The boom in online shopping has opened up exciting opportunities for businesses everywhere, but it’s also given rise to serious security challenges. As e-commerce sales keep growing, so do the tactics of fraudsters looking to take advantage of weak spots in online stores. These scams can lead to billions in losses each year, from stolen merchandise and chargebacks to damaged reputations. Understanding how these schemes work and knowing how to guard against them is essential for protecting your business.
E-commerce fraud explained
E-commerce fraud happens when someone uses deception during an online transaction to cause financial loss, either for the business or the shopper. It can be as straightforward as using stolen credit card details or as complicated as identity theft or taking over someone’s account. With every successful scam, fraudsters get smarter, making it harder for businesses to stay ahead.
To keep up, online fraud detection tools have become more advanced, helping spot suspicious behavior before any real damage is done. Whether you’re running a small online store or managing a large platform, having solid protection in place is essential to keep your revenue safe and your customers’ trust intact.
11 Types of e-commerce fraud
E-commerce fraud isn’t one-size-fits-all. Scammers use a variety of methods to exploit online stores, and each approach poses unique challenges for businesses trying to stay protected.
1. Identity theft
This kind of data theft happens when criminals use stolen personal information to pose as legitimate buyers. They can gain access to this data through security breaches, phishing scams, or by buying information on the dark web. Once they have what they need, they create customer accounts or make unauthorised purchases – often without the victim realising until unfamiliar charges appear on their statements.
2. Account takeover
The problem occurs when criminals gain access to a customer’s online account through stolen credentials. Once inside, they may change account details, make unauthorised purchases, or steal sensitive customer data stored within the profile. This type of deception is particularly damaging as it exploits the established trust between businesses and their clients.
Fraudsters may also use automated bots for account creation, setting up fake profiles with stolen or fabricated information to carry out scams. These fraudulent accounts can be used to test stolen payment details, abuse promotions, or commit other deceptive activities. Implementing multi-factor authentication (MFA) serves as a powerful deterrent against these attacks by requiring additional verification beyond username and password combinations.
3. Payment fraud
Payment scams involve unauthorised actions using stolen credit card information or payment details. Criminals may test stolen credit or debit card information with small purchases before making larger illicit actions. This type of deception remains one of the most common threats facing e-commerce today.
Online merchants are particularly vulnerable to credit card fraud because transactions occur without physical cards or signatures. When illegitimate actions succeed, merchants typically lose both the merchandise and the payment amount once the legitimate cardholder initiates a chargeback. Advanced e-commerce fraud detection tools that analyse behavior patterns can help identify suspicious purchases before fulfillment.
4. Shipping fraud
Shipping fraud involves manipulating shipping details or delivery processes to exploit e-commerce merchants. Scammers might use temporary addresses, reroute packages mid-delivery, or falsely claim that an item never arrived to secure a refund. This type of fraud can be especially difficult to manage for companies dealing with high-value international shipments.
Common signs of shipping fraud include:
- Billing and shipping addresses that don’t match
- Unusual requests, such as expedited shipping without concern for cost
- Multiple orders sent to different addresses but paid for with the same credit card
- Last-minute requests to change the shipping address after purchase
Using address verification services to cross-check shipping and billing details can help reduce the risk of sending goods to fraudulent destinations.
5. Phishing and spoofing
Phishing involves creating fake websites or emails that mimic legitimate organisations to trick shoppers into revealing sensitive information. Spoofing takes this further by creating convincing replicas of trusted commercial websites, complete with similar domain names and visual design. Both tactics aim to harvest user credentials and payment information.
These attacks harm both individuals and legitimate firms, as people lose personal data while merchants suffer reputation damage when their brands are impersonated. Educational campaigns about recognising phishing attempts can help protect clients, while monitoring for unauthorised use of brand assets can help businesses identify spoofing attacks early.
6. Friendly fraud
Friendly deception occurs when a legitimate buyer makes a purchase but later disputes the charge, claiming they never received the item or didn’t authorise the action. Unlike criminal schemes, friendly deception involves actual shoppers who may act deliberately or simply fail to recognise legitimate charges on their statements. The challenge for merchants is distinguishing genuine disputes from illegitimate claims.
The impact of friendly deception extends beyond the immediate financial loss. Each chargeback incurs additional fees and can affect a merchant’s relationship with their payment processor if chargeback rates become too high. Detailed records, clear billing descriptors, and proactive support can help reduce friendly deception incidents.
7. Chargeback fraud
Chargeback scams represent a deliberate form of friendly deception where shoppers purchase products with the intention of requesting chargebacks after receiving their orders. This practice essentially allows deceitful individuals to obtain products without payment, exploiting consumer protection mechanisms that shield shoppers from actual wrongdoing. As a result, businesses dealing with retail fraud often struggle to prove delivery, especially for digital products or services.
