Guide to combat e-commerce fraud in the year 2024

Guide to combat e-commerce fraud in the year 2024

In the rapidly growing world of e-commerce, fraudulent activities have become a significant concern for businesses. Here's a breakdown of common types of e-commerce fraud and the most effective prevention methods.

E-commerce Fraud: A Growing Concern

E-commerce fraud encompasses various malicious activities, including chargeback fraud, credit card fraud, refund fraud, promo abuse, triangulation fraud, and account takeover fraud. These schemes cost businesses billions annually, with fraudulent transactions through payment cards projected to reach $38.5 billion by 2027.

Understanding the Schemes

• Chargeback fraud, also known as friendly fraud, involves customers requesting refunds for alleged 'false' purchases with the intention of keeping the item.
• Credit card fraud involves obtaining credit card information to purchase items from an e-commerce store with the aim of reselling products.
• Refund fraud is when a criminal claims a refund by pretending to be an actual client of a business.
• Promo bonus abuse takes place when users or fraudsters misuse promotional materials for repeated free trials or to abuse loyalty rewards.
• Triangulation fraud involves creating a fake e-commerce website to lure buyers, obtain their credit card information, and make the same purchase from an existing e-commerce platform to make the transaction seem legitimate.
• Account takeover fraud, also known as ATO, is when fraudsters gain unauthorized access to someone's online account to withdraw or transfer funds or make fraudulent purchases.

Preventing E-commerce Fraud

To combat e-commerce fraud, businesses should adopt a multi-layered approach that includes:

Payment Gateway-Level Protections

Payment gateway-level protections such as Stripe Radar and 3D Secure use machine learning and customer authentication to detect and block fraud in transactions. 3D Secure especially helps mitigate bot attacks by requiring user authentication at checkout.

Third-Party Fraud Detection Services

Third-party fraud detection services like NoFraud and Signifyd provide real-time transaction analysis using proprietary data, machine learning, and behavioral analytics. These services often offer chargeback guarantees and reduce false positives, making them strong set-it-and-forget-it options.

Multi-Factor Authentication (MFA)

Multi-factor authentication tools, including versions of 3D Secure (e.g., ProtectBuy by Discover), require multiple forms of user identity verification to prevent unauthorized access and fraudulent payments.

Advanced Identity Verification Technologies

Advanced identity verification technologies utilizing biometrics and liveness detection (e.g., Onfido, IDfy) help confirm the user's real identity and reduce account takeover and identity fraud.

Transaction Monitoring

Transaction monitoring systems that combine rule-based approaches with behavioral analytics to detect suspicious activities and flag high-risk transactions are also crucial.

Device Behavioral Analysis

Device behavioral analysis including device fingerprinting and tracking user interactions (mouse movements, keystrokes) to identify fraudulent bots or suspicious users is another key component.

Sanctions and Blacklist Screening

Sanctions and blacklist screening solutions that check transactions and users against lists of known fraudsters or sanctioned entities to prevent illegal activities are essential.

Machine Learning Models for Real-Time Anomaly Detection

Machine learning models for real-time anomaly detection, which analyze large datasets to identify unusual patterns indicative of fraud, are valuable tools in the fight against e-commerce fraud.

Additional Considerations

• Combining multiple layers, such as gateway protection plus third-party fraud detection and identity verification, offers better defense.
• Some solutions come with costs like extra fees per transaction or monthly charges and require API integration and configuration.
• Industry-specific tools, like KYC/AML compliance in fintech or wallet screening in crypto, can also reduce fraud risks significantly.
• Fast, AI-driven identity verification (e.g., Microblink) offers cutting-edge capabilities in onboarding and compliance with deepfake detection.
• Comprehensive stacks like Beeteller combine KYC, real-time monitoring, and 24/7 fraud response designed to protect cross-border e-commerce payments.

Preventing Account Takeover Fraud

To prevent account takeover fraud, companies should:

• Implement cyber-security measures.
• Use AI-based behavioral fraud detection.
• Conduct regular employee training.
• Use a reliable KYC solution.
• Request face authentication in case of unusual activity.
• Use a reliable business verification solution.
• Use a transaction monitoring tool.
• Encrypt transactions.
• Use up-to-date software.

Industry Collaboration

Industry-focused events like Fraud Summit 2025 bring together top minds from fintech and crypto to share resilience strategies for the future.

The Future of E-commerce Fraud Prevention

As the global B2B e-commerce market is valued at $28 billion and expected to grow to $36 billion by 2026, it's crucial for businesses to stay vigilant and adapt their fraud prevention strategies to the evolving landscape of e-commerce fraud.

[1] "Fraud Prevention Tools for E-commerce Businesses." (n.d.). Retrieved from https://www.stripe.com/en-us/docs/payments/fraud-prevention

[2] "3D Secure 2.0: The Future of Cardholder Authentication." (n.d.). Retrieved from https://www.emvco.com/3ds/3ds2/

[3] "Top 10 E-commerce Fraud Prevention Strategies." (n.d.). Retrieved from https://www.nofrad.com/blog/top-10-ecommerce-fraud-prevention-strategies

[4] "Microblink: AI-Driven Identity Verification." (n.d.). Retrieved from https://www.microblink.com/solutions/identity-verification

[5] "Beeteller: Cross-Border E-commerce Payment Protection." (n.d.). Retrieved from https://www.beeteller.com/en/solutions/payment-protection

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