E-commerce Fraud Prevention: A Comprehensive Guide for 2025

E-commerce has grown rapidly over these past few years and continues to grow, with 2025 projections suggesting the revenue to hit the $1.34 trillion mark – an increase of 13.45% from last year. However, this immense growth is closely followed by the rise in e-commerce fraud attempts targeting shoppers, financial institutions, banks, and merchants. This calls for an excellent need for e-commerce fraud prevention.

These threat actors are not lone individuals looking for vulnerabilities in your systems and acting alone; they are a group of strategists and organized cybercriminals who operate with coordinated tactics to exploit weaknesses, steal customer data, and infiltrate systems to rob and disrupt operations.

This article gives you a snapshot of your e-commerce business’s current threats and offers practical strategies to protect your business from fraudulent activities.

What Is E-commerce Fraud?

E-commerce fraud is an umbrella term for various types of cybercrime committed online. It is a form of cybercrime where fraudsters use deceptive methods to obtain goods, services, or sensitive customer information without authorization.

It includes any illegal activity conducted under pretenses that exploits online retail platforms using stolen or modified personal and financial data to make unauthorized purchases, initiate false refunds or chargebacks, and create fake user accounts. It means impersonating a genuine user to purchase without the actual authorization.

Fraudsters take advantage of the vulnerabilities in online payment systems, customer verification processes, and even shipping logistics to carry out their plans. The most common example of e-commerce fraud is when a threat actor gets stolen credit card information (usually from the dark web) to complete a CNP (card-not-present) transaction – where physical cards are not required – which makes it easier for these fraudsters to operate from anywhere in the world.

Fraud can target the business or its customers, leading to significant financial losses, reputational damage, and operational disruptions. E-commerce fraud in 2024 alone is estimated to reach $44.3 billion.

Types of E-commerce Frauds

With time, fraudsters are continually evolving their tactics; below is a look at some of the most prevalent types of e-commerce fraud:

1. Identity Theft

Identity theft is an e-commerce fraud where unauthorized use of someone else’s personal information is used to make purchases or open accounts. Information like name, address, credit card details, Social Security number, login credentials, and other sensitive data can be stolen and misused for fraudulent transactions.

Fraudsters access this information through data branches, phishing attacks, social engineering, or buying it off on the dark web. With the stolen data, they can impersonate the victim to conduct fraudulent transactions or create new accounts in their name.

2. Credit Card Fraud

Credit card fraud is the most common type of issue in e-commerce. It happens when unauthorized individuals use stolen credit card information to make purchases. This can happen through various means, including:

• Card-Not-Present (CNP) Fraud: This is when fraudsters use stolen card details to make online purchases without a physical card.
• Card Testing: Where criminals test the validity of stolen card numbers by making small purchases before proceeding to more significant fraudulent transactions.

These methods are particularly challenging for online merchants because merchants cannot physically verify the customer’s identity or the legitimacy of the card being used.

3. Chargeback Fraud (Friendly Fraud)

Chargeback fraud, also known as friendly fraud, happens when genuine customers purchase and then dispute the charge with their credit card issuer. The reason for the dispute they claim is that the transaction was unauthorized or that they never received the product.

It can result in the merchant losing both the product and the revenue from the sale and incurring chargeback fees. It’s a significant issue in e-commerce, as it can be challenging to prove the transaction’s legitimacy afterward.

4. Account Takeover Fraud

In account takeover fraud, cybercriminals gain access without authorization to a customer’s online account. This, again, can happen in various ways, including data breaches, phishing attacks, or buying stolen credentials from the dark web.

Once they have control, they can change account details, make unauthorized purchases, or use saved payment information for fraudulent activities. This leads to financial loss and damages the trust between the customer and the business.

5. Phishing and Social Engineering

Phishing involves sending deceptive communications, often emails or messages, that appear to come from trusted sources to trick recipients into revealing sensitive information. Social engineering exploits human psychology to manipulate individuals into performing actions or divulging confidential information.

In e-commerce, these tactics are used to steal login credentials, credit card numbers, or other personal data, which can be used for fraudulent transactions.

6. Triangulation Fraud

Triangulation fraud is a sophisticated scheme involving the fraudster, an unsuspecting customer, and a legitimate online retailer. The fraudster creates a fake online storefront or lists products at attractive prices on legitimate platforms.