Building comprehensive evidence trails for each interaction, including delivery confirmations and correspondence, can strengthen a merchant’s position when fighting illegitimate chargeback claims through their payment processor.
8. Unauthorised transactions
Unauthorised actions involve purchases made without the cardholder’s knowledge or consent, typically using stolen payment information. Unlike friendly deception, these actions lack authorisation from the legitimate customer, who may be unaware until they review their statements or receive alerts from their financial institutions.
Detecting unauthorised actions requires sophisticated pattern recognition that can identify unusual purchasing behavior for specific accounts. Purchase amount, frequency, location, and product type all provide clues that can help prevention systems flag suspicious activities before they cause financial damage to merchants or cardholders.
9. Refund fraud
Refund schemes occur when criminals exploit return policies to receive unwarranted refunds. Tactics include:
- Returning counterfeit items in place of genuine products
- Claiming refunds for products they never return
- Using different payment methods for purchase and refund
- Abusing generous return policies through repeated fraudulent purchases and returns
This deception type can be particularly costly for merchants with liberal refund policies. The cumulative impact extends beyond lost merchandise to include shipping costs, processing expenses, and inventory management issues. Implementing clear return policies with appropriate verification steps can help reduce refund abuse while maintaining positive experiences for legitimate returns.
10. E-gift card fraud
E-gift card scams involve wrongdoers purchasing digital gift cards with stolen payment information or hacking accounts to access stored gift card values. As digital gift cards typically lack sophisticated verification requirements and can be quickly resold or used, they present attractive targets for those seeking to monetise stolen payment information.
Protecting against gift card schemes requires specialised monitoring systems that can detect unusual purchasing patterns or redemption behaviors. Implementing purchase limits, gradual release of high-value cards, and improved verification for gift card actions can reduce vulnerability to this increasingly common deception type.
11. Triangulation fraud
Triangulation schemes represent a sophisticated method involving three parties: the scammer, an unsuspecting buyer, and a legitimate merchant. Criminals create fake storefronts offering products at suspiciously low prices, then use stolen credit card information to purchase those products from legitimate retailers and ship them to the unsuspecting individuals who placed orders through the fraudulent storefront.
This complex deception allows criminals to monetise stolen credit card information while appearing legitimate to shoppers who actually receive their ordered products. The scheme leaves the legitimate retailer facing chargebacks and the credit card owners dealing with unauthorised charges, while the wrongdoers collect payments through their fake storefront operations.
Further Reading: 25% of Employees Admit Expense Fraud. Can This Be Prevented?
What are the reasons for e-commerce fraud?
Several factors contribute to the rise of fraud in online retail:
- Anonymity of transactions – without face-to-face interaction, suspicious behaviour is harder to detect.
- High purchase volumes – the sheer scale of online sales allows fraudulent orders to blend in with genuine ones.
- Data breaches – stolen card and account details are widely traded on illegal marketplaces, arming fraudsters with ready-made tools.
- Outdated security measures – weak systems are easily bypassed as cybercriminals adopt more advanced techniques.
- Checkout design flaws – businesses prioritising speed and convenience sometimes leave gaps that scammers exploit.
- Global transactions – cross-border sales complicate enforcement and make fraud harder to investigate.
- Dark web resources – easy access to guides and tools has lowered the barrier for new attackers, broadening the threat.
Understanding e-commerce fraud prevention
Preventing e-commerce fraud involves a mix of strategies, tools, and best practices designed to catch and block suspicious activity before it leads to financial loss. The most effective approach combines advanced technology with human oversight, creating layers of security that cover different types of fraud attempts – no single method can handle every threat on its own.
A solid prevention strategy starts with assessing the specific risks your business faces. From there, you can implement tailored security measures, ranging from basic checks like address verification to sophisticated machine learning systems that monitor transactions in real-time and spot unusual patterns. Regular updates and adjustments keep these systems effective.
The key is finding the right balance between security and a smooth customer experience. Overly strict filters can block legitimate purchases, driving customers away. On the other hand, weak security measures leave your company exposed to costly attacks. Striking that balance requires constant fine-tuning, staying on top of new threats, and listening to customer feedback.
Identifying fraud on e-commerce websites
While many signs of fraud overlap with earlier examples, identifying suspicious behavior in real time requires a sharper focus on patterns across different aspects of the transaction.
Order patterns are often the first giveaway. Watch out for sudden, high-value orders from new customers, especially if they involve multiple shipping addresses linked to the same credit card. Large orders placed without any purchase history or unusually frequent orders in a short time frame can also be red flags.
Payment details can reveal hidden issues, such as:
- A mismatch between billing and shipping addresses
- Several declined transactions before a successful payment
- The same IP address being used for multiple cards
Account behavior offers additional clues. Multiple failed login attempts, sudden password changes, or unexpected updates to personal information could signal an account takeover fraud in progress.
