Ecommerce Fraud: How to Safeguard Your Store Against Online Shopping Scams
“The customer is always right” is a rule that many of us have memorised. That is only sometimes the case, especially when it comes to fraudsters.
While all customers should be treated with dignity, many con artists prey on business owners who are striving to give exceptional service. As a result, every online seller should be aware of frequent red signals and take precautions to reduce their risks.
Some fraud strategies are exclusive to in-person purchasing, while others only apply to internet retailers. Refund abuse and credit card theft are two of the most popular frauds.
Read more to find out about the most common forms of scams and how to prevent e-commerce fraud in your online store.
What Exactly Is Fraud?
Fraud is defined as any fraud or misrepresentation used to get anything of value unlawfully. Fraud may take numerous forms in the context of online commerce. Fraud can manifest itself in a variety of ways, including the use of stolen credit card information to make illegal transactions, posing as a legitimate consumer returning product that was actually not purchased, and many more.
Every small business owner needs to be able to recognise the most frequent forms of shopping scams and understand how to keep their store from being a victim. Continue reading to learn how to avoid ecommerce scams.
Types of eCommerce Fraud
Overpayment Fraud
Overpayment is one of the most typical forms of online purchasing frauds.
An overpayment occurs when a consumer pays more than the agreed-upon amount for an item, frequently using a fraudulent credit card, and then requests a refund.
There are three techniques to identify these con artists:
- You have not received any monetary compensation. The consumer alleges that the money is being kept until the extra payment is returned.
- The receipt is suspicious—they might send you a forgery.
- The consumer requests that the funds be sent to a specified bank account or by wire transfer.
How to Avoid It
A circumstance like this frequently culminates in you directly conversing with the fraudster. As a result, once you’ve heard about this form of scam, it’s difficult to ignore the warning indicators.
Here are some steps you may do to safeguard your company from overpayment scams:
- Use Reliable Payment Providers
- Be wary of any payments that are greater than the agreed-upon fee. If a consumer demands a refund for an overcharge, be sure the cash was sent to your account.
- Only accept payments using trusted payment systems such as Vendreo Pay, Stripe, Lightspeed Payments, PayPal, and so on.
- When you sell with Ecwid by Lightspeed, you have access to over 100 trustworthy payment providers from across the world. Based on your interests and location, you may select a simple and secure payment provider accessible in your area.
- If you suspect a fraud, never pay money back to the consumer, especially if you use cryptocurrencies, wire transfers, or prepaid cards. It will take a lot of work for you to recover the funds.
- Limit the number of employees in charge of payment operations. This does not apply to you if you are a sole proprietor.
- If you have a partner, an employee, or even a friend or family member that assists you with customer service, ensure sure everyone who has access to payments is aware of fraud prevention tactics.
Swapping Fraud
Nowadays, you can purchase a knockoff of practically anything—often for a fraction of the price. As a result, it’s often difficult to distinguish the difference.
When someone returns goods, they may give you a cheaper or older product instead of giving you the thing they purchased. This strategy is extremely harmful for dealers of high-priced products.
Another prevalent sort of fraud is when a new product is replaced with a damaged one and then attempts to return it. This fraud should be avoided, particularly if you sell household items and electronics. Scammers will often replace a new product with a defective one and demand a refund.
How to Avoid It
It is difficult to combat “swappers.” A consumer may hold you or the courier operator responsible for damaged goods. If you don’t have confirmation that it was in top condition when it left your hands, this fraud might be tough to detect. To avoid this, various preparations must be taken ahead of time:
Before sending products to customers, double-check them
Record the slightest details of your goods so that you can discover any problems or variations if the product is switched. Before shipping an order, ensure that your items are free of flaws or damage. When selling gadgets, make sure they operate before sending.
Keep paperwork or verification that the goods were in excellent condition when it left your possession. Photos or videos of the goods being packaged and/or sent might be included.
If you are confident that you provided a high-quality product but your client alleges otherwise, you can give evidence or compare serial numbers on the goods and in your records. You may also offer them the refund without any difficulty, but place them on your blacklist so they can’t purchase in your store again.
Orders should be well packed
Pack your merchandise carefully to avoid damage during delivery. This includes utilising high-quality packaging materials such as bubble wrap and foam peanuts and eco-friendly alternatives such as recycled cardboard and biodegradable peanuts. Make certain that the box is strong enough to safeguard the things inside.
Include tamper-proof packaging or some other method to ensure that the goods can only be readily switched if you are delivering electronics or other products that could be easily replaced with your knowledge.
Stock Records
Keep close track of your inventory levels. This will assist you in identifying any differences if a product is exchanged and returned to your business.
Use barcodes, universal product codes like UPCs or GTINs, or create your own product codes like SKUs. You can include the product number on the order receipt so that you can ensure the product is indeed yours if it is returned.
Furthermore, using unique codes, anybody can verify the legitimacy of the products—a delivery person, the courier service, you, and your employees can all ensure it’s genuine.
When adding characteristics to your Ecwid by Lightspeed product information, you may include product codes. SKUs can also be displayed on invoices.
