6 Notable Ecommerce Fraud Trends for 2024
As a package tracking service, you can imagine that we're somewhat submerged in the world of eCommerce. Merchants need to provide their customers with an order tracking solution to reduce the number of customer support tickets. That's why we made an order tracking app for Shopify, powered by our parcel tracking system. If you also run an eCommerce business, you don't want to miss what we're going to discuss in this article.
According to Finances Online, global retail ecommerce sales reached almost $5 trillion in 2021. However, with the growth of online shopping, payment fraud is also on the rise.
Merchant Savvy published a research report in 2020. The report projects that global payment fraud will cost about $40 billion in 2027.
Ecommerce fraud poses a significant challenge to online merchants. It's necessary to implement security measures to minimize fraud risks.
However, before determining the best solutions, consider ecommerce fraud trends that deserve the spotlight. You will know what to expect and how to deal with particular threats.
1. Return and Reshipping Policy Exploitation
Let's start with return and reshipping policy exploitation. Businesses with generous return policies put themselves in danger by inviting unnecessary exposure.
Scammers take advantage of returns by purchasing items and replacing them with fakes. They get a full refund and keep the original purchase.
Reshipping is another example. Fraudsters who use stolen credit cards can buy goods and ship items to an unsuspecting middleman. The middleman receives instructions to forward the delivery to a different location.
The process makes it harder to track the culprit. Usually, when the original credit card owner gets the hang of what's happening, the delivery is already in the hands of the scammer.
The process becomes even more complicated if a retailer uses the dropshipping business model. Despite having reliable dropshipping suppliers, you still add another player into the mix. Reshiping and return fraud causes direct financial loss. In addition, it puts extra work on the logistics department.
Once return and reshipping become an exploitable area, businesses look to tighten return policies. The step makes sense, but it comes at the cost of discouraging legitimate customers. A brand's image suffers if a business implements stricter policies that are not that consumer-friendly.
Overcoming the challenge requires balance. A retailer should clearly communicate the return policies before adding too many hurdles for genuine shoppers.
Moreover, there should be an authenticity verification system to check the returned item's condition. A system has to confirm that the return has the original goods in it.
2. Rise of Machine Learning and AI
It's no surprise that machine learning and artificial intelligence play a significant role in tackling ecommerce fraud.
Smart algorithms ease the burden of finding scam patterns and identifying fraudulent transactions. It's one of the basics of sanctions screening, considering the global scale of online business.
Stores have to process vast amounts of data, and it's hard to imagine doing that without the help of machine learning.
Having said that, ML and AI also introduce a negative aspect. Nowadays, bots use intelligent algorithms to solve CAPTCHA and other complex operations.
Another instance of where AI servers scammers is voice change. Artificial intelligence can mimic a person's voice, fooling a customer support representative talking on the phone.
To fend off artificial intelligence and machine learning fraud:
- Fight fire with fire.
- Make the most out of available resources that incorporate AI and ML and serve as a defense mechanism.
- Counter fraudster algorithms with your own.
3. Uptick in Mobile Fraud
An uptick in mobile fraud poses a significant challenge, too. Recent Statista's Market Insights revealed that mobile ecommerce sales reached $2.2 trillion in 2023.
Shopping on a smartphone is convenient, particularly when a store has dedicated iOS and Android apps as an alternative to shopping on a mobile internet browser.
The convenience comes at the cost of cybercriminals exposing mobile device vulnerabilities. Unlike desktop computers, smartphones and tablets don't come with intricate antivirus software. It also doesn't help when many devices run on outdated software, missing the latest security patches.
If a scammer creates and launches a counterfeit application, an unsuspecting user might download and install such an app. A mobile device without security measures fails to flag a threat.
A user then submits their credentials, believing that the downloaded application is legitimate. It's not the brand's fault directly, but consumers will still think otherwise, perceiving the business as insecure.
At the very least, an ecommerce business should educate its consumers about potential frauds while shopping on mobile. Introducing a 2FA security layer for mobile transactions is also worth a shout.
4. Fake and Shiny Promotions
Consumers look for discounts and jump at an opportunity to get a good deal. Peak shopping seasons, such as Christmas and Black Friday, present a perfect opportunity for criminals to use fake promotions.
One way to trick unsuspecting shoppers is by spoofing domains. Scammers register a domain name almost identical to a well-known online store and redirect shoppers there.
The idea of getting a superb deal clouds consumer judgment, and they share credit cards and other information willingly.
The criminals drive traffic by sending fake promotions from inboxes that appear genuine, having the same domain used for hosting the phony website.
Social media serves as a means to redirect consumers as well. Fraudsters create sponsored ads and push them via promotions.
Telltale signs like mismatched URLs and unrealistic offers help identify fake promotions. Unfortunately, not all consumers pay enough attention to avoid the scams.
Again, it's up to the retailers to educate customers about present scams. Furthermore, any fake ads should be reported to authorities.
5. Growth of Account Takeover
Account takeover is one of the leading fraud forms in retail ecommerce. Poor password policy is a significant issue many ignore.
When you have multiple online accounts, tracking different passwords becomes too much of a hassle, particularly if those passwords are complicated.
Fraudsters take over accounts by figuring out passwords. Smart algorithms automate the process of checking different combinations in minutes.
If consumers don't want to take action, it's up to the retailers to introduce security measures to protect the reputation and well-being of their customers.
Two-factor authentication adds extra steps to access an account. Instead of just entering login credentials (email address and password), a prompt to confirm the authenticity via text, phone call, or email exists as well.
Besides 2FA, biometric authentication is another excellent example of a security layer that makes things difficult for fraudsters.
Unique traits like fingerprints and facial or voice recognition make it more or less impossible to replicate an account holder's credentials.
6. Escalation of Friendly Fraud
Friendly ecommerce fraud involves credit card owners purchasing something and contacting the credit card company to issue a dispute to the charge.
The customer's claims seem genuine and honest, hence the term "friendly fraud". Identifying the fraud requires enough customer data.
Different customers have different buying habits, but there are universal patterns that indicate potential friendly fraud instances.
Examples of these indications include:
- Claims that the customer canceled the order and still received the item.
- Claims that the customer returned the item but didn't receive a refund.
- Claims that the purchase doesn't match the online description.
- Claims that the customer didn't receive the delivery.
Not all claims are false, so retailers shouldn't immediately jump to conclusions. However, if the complaints to the credit card company become regular, treat it as a red flag.
Customers might get away with fooling the retailer and credit card company once or twice, but once it becomes clear that such behavior is recurring, identifying and preventing friendly fraud shouldn't be too hard.
Retailers have to find solutions to prevent fraud without dampening customer experience. Some measures are inevitable, but modern solutions run in the background and shouldn't hinder genuine shoppers.
A strong strategy to mitigate the risks helps maintain the brand's reputation and encourages customers to continue shopping.