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written by | September 23, 2022

What are E-Commerce Frauds and How To Prevent Them?

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As online shopping becomes more popular, so does the chance for hackers and dishonest customers to defraud online companies. If you own or run an online store, you must defend yourself against thieves who steal from you, ruin your online reputation, alienate your consumers, harm your brand, and reduce your earnings.

Did You Know? The value of online fraud will increase from 17.5 billion US$ more in 2020 to 20 billion US$ due in 2021, which is an increase of 18%!

E-Commerce Fraud

Many business transactions are made electronically over the Internet, generally via an online store. These transactions are often carried out via desktop computers, laptop computers, tablets, and phones. When we talk about fraud in e-commerce, we mean unlawful deceit with the goal of gaining financial or personal advantage.

Ecommerce fraud, however, is criminal cheating committed during a business transaction via the Internet with the intent of gaining financial or personal advantage for the fraudster while negatively impacting the merchant. Payment fraud is another term for e-commerce fraud. Purchase fraud, often known as e-Commerce frauds, refers to illicit money transactions made on a website by criminals or fraudsters without the account owner's knowledge, such as:

  • False identification
  • Credit card fraud or theft

Also read: Digital Payment Methods - Types & Benefits of Different Digital Payment Methods

Types of Online Fraud

Most online websites face three types of fraud in e-commerce out of the various frauds that hackers might use:

  1. Credit card fraud
  2. Affiliate fraud
  3. Phone fraud

Identifying them as soon as possible can assist you avoid being a victim of online shopping frauds in India:

1. Credit Card Fraud 

  • Identity Theft - Identity fraud or identity theft happens when criminals get consumer information by purchasing or hacking the user's account and then use it to carry out their phishing operations. Among the stolen information and data are: 
  • Individually identifiable information
  • Financial details
  • Security codes and passwords
  • Takeover of an account
  • Chargeback fraud - Chargeback fraud, often known as friendly fraud, occurs when a customer keeps the online purchased products but wants a refund. To combat "friendly" fraud, make sure your online business has a clear shipment tracking system and a stringent return policy in place. Here, a customers applies for refunds, without returning the product or providing proof for why they request refund. They request refunds for the following reasons:
  • The item was not delivered.
  • Payment was received twice. 
  • The purchase was never completed.

In the absence of proper documentation or policies you lose money due to such frauds.

  • Clean Fraud - The imposter utilizes a stolen credit card and cardholder information, clean fraud is very similar to lawful payments made by actual consumers.
  • Phishing - Phishing is the technique of obtaining legitimate users' personal information, such as card no, user ID and password, card details, etc. 
  • Triangulation fraud - Scammers use triangulation fraud to establish a false eCommerce website that sells items and services at ridiculously low costs. When a consumer puts an order, the fraudster obtains the cardholder's credit card information. The fraudster uses the stolen information to place another order with a legitimate online merchant or store, and the merchandise is still delivered to the client. As a result, the consumer had to pay twice, once to the genuine vendor and once to the fake business.

2. Affiliate Fraud

Affiliate fraud is defined as illicit behavior carried out in order to gain affiliate commissions. Online businesses pay affiliates a percentage on sales referred by affiliates in affiliate marketing. Merchants provide affiliates with a unique, trackable web link that directs customers to the merchant's store pages. When a customer clicks on one of these links and makes a purchase, the merchant thanks the affiliate by paying the affiliate a commission. In affiliate fraud, fraudsters game the system and defraud the online merchant by generating commissions or increasing the quantity of commissions.

3 . Phone Fraud 

Telephone fraud, often known as communication fraud, is the illicit use of telecommunications goods or services to acquire money from a customer's payment while failing to pay that amount to the telecom company. The fraudster poses as a government agency or someone you trust in order to persuade you by being polite and helpful, or by threatening and scaring you off. The following are some of the most typical frauds are :

  • Extended warranty: Scammers know when your clients acquired the car and the sort of automobile they bought in order to convince them to buy their extended services for a fee.
  • Free Trials: Scammers advertise "free" trials but then exploit your information to enroll you up for one or more additional products or services. You will be charged monthly payments until you discover the truth and cancel them.

How to Prevent Fraud in Online Shopping?  

As you can see, there are several ways to save victims from clever internet fraudsters. Here are some practical actions you may take to safeguard your company and its clients from  the above types of online frauds:

1. Invest in Proper Security

When it comes to security, don't skimp. Spend the money necessary to purchase superior security software that will safeguard you and your clients. Update the software on a regular basis and make sure it can be tailored to your specific requirements. Consult with peers in your sector to determine the best solutions for your industry.

2. Conduct Regular Security Audits

E-commerce fraud detection can be difficult if you are not continually watchful, therefore audit your security frequently to ensure there are no gaps that a thief could exploit.

