Online shopping has taken over the world. But along with convenience comes a growing problem—e-commerce fraud. Whether you’re a small business owner or running a large online store, you’ve likely encountered—or feared encountering—fraudulent activity.
This guide breaks down what e-commerce fraud is, the types of fraud in e-commerce, and how you can protect your business with e-commerce fraud prevention software and smart strategies. If you’ve ever wondered “How can I stop e-commerce fraud before it stops me?”—keep reading.
Types of E-Commerce Frauds
E-commerce frauds come in different forms. The more you understand them, the better you can protect your business.
Here are the most common types of e-commerce frauds:
1. Credit Card Fraud
This is the most common type. A fraudster uses a stolen credit card to make a purchase. The real cardholder later disputes the charge, and you—the merchant—lose both the product and the money.
2. Triangulation Fraud
This sneaky fraud involves three parties:
- A real customer who buys a product from a fraudulent seller at a discount.
- The fraudster who uses stolen card info to buy the same item from a legit e-commerce store (like yours).
- You ship the product to the innocent customer—but the charge is later reversed.
3. Account Takeover (ATO)
Fraudsters gain access to a customer’s account and make unauthorized purchases. This often happens when users reuse passwords or fall for phishing scams.
4. Friendly Fraud
Not so friendly, actually. A customer buys something, receives it, and then files a chargeback claiming they never did. Some are genuine misunderstandings, but many are intentional.
5. Refund Fraud
A scammer claims a product wasn’t delivered or was defective to get a refund—without returning the item.
6. Interception Fraud
Here, the fraudster places an order with a stolen card and intercepts the package before the rightful owner finds out.
What is E-Commerce Fraud Protection Software?
E-commerce fraud protection software is your digital bodyguard. It’s designed to detect, block, and analyze fraudulent activity on your online store.
These tools use features like:
- AI and machine learning to detect unusual behavior patterns
- Device fingerprinting to identify suspicious devices
- Geolocation tracking to flag impossible or suspicious logins
- Velocity checks (e.g., how fast a user enters card info)
- Blacklist monitoring to stop repeat offenders
The best e-commerce fraud detection software works quietly in the background, protecting your business without disrupting the shopping experience.
How to Detect Fraud in E-Commerce
Detecting fraud in e-commerce early can save you money, inventory, and your reputation. Here’s how to spot red flags:
1. Unusual Order Behavior
- Multiple orders from different cards using the same IP address
- High-value orders from new customers
- Billing and shipping addresses that don’t match
2. Speedy Checkout
Fraudsters often rush through checkout. If someone completes the process suspiciously fast, it might be worth a second look.
3. Geographical Mismatches
Is the order coming from a high-risk country? Is the IP address location inconsistent with the address on the card?
4. Multiple Failed Attempts
Several failed card attempts before a successful one could mean someone is testing stolen cards.
5. Machine Learning Detection
Many modern tools use e-commerce fraud detection machine learning to identify evolving patterns that human eyes can miss.
How to Do E-Commerce Fraud Prevention
Prevention is always better (and cheaper) than cure. Here’s how to stop e-commerce fraud before it starts:
- Use E-Commerce Anti-Fraud Tools: Leverage e-commerce fraud prevention software like:
- Signifyd
- Sift
- Kount
- FraudLabs Pro
These platforms offer real-time fraud detection, AI analysis, and automated chargeback protection.
- Enable Multi-Factor Authentication (MFA): Adding a second verification step drastically reduces account takeover fraud.
- Match Billing and Shipping Addresses: Require these to match for first-time buyers or high-value orders.
- Set Purchase Limits: Limit the number of transactions or maximum spend within a certain period to stop fraud spikes.
- Use AVS and CVV Checks: These verify that the person making the purchase has the actual credit card.
- Educate Your Team: Train your staff to recognize suspicious behaviors and investigate questionable orders manually.
FAQs About E-Commerce Fraud Prevention
Which fraud protection software is best for mobile e-commerce?
For mobile-first stores, consider tools like Sift and Kount. They specialize in mobile e-commerce fraud prevention with device intelligence, real-time risk scoring, and seamless UX integration.
How does e-commerce prevent fraud?
E-commerce businesses prevent fraud through a mix of smart software, security best practices, and manual review processes. AI-driven tools, fraud scoring, and authentication layers all help reduce risk.
How to avoid e-commerce frauds?
- Use trusted e-commerce security and fraud protection tools
- Monitor transactions regularly
- Educate customers on account safety
- Keep your platform updated and secure