indicate potential fraudulent activity and should be taken seriously by businesses. Understanding the patterns and behaviors associated with this type of fraud can help you identify and prevent potential losses.

  • The user User might purchase high-volume items rapidly.
  • The user might make multiple transactions using different payment methods. This strategy helps the fraudsters avoid suspicion and makes it harder for businesses to track their activities.
  • The same user might change their shipping address frequently. Fraudsters usually ship products to different locations to prevent detection and recovery.

First-Time Buyer

First-time buyers are vulnerable to eCommerce fraud. Fraudsters can easily target these customers because they are relatively unfamiliar with the buying process.

  • Unusual Purchase Behavior: One of the most common signs of fraud is unusual buying behavior. Fraudsters place large orders by placing multiple transactions quickly and prefer priority shipping.
  • Incomplete or Fake Personal Information: Another common sign to detect fraud is using fake personal information or incomplete information. First-time buyers who provide incomplete or fake personal information should be treated cautiously. Your system should have a strict customer verification process to ensure legitimacy.
  • Suspicious Payment Methods:
  • Pay close attention to the payment methods used by first-time buyers. Fraudsters often rely on stolen credit card information or unauthorized access to payment accounts. Be wary of purchases made with multiple credit cards or unusual payment methods that deviate from typical online shopping behavior.
  • Unusual Delivery Requests: Fraudsters usually test the system first to check its vulnerability. The best way is to make unusual delivery options, such as shipping to alternative addresses or bypassing standard delivery protocols. Monitor delivery requests closely and be alert to any unusual shipping instructions.

Large Purchases

Fraudsters love large purchases, which ensures they get the most out of every risky attempt. When a first-time buyer does this, it indicates that it can be a fraudulent purchase.

Here are some signs to watch out for and practical tips to mitigate the risk with large orders:

  • Unusually large orders: Be cautious when receiving orders significantly larger than average. Conduct additional verification steps to assess the legitimacy of the purchase.
  • Request to expedite shipping: Fraudsters do not prefer to stay in one place, so they always request expedited shipping before getting detected.
  • Inconsistent purchasing behavior: When a buyer usually makes small purchases but suddenly starts placing extravagant orders, you should always verify before shipping the products. It’s essential to investigate such cases further and validate the legitimacy of these transactions.

Priority Shipping

Fraudsters often exploit the option of priority or expedited shipping to expedite their fraudulent activities before getting caught. As an eCommerce business owner, you must know the red flags associated with these requests to protect your business and customers from fraud.

As an eCommerce business owner, it is crucial to establish robust fraud prevention measures and carefully assess orders that display these red flags. By staying alert and implementing necessary precautions, you can protect your business’s financial health and maintain a secure online shopping experience for your customers.

International Transactions

If most of your customers are from your country, any international order should be handled with caution. Foreign fraudsters can easily target your eCommerce store. You should properly investigate and verify the information before shipping an international order.


One scam that is common among many businesses, and not just eCommerce, is phishing. This type of fraud happens when somebody poses to be a person they aren’t, intending to trick staff members into disclosing vital details such as credit card information, login credentials, passwords, or a host of other personal information. Fraudsters intend to gather as much information as possible to build a user profile to carry out identity theft or other nefarious activities.

Prevent E-Commerce Fraud - Phishing

Individuals can contact eCommerce stores pretending to be calling from a financial institution to verify suspicious account activity from the merchant’s business. Research shows that it is best to continuously raise awareness of such emails and phone activities among employees and have a program to test staff continuously. Ensuring that your team is appropriately trained to handle such calls or events can save time, money, and reputation.

Chargeback Fraud

Chargeback fraud occurs when an individual makes an eCommerce purchase, receives the item, and then files a claim that their card was stolen, requesting the merchant to reverse the charge. This is one of the most challenging types of fraud for merchants to protect themselves against. However, with the appropriate security measures in place and your staff trained on those security measures, many of these instances can be avoided or successfully contested.

Prevent E-Commerce Fraud - Chargeback Fraud

The warning signs cited above, such as the different billing and shipping addresses, can be a great starting point to act. Call the issuing bank to confirm client details and verify with the card owner if they placed the order. It’s a cumbersome process but much better than the consequences of repetitive chargebacks.

