E-Commerce Fraud Prevention: How to Protect Yourself Online

Fraud is nothing new. The first instances were recorded back in 300 BC and it’s been a part of everyday life ever since.

However, the popularity of online shopping over the past 20 years has given criminals access to millions of potential victims.

Their carefully planned attacks are devastating for individuals that risk losing their life savings and companies that end up going bankrupt.

But what is being done to tackle the scourge of e-commerce fraud and how can you help keep your own business - and the customers using your services - safe?

Here we explore what is e-commerce fraud, the types of e-commerce fraud that are being carried out and how best to guard against it. 

We also spotlight fraud prevention in e-commerce and the unexpected businesses that can fall victim to the international crime gangs.

What is e-commerce fraud?

Let’s start off by looking at what is e-commerce fraud. The most accurate definition is any criminal activity that’s related to the making of payments online.

This includes everything from businesses whose operations are in the form of an actual e-commerce store to those that simply take online deposits for services.

The goal of these criminals is to gain unauthorised access to personal or financial information that can then be used to make fraudulent transactions.

That’s why fraud analysis and prevention in e-commerce transactions is so important for businesses looking to build up trust with customers.

It’s also crucial that everyone knows how to report e-commerce fraud. In the UK, for example, it’s best to contact ActionFraud.

In the US, meanwhile, you can contact the Federal Trade Commission to report fraud, scams and bad business practices.

Is e-commerce increasing?

Unfortunately, yes. According to Juniper Research, the value of global e-commerce transactions will soar from $7 trillion in 2024 to $11.4 trillion by 2029.

It believes this remarkable 63% predicted growth will be driven by e-commerce being embraced across emerging markets.

However, there is a downside. An increase in e-commerce activity means there are even more potential businesses and customers to scam.

Separate research also carried out by Juniper revealed that online payment fraud losses experienced by merchants will exceed $25 billion in 2024.

This is a depressing $8 billion increase over the $17 billion figure recorded just four years ago and comes despite the implementation of Secure Customer Authentication in Europe.

Before we look at how to prevent ecommerce fraud let’s examine the types of frauds in e-commerce that are catching people out.

Types of e-commerce fraud

The bad news is there are many types of frauds in e-commerce and this number is increasing all the time as criminals are becoming more sophisticated.

One of the keys to e-commerce fraud detection is knowing how these criminals are getting access to personal data.

Understanding weaknesses in a company’s financial systems will not only help when it comes to e-commerce fraud prevention but lead to better customer loyalty.

Identity theft

The use of personal information, including name, address and payment details, to make unauthorised purchases.

Credit card fraud

This is when stolen card information is used to make fraudulent purchases or transactions. It can happen through so-called phishing scams that encourage you to hand over information.

Counterfeit products

The sale of take goods or unauthorised products that a seller has falsely claimed are genuine.

Account takeover

This is when fraudsters gain control of a person’s account and can easily carry out transactions before their actions are discovered.

How does friendly fraud happen?

One of the most common types of e-commerce fraud has quite a disarming name: friendly fraud, although it can also be known as chargeback fraud.

This is when a cardholder identifies a purchase on their latest statement as fraudulent and disputes it, sparking the chargeback process, according to Mastercard.

However, the reality is that this individual or someone else in their household made the purchase so the only fraud being carried out is by them.

Chargebacks cost the payments industry billions of pounds, while 40% of consumers who commit friendly fraud will do so again within 60 days, according to a report from FIS Global.

What businesses can be victims? 

The bad news is that any business which operates online must know how to prevent fraud in e-commerce.

They can’t just ignore e-commerce fraud detection techniques because they aren’t a straightforward retailer.

Here is a list of businesses that could be an e-commerce fraud risk because they will take payments (even just a holding deposit) online.

• Online retailers
• Booking agents
• Restaurants
• Food delivery firms
• Digital content providers
• Marketplaces and auction houses
• Travel businesses
• Online courses
• Event booking sites
• Taxis and private hire
• Hotels
• Car rental firms
• Tradespeople

Safeguarding your e-commerce business

It’s important to recognise the risks facing your online business, even though many owners are reluctant to spend out on ecommerce fraud prevention.

There is a balance to be struck between growing the business and looking at how to prevent e-commerce fraud, according to a report from PwC.

“Implementing effective fraud risk management is typically perceived as a driver for cost rather than as a potential catalyst for revenue growth and profit,” it stated.

Wise businesses are already embracing e-commerce fraud protection techniques.

These include:

• Using secure payment gateways
• Strong authentication requirements
• Closely monitoring transactions
• Fraud detection filters
• Encryption of customer data
• Regular contact with other industry organisations

What does Noda have in place?

Noda believes that payment and data security must be a priority when it comes to processing and sharing the data of clients.

That’s why it has implemented e-commerce fraud prevention best practices to safeguard itself and individuals against fraudsters.

There are two key elements. Firstly, Noda focuses on ensuring robust security surrounds its own systems and servers.

Secondly, it implements what it terms a “multilayered security approach” to provide the highest level of safety for data of its customers and their clients.

Its key e-commerce fraud prevention techniques include:

• Use of cloud infrastructure providers
• Date encryption
• Automated alerts system
• Certification
• MFA

Use of cloud infrastructure providers

Modern providers spend millions of dollars on ensuring their services are constantly upgraded and secure.

Date encryption

Noda uses the Transport Layer Security (TLS) protocol when information is transferred between network servers. Advanced Encryption Standard (AES) is also applied when the data is stored.

Automated alerts system

This enables Noda to respond quickly to threats occurring outside of normal office hours, such as during the night, on weekends, and over public holidays.

Certification

Noda regularly obtains relevant certifications and maintains up-to-date PCI DSS and PCI SSLC licences. It includes the benchmark Payment Card Industry Data Security Standard (PCI DSS).

MFA

Noda implements Multi-Factor Authentication (MFA) for employees to access all critical internal platforms. This provides an extra layer of authentication.

How to spot potential fraudsters

As we have illustrated, there are numerous ways in which you can fall victim, but here are some ways that businesses can prevent e-commerce fraud.

Bank of America has highlighted six red flags that can be used to help detect e-commerce fraud before it has a chance to wreak havoc in your business.

Now, not all of these mean they are a criminal but they should set off alarm bells and cause a merchant to take stock of the situation.

• Unusually large orders being placed.
• Multiple credit cards being used for one purchase.
• Orders for products that are in high demand.
• Many separate orders placed by a customer in a short period of time.
• Weird or unnecessary requests.
• Delivery requests for locations outside of your usual area.

E-commerce Fraud Prevention: What the future holds

We have spent a lot of time outlining the various types of e-commerce frauds being carried out and their financially devastating effects.

But what about e-commerce fraud prevention? What is being done around the world to fight ecommerce fraud by the police, investigators, politicians and governing bodies?

The current situation has led to new approaches towards fraud detection in e-commerce transactions, according to a report from McKinsey & Co.

“Leading organisations use machine-learning algorithms and strive to utilise all available data to achieve a step change in the accuracy of fraud detection,” it stated.

In 2023, retail giant Amazon invested more than $1.2 billion and employed more than 15,000 people as part of its e-commerce fraud management.

This included machine learning scientists, software developers and expert investigators, according to the company’s latest Brand Protection Report.

It stated that these individuals were “dedicated to protecting” customers, brands and selling partners from various forms of fraud.

However, everyone accepts that the efforts to tackle online fraud is likely to be an ongoing battle as the world continues to embrace e-commerce transactions.