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The rise of e-commerce has revolutionised how we shop, sell, and manage transactions. Yet, with this evolution comes a darker reality — online fraud. As more consumers embrace digital payments, fraudsters are increasingly sophisticated in their attacks, making e-commerce fraud one of the most pressing issues for businesses today.
In this article, we examine the various forms of e-commerce fraud, the financial toll it’s taking on businesses globally, and the strategies that leading companies are adopting to protect themselves.
The growing threat of e-commerce fraud
E-commerce fraud, by definition, involves any criminal activity related to online transactions. Whether it’s unauthorized use of credit cards, phishing scams, or account takeovers, fraudsters exploit vulnerabilities in digital payment systems to steal sensitive information and siphon funds.
According to Juniper Research, the value of global e-commerce transactions will skyrocket from $7 trillion in 2024 to $11.4 trillion by 2029. While this growth presents massive opportunities for businesses, it also broadens the target for fraudsters. Juniper’s separate research predicts that online payment fraud losses for merchants will exceed $25 billion by 2024—a staggering increase from the $17 billion recorded in 2020.
The rapid rise in e-commerce activity, particularly across emerging markets, means businesses must prioritize security like never before.
“The expansion of e-commerce has been accompanied by an equally alarming rise in fraud,” says Lasma Kuhtarska, Co-Founder & Chief Strategy Officer from Noda, an open banking provider. “Businesses need to adapt quickly, deploying advanced fraud prevention tools and strategies to protect themselves and their customers.”
Understanding the types of e-commerce fraud
To effectively combat fraud, businesses must first understand the different forms it can take. Here are some of the most prevalent types of e-commerce fraud:
Identity Theft: Fraudsters use stolen personal information to make unauthorized purchases.
Credit Card Fraud: Stolen credit card details are used for transactions, often through phishing scams or breaches.
Friendly Fraud (Chargeback Fraud): A legitimate purchase is disputed by the customer as fraudulent, resulting in a chargeback to the merchant.
Account Takeover: Criminals gain control of customer accounts and make unauthorized transactions before they are detected.
While traditional fraud tactics remain, criminals are also becoming more creative, using sophisticated techniques to bypass detection systems.
Spotting red flags: signs of potential fraud
Recognizing warning signs early can help businesses prevent fraudulent transactions before they occur. Bank of America has identified six red flags to watch for:
Unusually large orders
Multiple credit cards used for a single purchase
High-demand products ordered in bulk
Multiple small transactions in quick succession
Unusual or unnecessary shipping requests
Delivery locations that fall outside typical geographic areas
While these red flags don’t necessarily guarantee fraud, they should prompt businesses to scrutinize transactions more carefully.
Fraud prevention strategies for e-commerce
With fraudsters continually evolving their tactics, businesses need to adopt a proactive and multi-layered approach to prevent e-commerce fraud. Here are some best practices:
Secure Payment Gateways: Ensure that the payment processor you use employs encryption and tokenization to protect sensitive data.
Multi-Factor Authentication (MFA): Adding MFA for customers and employees provides an extra layer of security.
Transaction Monitoring: Real-time monitoring of transactions helps detect suspicious patterns that could indicate fraud.
Data Encryption: Encrypt customer data using advanced protocols like Transport Layer Security (TLS) and Advanced Encryption Standard (AES) to safeguard information.
Collaboration: Staying connected with industry peers and fraud prevention networks can help businesses stay ahead of new and emerging threats.
According to Noda, a leader in open banking, “Implementing multi-factor authentication, data encryption, and automated fraud alerts are critical components of our security infrastructure. These measures provide our clients with peace of mind, knowing that their transactions and customer data are well-protected. Our fraud prevention strategy includes cloud infrastructure, multi-factor authentication for all employees, and regular certification updates such as PCI DSS and PCI SSLC licenses. By utilizing a multi-layered security approach, they ensure that both their systems and their customers’ data are safeguarded against potential threats.”
The future of e-commerce fraud prevention
The battle against e-commerce fraud is far from over. In fact, it’s only just beginning. As fraudsters become more sophisticated, businesses must continue to innovate their defense mechanisms. According to McKinsey & Co., leading companies are now relying on machine-learning algorithms to enhance fraud detection capabilities. These algorithms analyze vast amounts of data in real-time, identifying anomalies and preventing fraudulent transactions before they can cause harm.
Retail giants like Amazon are also stepping up their efforts. In 2023, the company invested over $1.2 billion in fraud prevention initiatives, employing more than 15,000 experts, including machine learning scientists and software developers. The goal? To protect customers, brands, and sellers from the ever-present threat of e-commerce fraud.
Despite these efforts, experts agree that e-commerce fraud prevention will remain an ongoing battle. As digital transactions become the norm, criminals will continue to devise new ways to exploit vulnerabilities in the system.
As the e-commerce landscape grows, staying ahead of fraud will be critical for companies of all sizes. The key lies in being prepared, staying informed, and partnering with the right technology providers to ensure long-term security and success.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Nikunj Gundaniya Product manager at Digipay.guru
11 October
Priyam Ganguly Data Analyst at Hanwha Q cells America Inc
Fang Yu Co-Founder and Chief Product Officer at DataVisor
09 October
Alexander Boehm Chief Executive Officer at PayRate42
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