Unchecked susceptibility to chargeback fraud has other long-term costs since payment processors determine the risk profile of a merchant based on the likelihood or actual history of chargebacks. If a merchant is classified as high-risk due to a history of higher-than-usual cases of chargebacks, fraudulent or not, the business is likely to pay higher chargeback fees and higher processing fees.

Employee engagement

One of the most effective techniques for reducing e-commerce fraud and IT security incidents is to raise staff awareness of security risks. Employees on the front lines of business operations can be a business’s best defense in detecting and resolving security threats.

Get the right tools

Get the right tools

Besides training, you can equip your staff with the right tools, such as predictive analytics, that systematically score transactions’ nature to judge the likelihood of e-commerce fraud. Large online retailers, payment processors, and financial institutions sift through billions of transactions to model acceptable and fraudulent transactions based on many factors, such as address verification, card security codes, IP geolocation, device history, user profile, and transaction logs, among many others.

These tools should serve as the first line of defense, and any transactions flagged should be escalated to threat analysts for human decision-making.

Mandate user accounts 

One way to ensure that you have an honest consumer rather than someone who can commit an e-commerce fraud on the other end of a transaction is to have customers create an account with your website. This process forces individuals to disclose accurate information about themselves. The process can also collect information about the type of device they use and details about their location.  This can expedite checkout if merchants use auto-fill or form-fill techniques in order form pages.

Client outreach and signatures

Client outreach and signatures

You can check all the boxes and execute all the safety precautions but still need to give specific attention to certain transactions. It may be easier to pick up the phone and reach out to the client directly on the contact number you have on file and explain to the client that you intend to confirm the order placed.

In such escalated cases, a delivery signature should be required. Specific risk management precautions should be standard practice, such as requiring a signature for all high-risk consumers, those flagged in any disputed or returns transactions in the past, or if orders exceed a certain threshold.

E-Commerce Fraud protection is complicated. Merchants need to strike a balance between security and convenience. Understanding that there are preventable fraud risks to be addressed is an essential first step, albeit difficult since there are no guarantees that these preventive measures eliminate the risks. However, these are vital precautions needed for a business and affect consumers’ confidence that your site takes data safeguards seriously.

Frequently Asked Questions

  1. How can merchants prevent fraud?

    Merchants can prevent fraud by implementing several best practices, such as using secure payment gateways, implementing multi-factor authentication, monitoring suspicious activities and transactions, conducting regular fraud risk assessments, using address verification systems, requiring CVV numbers for card-not-present transactions, and using fraud detection tools and services.

  2. What is merchant fraud protection?

    Merchant fraud protection refers to the measures and strategies implemented by businesses to safeguard themselves against fraudulent activities in e-commerce transactions. It involves utilizing various tools, technologies, and practices to detect and prevent fraud, protecting both the merchant and the customers. This may include implementing secure payment gateways, using fraud detection systems, conducting regular risk assessments, and educating employees about fraud prevention techniques.

  3. How can merchants detect fraudulent transactions?

    Merchants can detect fraudulent transactions by implementing fraud detection tools and systems. These systems use advanced algorithms to analyze various data points, such as transaction history, customer behavior patterns, and IP addresses, to identify suspicious activities. Merchants can also manually review transactions for red flags, such as large orders from new customers, multiple failed payment attempts, or inconsistencies in billing and shipping addresses. Additionally, collaborating with payment processors and financial institutions can provide access to additional fraud detection mechanisms.

  4. What are some common signs of e-commerce fraud?

    Common signs of e-commerce fraud include orders with mismatched billing and shipping addresses, unusually large or expensive orders from new customers, multiple failed payment attempts, rush or overnight shipping requests, and suspicious or incomplete customer information. Other indicators may include frequent purchases of high-value items, multiple orders with different payment methods or shipping addresses from the same IP address, and unusually high or sudden order volumes from a single customer. 

  5. How important is customer education in preventing e-commerce fraud?

    Customer education plays a crucial role in preventing e-commerce fraud. Merchants should provide clear guidelines and recommendations to customers on safe online shopping practices, such as creating strong passwords, avoiding sharing sensitive information, regularly monitoring financial statements, and reporting suspicious activities. By raising awareness about potential risks and providing guidance on how to protect themselves, merchants can empower customers to make informed decisions and reduce their vulnerability to fraud.

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