Are your passwords and logins sufficiently strong, and do you update them on a regular basis? Do you have faith in everyone who has access to sensitive information? Do you have decent antivirus software that regularly scans for malware? Is important consumer or company information encrypted in your communications?

3. Set a Spending Limit

Learn about the usual size range of purchases your clients make, and then determine a maximum quantity a consumer may buy. That example, if a fraudster tries to order twice the quantity of what your clients generally order, you may halt the transaction – at least until you have time to thoroughly evaluate it. This reduces the risk to the firm while also keeping the bulk of your consumers happy.

Also read: Balance of Payment Meaning - Learn About Components of Balance of Payment & Importance BOP

4. Restrict Delivery

Most scams may be avoided simply by being strict about delivery - after all, if a fraudster can't get the items, there's no use in trying to take them. Customers must utilise actual addresses and cannot be delivered to P.O. boxes or anonymous sites. Also, don't allow individuals to use freight forwarding businesses to get past this ban. Track these packages using tracking services.

5. Don't Acquire Too Much Client Information.

A thief cannot steal what you do not have, therefore preserve as little customer data as possible. Collect only the information required to bill your clients and avoid collecting superfluous information such as  Aadhar numbers or birth dates. Take great precautions to safeguard any data you collect.

6. Invest in Secure Hypertext Transfer Protocol (HTTPS)

In today's online buying environment, HTTPS is one of the most important measures of e-commerce fraud protection. It's a safer version of the HTTP protocol that encrypts data and protects credit card information. HTTPS prevents third-party access to data and may be accessed by acquiring an SSL(Secure Sockets Layer) certificate. An SSL certificate is security certificate that encrypts the connection between your web browser and server on which the payment is processed. This ensures that your credentials and related information are not leaked.

7. Card Verification Value (CVV) Numbers Are Required.

Those three or four little numbers on the backs of major credit cards may not appear to be significant, but they make a significant difference in terms of online security. By requiring the CVV for all purchases, you make it extremely difficult for scammers using stolen credit card information to complete a sale because they must have the real card in hand.

Prevention of Affiliate fraud

The approach to affiliate programme fraud prevention is similar to that of basic security rules:

Each of your new affiliates should be thoroughly screened and validated: Individual check-ups might be time-consuming, but they are worthwhile in order to minimise future losses. Observing the difference may provide you with the first indications.

Remove unethical partners: Examine their profiles, social media sites, and website branding to evaluate whether they are a good fit for your programme.

Keep a watchful eye on traffic and programme analytics: Keep a watch on measures that show rapid development, such as abrupt jumps in referral transactions or traffic.

Suspicious IP addresses should be blocked: When there are several transactions from the same IP address, you must suspect and verify very away.

Preventing Phone Fraud

If one of your customers reports a party impersonating your company in order to defraud them, you should take this information seriously and take the following actions:

Publicize the phone scam case via social media and blogs: This confirms that your company did not perpetrate such fraud and keeps your other consumers from falling victim to the same schemes.

Inform the authorities about phone scams: This enables phone service providers and law enforcement agencies to reveal bogus phone numbers to the public and identify the individuals responsible for the illicit calls. They can also use the data to investigate new call-blocking and call-labeling methods.

Also read: What Is a Deferred Payment? Meaning, Example & How to Use Deferred Payment

Conclusion

Protecting an e-commerce company may be difficult, and online fraudsters will only grow smarter and better as they adopt new strategies and technology. Your e-commerce shop, whether large or little, is constantly vulnerable to many sorts of e-commerce frauds in India. As a result, you should be proactive in securing your e-commerce website, and the advice provided above will undoubtedly assist you in developing a complete e-commerce fraud protection strategy. You may avoid the fraud e-commerce by proactively monitoring incoming transactions for red signals and protecting your shop from potential financial, legal, and reputational harm. Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: What makes strong ecommerce security?

Ans:

Information should not be available to unauthorized individuals. It should not be intercepted while being sent. Information should not be changed while being sent across a network.

Q: How can fraud be avoided?

Ans:

Please do not disclose Credit card numbers, Aadhar numbers, and other sensitive information. Private documents should be destroyed. Credit card statements, ATM, credit or debit card receipts, bank deposit receipts, loan solicitations, and other documents containing private financial information should be torn up or trash.

Q: What are the three most prevalent kinds of internet fraud?

Ans:

Most common types of frauds are : 1. Credit card fraud 2. Affiliate fraud 3. Telephone fraud

Q: Why is online fraud so prevalent?

Ans:

The rise of the eCommerce business, as well as the increase in payment methods such as cards and online payment solutions, is clearly connected to an increase in fraud.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.