Make a Return Policy and Train Employees
To minimise future uncertainty, establish a clear return policy from the start. This should explain what sorts of things may be returned, how they should be returned, and how and where they should be shipped. It’s also a good idea to set a return deadline.
Not only should your return policy be obvious to customers, but it should also be clear to personnel who handle returns. Give everyone involved precise instructions and make sure they follow them exactly. Consider the whole process, from evaluating the authenticity of the return to refunding clients who have complied with the requirements.
Before returning goods to you, explain to your delivery person how to recognise the difference between an authentic and a counterfeit.
Wardrobing Fraud
Wardrobing is a common practice in the fashion business, particularly at stores that offer evening dresses, accessories, or jewellery. A consumer can order a costly gown, wear it to a function, and then return it as though it did not fit.
While wardrobing may appear to be a victimless crime, it does tremendous financial harm to businesses.
According to the National Retail Foundation in the USA, the typical merchant incurs $166 million in goods returns for every $1 billion in sales. Furthermore, due to return fraud, companies lose $10.30 for every $100 in returned merchandise.
Businesses not only lose money when wardrobers return garments, but they also waste time and resources dealing with returns.
How to Avoid It
A good wardrober can make worn garments appear neglected, making it difficult to reveal them. That doesn’t imply you should ignore the situation.
Confirm orders over the phone to ensure that the consumer selected the correct size and colour. Scammers can be deterred by personal attention. You may also phone them the next day to see if they are happy with the purchase.
Make use of Anti-Wardrobing Tags
Anti-wardrobing tags, also known as return tags, allow customers to try on items but are difficult to conceal while wearing. Once such a tag is removed, it is difficult or impossible to replace it.
In your return policy, specify that the tag must be intact for items to be returned and refunded. You’ll prevent wardrobers while still allowing honest customers to return an item that didn’t fit.
Consider Your Refund Policy
People are inclined to return to the retailer that accepted a purchase without issue. In 2021, however, 60% of internet businesses globally reported an increase in refund misuse.
Making your return policy simple does not imply allowing scammers to take advantage of you. Specify the return and refund conditions: Limit the return period, provide a list of purchase confirmation documents, and urge them to fill out a refund form.
You may also choose who pays for shipping costs in the event of a return. Making shipping charges the burden of the consumer is an excellent strategy to discourage returns. Scammers are hampered by the payment of delivery expenses.
Check your local laws as well to determine what safeguards you have as a company owner. Customers in the EU, for example, cannot return made-to-order or plainly customised merchandise.
Delivery Fraud
Postal services may also be used by scammers. A consumer may get the order but behave as if they did not, then request a refund. If the store cannot demonstrate that the merchandise was delivered, they must issue a refund.
How to Avoid It
It is not difficult to demonstrate that the goods were delivered. You may:
Track parcels. The majority of postal providers give tracking numbers. If you use a big shipping company, you may check the carrier’s website to see if the order was received. No one will be able to trick you or claim that they did not get the order this way.
Giving your consumers tracking numbers for their orders not only helps to avoid fraud, but it also improves your store’s post-purchase experience. It clarifies the shipping process. You’ll also have fewer “Where is my order?” emails in your mailbox.
If you use Ecwid by Lightspeed to sell online, you can add tracking numbers to orders so that your consumers can obtain real-time information about their purchases on the carrier’s website. You can also make use of the Aftership or TrackFree apps to track all of your shipments in one location, automatically informing consumers of delivery updates through emails or SMS.
Fraudulent Chargebacks
Chargeback fraud, also known as friendly fraud, happens when an authorised cardholder places an order and then claims that their card was stolen. Friendly fraud may sometimes appear trustworthy and honest, making it difficult to detect.
Chargeback fraud typically occurs after the goods have already been dispatched. An online retailer will get a refund request from the “real” cardholder, who claims that the item was not purchased by them.
If the bank sides with the consumer, you must repay the money. A vendor is harmed twice: a product is lost, and money must be given to the fraudster.
Chargebacks might occur as a result of honest mistakes. For example, if you sell things on a subscription basis, some buyers may inadvertently place a subscription order rather than a one-time payment. They may request a chargeback in this instance.
To avoid confusion, make sure the subscription conditions are clearly stated on the product page.
When you offer subscription-based products using Ecwid by Lighstpeed, all of the information needed to set up a recurring payment is immediately presented on the product pages of subscription items.
How to Avoid It
The easiest strategy to minimise chargeback fraud is to implement stringent verification steps prior to executing an order. To avoid chargeback fraud, use these guidelines:
Orders must be confirmed before they may be shipped
Customers who confirm their order by phone or email cannot claim that they did not purchase it. When finalising the order, make sure to fully state the payment arrangements.
This sort of fraud prevention, however, works best in smaller businesses or those that provide customised items. If you don’t have many staff but have a large inventory, verifying each order will take too long.
Fortunately, there are alternative ways to avoid chargeback fraud.