Even shipping details can raise concerns. Requests for expedited shipping or unusual delivery instructions aimed at avoiding signature confirmation may indicate fraudulent intent. Timing matters too: orders placed at odd hours or in rapid succession often suggest automated fraud attempts rather than legitimate buyer activity.
What are the benefits of implementing fraud protection?
Fraud protection strengthens your company by reducing risks and improving customer confidence. It also helps streamline operations while safeguarding revenue.
Compliance with regulations
Putting solid e-commerce protection in place helps organisations stay on top of regulatory requirements, like PCI DSS (Payment Card Industry Data Security Standard) compliance. These rules set clear expectations for handling payment information, and breaking them can lead to hefty fines or limits on payment processing. More importantly, meeting these standards shows customers that their data is in safe hands.
Regulations often change to address shifts in online commerce. Having robust security measures makes it easier for businesses to adapt without disrupting day-to-day operations. Plus, keeping proper documentation simplifies audits and proves that your company takes data protection seriously.
Financial losses prevention
Direct financial benefits of protection include avoiding merchandise losses, shipping costs, and chargeback fees associated with illegitimate orders. Beyond these immediate savings, effective prevention reduces operational costs related to investigation and recovery efforts. By identifying high-risk interactions before fulfillment, companies preserve both revenue and resources.
The long-term financial impact extends to relationships with payment processors and acquiring banks. High chargeback ratios resulting from deceptive practices can lead to increased processing fees or account termination in severe cases.
Competitive advantage on the market
Strong protection creates marketplace differentiation by allowing companies to accept payment methods or serve markets that competitors might avoid due to security concerns. This expanded operational capability translates directly to revenue opportunities and client acquisition advantages.
Shopper confidence represents perhaps the most significant competitive advantage from strong protection. Buyers increasingly consider security when choosing online retailers, particularly for high-value purchases. Businesses known for protecting personal data and providing secure interactions build loyalty that drives repeat purchases and positive recommendations.
Streamlined operational efficiency
Automated prevention systems reduce manual review requirements, allowing staff to focus on business growth rather than investigating suspicious, fraudulent activities. This operational efficiency brings several benefits:
- Faster order processing and improved experiences through quicker fulfillment
- Reduced staff time spent on low-value verification tasks
- Lower emotional burden on personnel who handle problematic cases
- Improved workplace satisfaction and productivity
Data from effective protection systems provides valuable insights for broader improvements. Pattern analysis might reveal product categories with higher risks, allowing for targeted security measures rather than blanket restrictions. Similarly, understanding legitimate shopper behaviors helps refine marketing strategies and improve experience design.
Further Reading: The Leading Corporate Spending Trends in 2026
Tips on successful e-commerce fraud prevention
A multi-layered strategy is the best defense against fraud, as relying on just one security measure leaves gaps that scammers can exploit. Combining different tools and practices creates a stronger barrier against a variety of attacks. Key elements to include in your strategy are:
- Address verification. Confirms whether billing address and shipping details match.
- Continuous monitoring. Tracks transactions in real time to spot suspicious activity.
- Device fingerprinting. Identifies unique devices to detect unusual behavior patterns.
- Manual reviews. Allows for human oversight of fraudulent transactions that automated systems might miss.
Employee training also plays an important role in fraud prevention. Staff members can either be a weak point or a valuable line of defense, depending on their awareness. Regular training should focus on recognising warning signs and following proper security protocols. Clear escalation procedures help suspicious activities get the attention they need quickly and effectively.
Finally, finding the right balance between security and customer experience is key. Add extra verification steps at high-risk points without disrupting the flow for legitimate buyers. Reviewing declined transactions regularly helps catch false positives, so genuine customers aren’t turned away unnecessarily.
E-commerce fraud prevention tools technologies
Technology plays an important role in protecting online stores from criminal fraud. Different tools are created to detect, block, and respond to suspicious activities in real time.
3D Secure authentication
3D Secure adds an authentication layer to online credit card purchases, requiring cardholders to complete additional verification through their issuing bank. This technology shifts liability for illegitimate actions from merchants to card issuers while reducing unauthorised activity. Modern implementations balance security with usability by applying risk-based authentication that only triggers verification steps for suspicious interactions.
Implementation considerations include potential cart abandonment if the authentication process creates excessive friction. However, newer versions offer significant improvements in user experience while maintaining security benefits. The technology works particularly well for high-value purchases where shoppers expect additional security measures.
Tokenisation
Tokenisation replaces sensitive customer data like credit card numbers with unique identification symbols that retain all essential information without compromising security. These tokens remain meaningless if intercepted during transmission or stolen in data breaches, dramatically reducing the value of any compromised information to potential wrongdoers. The approach allows merchants to process payments without handling actual financial data, making secure payment gateways even more effective at preventing unauthorised transactions.