When a customer orders, the fraudster uses stolen credit card information to purchase the item from a legitimate retailer and has it shipped directly to the customer. The legitimate retailer is left with a chargeback when the actual cardholder disputes the unauthorized transaction, resulting in financial loss.

7. Refund Fraud

Refund fraud occurs when individuals exploit a retailer’s return policy to obtain refunds dishonestly. This can involve returning stolen merchandise, using counterfeit receipts, or claiming a legitimate purchase was not received or was defective when it was not. Such fraudulent activities can lead to significant financial losses for businesses, especially those with generous return policies.

8. Affiliate Fraud

Affiliate fraud involves manipulating affiliate marketing programs to generate illegitimate commissions. Fraudsters may use tactics such as generating fake traffic, leads, or sales through click fraud, where automated scripts or bots simulate genuine user clicks on affiliate links. This deceit results in merchants paying out commissions for non-existent or fraudulent activities, undermining the integrity of affiliate programs.

9. Carding (Card Testing)

Carding is a form of credit card fraud where criminals test the validity of stolen card numbers by making small purchases or donations. If the transaction is successful, they proceed to make larger unauthorized purchases. This method allows fraudsters to identify active card details while flying under the radar of fraud detection systems that might overlook small transactions.

10. Web Skimming (Foam Jacking)

Web skimming, also known as formjacking, involves injecting malicious code into a retailer’s website to capture customer payment information during checkout. The stolen data is then transmitted to the attacker, who can use it for fraudulent activities or sell it on the dark web. High-profile incidents have highlighted the prevalence and impact of this type of fraud on both businesses and consumers.

11. BNPL Fraud

The convenience of the “Buy Now, Pay Later” (BNPL) system attracts consumers and fraudsters. They exploit this service through synthetic identity fraud, where a blend of authentic and fabricated details creates new, deceptive identities for registering with BNPL providers.

12. Transaction Laundering

Criminals employ transaction laundering to mask the proceeds of illegal activities as everyday merchant transactions. They might establish fraudulent merchant profiles or hijack legitimate ones to funnel illicit funds through what appear to be valid sales, thus complicating the tracing process for financial bodies.

13. Bust-Out Fraud

This type of fraud features perpetrators who build a reliable credit reputation only to exploit it fully later, maxing out credit lines and disappearing without settling the debts. This fraud often involves creating false identities or misusing accurate, stolen personal data to appear credible initially.

14. Business Email Compromise (BEC)

In BEC schemes, criminals illicitly gain entry to a company’s email system and exploit this breach to orchestrate financial theft or intercept sensitive information, thereby endangering the business’s fiscal health and data integrity.

15. Biometric Spoofing

Fraudsters also manipulate biometric security by replicating physical identifiers like fingerprints or facial features to access devices or accounts unlawfully. This type of fraud highlights the potential weaknesses in even the most secure biometric verification systems.

Why E-commerce Fraud Is on the Rise?

Several reasons are fueling the rise of online fraud; here are some examples:

• Rise in Digital Adoption: As more and more businesses incline towards digital space because of an increase in online activities, e-commerce fraud is surging. The ease of setting up and dismantling fake online storefronts has also facilitated fraudulent activities. Scammers create these decoy storefronts to mimic legitimate businesses, deceive consumers, and steal sensitive data. Sophisticated artificial intelligence (AI) and machine learning (ML) tools often facilitate this deception, which allows fraudsters to automate scams and execute them on a large scale​.
• Web Users on the Rise: The internet user base continues to expand globally, with projections at 5.52 billion, expected to reach over 6.6 billion by 2028​. This increase in online presence offers fraudsters a broader target base and more opportunities to execute their scams.
• Statistics Highlighting the Rise in Cyber Crimes: Fraud statistics are alarming; for instance, the Internet Crime Complaint Center (IC3) reported an increase in complaints from 800,914 in 2022 to 880,418 in 2023, with financial losses climbing from $10.4 billion to $12.5 billion over the same period. The global economic impact of cybercrime is also expected to grow significantly, from $9.2 trillion in 2024 to $13.8 trillion by 2028​
• Advanced Fraud Techniques: Fraudsters leverage advanced technologies such as AI, ML, and bots to refine fraudulent schemes. These technologies help craft convincing social engineering attacks, like phishing and spoofing, which are becoming increasingly difficult to detect and prevent​.
• The Growth of Globalization: Globalization has compounded the complexity of fraud prevention. The internet’s borderless nature allows cybercriminals to operate across multiple countries, making it challenging to track and prosecute these entities. They exploit regulatory and operational gaps across different regions, further complicating the efforts to combat e-commerce fraud​.