Using a payment processor like Vendreo will eliminate chargeback fraud. Using Open Banking, customers pay directly from their bank account to yours and cannot use a stolen credit card.
When a person pays using cryptocurrency, they generally can only receive their money back if the person they paid returns it. So, if you suspect chargeback fraud, you will not be obliged to make a return by a bank.
If you sell online using Ecwid by Lightspeed, you may take cryptocurrencies like Bitcoin, Ethereum, Dogecoin, and others from consumers all around the world in your online store.
Credit Card Fraud
Scammers frequently use stolen credit cards to make purchases at online stores. Credit card fraud is the most widespread type of identity theft in the United States.
How to Avoid It
A Payment Processor such as Vendreo uses Open Banking to transact from your customer’s bank account to yours. This eliminates credit card fraud.
If you take credit cards, ensure that your payment gateway is equipped with the following anti-fraud technologies:
- SMS-based Customer Identity Verification (3D secure protocol). The 3D procedure reduces the possibility of stolen card theft. Here’s how it works: an additional authentication step is added to an online store purchase payment. Typically, a request for a code is delivered to the customer’s phone. This is used for transaction security by Visa, Mastercard, and American Express.
- Systems for Monitoring and Detection of Fraud (AntiFraud). A fraud detection system automatically checks transactions. If the transaction appears suspect, the system either demands a manual inspection or cancels it.
Transactions are scrutinised in a variety of ways, ranging from the computer’s IP address to the payment information on a card. The system’s goal is to validate that a user is a genuine cardholder who regularly purchases at this online retailer.
For example, if a transaction is completed in the United States by a US cardholder and the order total does not exceed a shop’s average order value (AOV), the transaction will be accepted. If a consumer attempts to pay for an order that significantly exceeds the AOV, the transaction is considered suspicious.
Even if you do not have a payment provider, AntiFraud can be employed. Create a profile of your average consumer, including age, AOV, and geography. If some characteristics do not match your image of your normal consumer, it is important to contact the customer and confirm the order.
Money Laundering
You may accept cash payments in your online business alongside other payment options. Unfortunately, fraudsters also take advantage of this.
A fraudster, for example, may invite you to meet them in the street (so that they can run away if exposed). They pay, you count the money, and realise it is insufficient. The fraudster apologises, returns the money, allegedly inserts the missing banknote, and returns it to you. Of course, the total is incorrect once more since the fraudster has already removed money or replaced it with counterfeit bills.
If you re-count the money and discover the deception, the client will want to depart as soon as possible. However, if you do not count the money again, it will be nearly hard to locate and accuse the fraudster.
How to Avoid It
If you decide to take cash payments, you must handle them as seriously as you do internet purchases:
Have Strict Cash Payment Instructions
Only accept cash payments for in-store pickup orders. Ask your staff to avoid meeting on the street, in lobbies, or other areas where a fraudster may easily flee.
Also, if you frequently take cash payments, consider purchasing a counterfeit money detector.
How to File a Fraud Report
The most prevalent type of client fraud is product payment misuse, such as overpaying. Keep an eye out for orders that appear to be questionable. If you have any doubts about a transaction, acquire as much information as possible to ensure that your consumer is authentic.
You might be asking how to report fraudsters as well. If you suspect fraud, you should first call your credit card provider to report the fraudulent behaviour, such as if you suspect a transaction was made using a stolen card. You should also submit a police report or make a complaint to the appropriate authorities.
Current Trends in eCommerce Fraud
The employment of more complex methods by fraudsters to avoid being caught has been a growing trend in recent years. For instance, fraudsters have been known to use deepfake technology in order to fabricate recordings that they then use to pose as real clients or workers. In addition, “credential stuffing,” in which criminals try to get into e-commerce site accounts by using lists of stolen login credentials, has become increasingly common.
A further pattern is the broadening geographic range of e-commerce fraud. In the past, just a few nations were responsible for the vast majority of online shopping fraud. Recent years, however, have seen a surge in online fraud activity from a wider range of nations, making it more challenging for businesses to identify and prevent fraudulent transactions.
Future predictions suggest that fraudsters will continue to develop novel techniques to commit e-commerce-related crimes. The use of AI and ML by fraudsters to automate their assaults and make them harder to detect is one emerging pattern. New types of e-commerce fraud that make use of emerging technology like blockchain and biometric verification may also emerge.
Ultimately, it is crucial for online merchants to maintain vigilance and be current on fraud trends in order to safeguard their operations and their consumers against scams. To do so may mean spending money on cutting-edge security features like machine learning algorithms and biometric verification, and instructing users on how to safeguard their own online shopping accounts.
To summarise
Customer fraud may be costly and destructive not only to your company but also to the retail industry as a whole. Retailers must compensate for losses incurred by fraudsters, which may include raising prices or decreasing costs. As a result, things may become more expensive or jobs may be lost.
Fortunately, by taking a few basic steps, you can reduce your risks and help safeguard your company against fraudulent activities. Remember what we said in this post the next time you receive a strange order, unreasonable return request, or other questionable conduct.