Key benefits of tokenisation include:
- Simplified PCI compliance by reducing systems that interact with actual payment information
- Enhanced customer data security even in case of security breaches
- Secure storage of payment information for returning shoppers
- Improved checkout experiences without increasing risk
Implementation typically occurs through payment processors or specialised security providers.
Real-time alerts and monitoring
Real-time monitoring systems analyse activities as they occur, flagging suspicious behaviors for immediate review before order fulfillment. These systems evaluate numerous data points simultaneously, including buyer history, device information, and purchase characteristics. Immediate alerts allow for timely intervention that can prevent illegitimate orders from processing while minimising impact on legitimate interactions.
Machine learning capabilities enhance monitoring effectiveness by continuously improving detection accuracy based on outcomes. These systems grow more precise over time, reducing both false positives and missed cases. Integration with order management systems allows for automatic hold placement on suspicious orders pending review rather than outright rejection.
Behavioural analysis and purchase history
Behavioral analysis examines how users interact with websites to establish typical behavior profiles. Deviations from established patterns may indicate account takeover or other illicit attempts. This approach detects sophisticated deception that might pass traditional verification checks while providing a frictionless experience for legitimate shoppers.
Purchase history analysis complements behavioral monitoring by identifying unusual ordering patterns specific to individual buyers. A sudden departure from established purchasing habits – such as order size, product type, or shipping preferences – may signal potential problems. This detection method works particularly well for companies with repeat shoppers and substantial interaction histories.
AI-powered fraud protection
Artificial intelligence and machine learning technologies transform prevention through their ability to analyse vast datasets and identify subtle patterns that might escape human analysts. These systems continuously learn from outcomes, improving detection accuracy while adapting to changing tactics. Advanced algorithms can evaluate hundreds of risk factors simultaneously to generate comprehensive risk scores for each interaction.
Implementation typically begins with training periods where systems learn normal patterns before fully deploying automated decisioning. The technology particularly excels at:
- Reducing manual review requirements while maintaining high security
- Adapting quickly to new and emerging deceptive tactics
- Balancing security needs with positive buyer experiences
- Differentiating between actual problems and unusual but legitimate shopper behavior
As these systems mature, they increasingly reduce false positives that might otherwise impact buyer experience.
Further Reading: Virtual Card Fraud Prevention: How Secure Are They?
What is e-commerce fraud protection software?
E-commerce protection software provides specialised tools for identifying and preventing illegitimate activities within online stores. These solutions range from standalone applications focusing on specific deception types to comprehensive platforms addressing multiple vulnerabilities simultaneously. Most modern solutions integrate directly with e-commerce platforms through APIs, allowing seamless implementation without disrupting existing workflows.
Core capabilities typically include real-time screening, risk scoring based on multiple data points, and case management tools for manual review processes. Advanced solutions incorporate machine learning algorithms that continuously improve detection accuracy based on outcomes and emerging patterns. Many providers offer customisation options to address industry-specific challenges or unique business requirements.
Selection criteria should include compatibility with existing e-commerce infrastructure, scaling capabilities to accommodate business growth, and reporting functionality that provides actionable insights. Total cost considerations extend beyond subscription fees to include implementation resources, ongoing management requirements, and potential impact on conversion rates. Most providers offer tiered service levels allowing companies to match protection levels with their specific risk profiles and budget constraints.
Fraud prevention is the Wallester’s highest priority
Wallester puts security at the core of its platform, with a multi-layered framework built for the realities of e-commerce. Fraud tactics are constantly changing, so the system combines advanced technology with expert oversight to stay one step ahead.
The protection model works in real time: every transaction is analysed within milliseconds, drawing on multiple risk indicators such as shopper behaviour, device fingerprints, IP addresses, and historical data. This approach allows genuine purchases to pass without friction while automatically flagging suspicious patterns for review. With machine learning models updating continuously, the system adapts to new threats as they emerge.
Key elements of Wallester’s fraud prevention strategy include:
- Real-time monitoring – instant analysis of each transaction to detect anomalies before they cause damage.
- Adaptive machine learning – models learn from every case, improving detection accuracy over time.
- Multi-factor checks – behaviour patterns, device IDs, and location data assessed together for stronger validation.
- Specialist support – direct access to experts who help merchants interpret risk signals and respond quickly.
- Compliance readiness – security features aligned with PSD2, PCI DSS, and European e-commerce standards.
This combination of automated defence and human expertise gives online retailers a practical way to cut losses and protect their reputation.If you want to manage fraud risk while keeping checkout friction low, Wallester Business is ready to help. Book a demo to see how advanced monitoring, tokenised payments, and dedicated support can safeguard your platform and customers.