Advanced Techniques for E-commerce Fraud Prevention

Today’s digital commerce environment demands a sophisticated, multi-faceted fraud prevention strategy that adapts to new threats and maintains a seamless user experience.

Businesses can comprehensively strengthen their fraud defenses by enhancing traditional methods with the latest technology, data analytics, and behavioral insights. Here’s a look at some simple approaches with an integrated, advanced strategy.

Multi-factor authentication and Behavioral Biometrics

Simply relying on passwords is now inadequate. Contemporary fraud prevention systems enhance security by combining multi-factor authentication (MFA), which includes something the user knows (like a password or PIN), something they possess (such as a mobile device or security token), and something inherent to them (like biometric identifiers).

Techniques like facial recognition, fingerprint scanning, and voice verification play crucial roles in verifying identities during high-risk transactions. Additionally, behavioral biometrics utilize unique user behavior patterns, like typing rhythm and mouse movements, to develop a dynamic and distinguishing profile for each user. This dual-layered method prevents unauthorized access and fine-tunes risk assessments over time.

Device Fingerprinting and Geolocation Analytics

Fraudsters often disguise their identities using proxies or VPNs. Advanced device fingerprinting technology can detect nuanced details such as device type, operating system, browser specifics, and hardware configurations.

When combined with geolocation analytics, these tools can effectively identify discrepancies, which confirms the legitimacy of a transaction’s origin. For example, an anomaly in the geographical location or device details can prompt additional verification steps, enhancing security against credential theft and international fraud schemes.

Transaction Velocity Analysis and Risk Scoring

Modern fraud prevention tools go beyond static rules. Transaction velocity analysis helps merchants monitor the frequency of transactions from a particular account or IP address, detecting potentially fraudulent spikes like rapid high-value purchases.

Sophisticated risk scoring algorithms, often powered by machine learning, integrate various data points such as historical purchase behavior and device and location information to calculate a real-time likelihood of fraud. This ongoing assessment allows instant decision-making, enabling transactions to be automatically approved, manually reviewed, or blocked based on risk level.

Continuous Real-Time Monitoring and Adaptive Learning

In the fast-paced digital marketplace, fraud detection systems must operate with real-time vigilance. Continuous monitoring tools analyze each transaction, promptly comparing it against established behavioral patterns to preemptively catch suspicious activities.

This immediate process helps minimize delays and potential damage. Adaptive learning technologies continuously evolve, updating their algorithms based on emerging fraud trends and historical insights, thus enhancing accuracy, reducing false positives, and ensuring uninterrupted legitimate transactions.

Integrated, Layered Defense Strategy

A single tool is insufficient to address all aspects of fraud. An effective e-commerce fraud prevention strategy employs a layered defense that melds multiple technologies and methodologies.

Integrating MFA, biometric checks, device fingerprinting, geolocation verification, transaction velocity analysis, and adaptive risk scoring forms a comprehensive defense that effectively filters out sophisticated fraud while facilitating genuine transactions. This protects revenues and bolsters customer trust and loyalty, which are essential for sustained business growth.

Conclusion

E-commerce fraud is evolving alongside the rapid growth of online transactions, making it a pressing concern for businesses, financial institutions, and consumers. As fraudsters continue to refine their tactics using advanced technologies and sophisticated strategies, companies must take a proactive approach to fraud prevention.

A comprehensive fraud prevention strategy involves a combination of multi-factor authentication, behavioral biometrics, device fingerprinting, geolocation analytics, and real-time monitoring. Businesses implementing layered security measures can better protect their customers, reduce financial losses, and maintain trust in their platforms.

By staying informed about emerging threats and leveraging the latest fraud detection technologies, e-commerce businesses can safeguard their operations while providing legitimate customers with a secure and seamless experience. Fraud prevention is not just a necessity – it is an ongoing effort that requires constant adaptation to stay ahead of cybercriminals.

Frequently Asked Questions