Why e-commerce’s rapid rise attracts fraud
E-commerce fraud is a big concern for online merchants and customers alike. As more transactions are taking place online, fraudsters have found ways to exploit website platforms, and the businesses running them. This activity is especially difficult to catch when there are a surge of online transactions, like during holiday seasons. In fact, the total cost of e-commerce fraud in 2023 is expected to reach $206.8 billion USD. But what exactly is e-commerce fraud? Some online fraud examples include using stolen or fake credit cards to make transactions, using false identities or login credentials and engaging in affiliate fraud advertising. The consequences are very serious and wide reaching, and can range from financial losses, brand reputation damage, customer churn, increased operational costs, legal consequences, strained partnerships, inventory shortages, supply chain disruptions and more. Overall, fraud compromises the security of your business and your customers.
In this article, we’ll show you the most common e-commerce fraud tactics and how you can protect your business from them. We answer questions like:
Suspected fraud rates by industry
A study showed that retail ranked second highest among the global suspected online fraud rates last year. Not only that, but retail and logistics saw the highest suspected digital fraud rate between 2019 to 2022.
13 types of e-commerce fraud to watch for
There are many different kinds of e-commerce fraud, but generally the term refers to any fraudulent activity that happens during an online transaction. Cyber criminals often use fraud to obtain sensitive information or financial gain by deceiving or stealing from online shoppers, and by tricking your website’s automated systems
Package rerouting fraud: Package rerouting, also known as interception fraud, usually occurs when a fraudster has purchased an item using stolen credit card information. They’ll use the actual cardholder’s address to make the payment so they don’t alert any fraud detection systems, and then change the address afterwards once the shipment has been confirmed. This creates a problem for the cardholder whose information was stolen, and your business will have to deal with unaccounted goods. But how do you know if an address change request is genuine or fraudulent? Some ways to identify package delivery scams include:
- Grammar and spelling errors
- Excessive use of exclamation marks or other punctuation marks
- Frequent rerouting requests
- Multiple changes of recipient information
- Shipping/billing address inconsistencies
Try working with a shipping partner who has protective measures in place. They’ll be able to verify the recipient’s information, especially if they’re requesting a reroute.
Items-not-received fraud: A popular shipping scam is when fraudsters falsely claim that they haven’t received their items. This is called items-not-received fraud, chargeback fraud, refund fraud or friendly fraud—though it’s far from friendly. When word gets out that a business readily ships replacement items for free, criminals may take advantage of this privilege by submitting a fake request stating that their order was not received or arrived with parts damaged or missing. If the business doesn’t investigate the query in detail, they may ship out a “replacement,” losing out on potential revenue.
To prevent instances of items-not-received fraud, shippers should try to ensure that a signature is obtained upon delivery. If that’s not possible, they can also take a photo of the package at its final destination as proof of a successful delivery. This is known as photo proof of delivery (POD). These measures can help establish a clear record and minimize potential disputes about the receipt of items.
Account takeover fraud: Experienced fraudsters are bold enough to directly hack into your business’ shipping account. This is known as account takeover (ATO) or hacked shipping account fraud. They might use stolen credentials to process shipments for their own benefit at your expense, similar to when making orders via a stolen credit card, except the victim is your business. The severity of these orders can vary, with some scammers using the opportunity to process personal deliveries, while others may ship large quantities of items across the country.
To stop hackers, one of the best things you can do is work with a shipper that safeguards your online shipping account using multiple protective measures. The right shipper will have a robust online billing process with payment verification steps, deterring hackers from making any orders. They’ll also regularly monitor your account’s activity to identify any suspicious behaviour or unauthorized access attempts. Additionally, they’ll require you to create a strong and unique password. You’ll also be given the option to enable email or text notifications, so you can keep an eye on account activities. To be extra safe, never share your tracking number or other details contained in these messages. Contact your shipper immediately if you suspect anything suspicious has happened.
Shopping for the right shipping partner? Get tips on how to choose an order fulfilment partner for e-commerce growth.
Supply chain fraud: Supply chain fraud can occur at any point, even before a sale has been made. Supply chain fraudsters often misrepresent their goods, pretending to be legitimate suppliers or manufacturers. It’s a kind of scam you want to be keenly aware of if you’re running a drop shipping business model. But once the payment is made, they’ll cut all ties and you won’t receive any of the items you purchased. At its worst, it can result in massive delays in your supply chain, inventory shortages, high costs and a loss of customer trust.
But how do you detect supply chain fraud? Supply chain fraud detection involves conducting a thorough investigation of a supplier before you start working with them. Check their past experience and see if you can reach out to any of their former or existing partners to verify their integrity. After you agree to work with them, continue to monitor and analyze your financial data, so you can catch any irregularities in invoices or payments. Furthermore, regular audits and reviews of your supply chain process can help identify any suspicious activities or inconsistencies.
Cargo theft: Cargo thieves usually target items in transit, often posing as employees of a carrier, stealing unattended cargo or even robbing drivers. Their motivation is usually to gather items for resale at a higher price, so they tend to focus on products that can be sold quickly and are in high demand. In the past few years, the most popular form of cargo theft takes place at the very end of the supply chain, when an item is left unattended right in front of your customer’s door. Looking for more details on cargo theft? Here’s how you can minimize the theft of your shipments and how to reduce cargo theft with loss prevention tips.
Address manipulation and reshipping: Billing and shipping address identification have always played a key part in fraud prevention. However, some fraudsters have learned to bypass these checks through address manipulation and reshipping. By using an address that either tricks security systems into thinking it’s legitimate, or a generic reshipment address instead, they can disguise their illicit purchases.
- Address manipulation is when a fraudster replaces or augments a legitimate address to trick automated fraud detection systems while also hiding their real address. They usually do this by adding extra spaces, replacing similar looking numbers with letters and inserting special symbols.
- Reshipping is a legitimate service that acts as a middleman between customers and shippers. For example, it’s usually more cost-effective to bundle international orders into one reshipment, rather than making many separate orders, but fraudsters occasionally use a reshipper’s address in place of their true delivery address to cover their tracks.
Refund abuse: Most retailers have a strict refund and returns policy, but refund abuse is when fraudsters find a loophole in that system. They’ll exploit the system by returning broken, damaged or stolen items in exchange for a refund. It’s the type of online fraud that saw the biggest increase, with merchants reporting a 60% uplift in refund abuse in 2022.
Online credit card fraud: This is the most common type of e-commerce fraud. Also known as card-not-present, card cracking, cardholder-not-authorized or online payment fraud, this kind of attack uses stolen credit card information to make purchases on a digital store, often initiating multiple shipments. Fraudsters often use various tricks to disguise their identity when using this tactic, such as sending the illegally purchased goods to reshippers or using a residential proxy to hide their IP address.
Card testing fraud: When a fraudster has some, but not all, of a credit card’s credentials, they’ll usually start card testing to make the most of what they’ve stolen. For example, cyber attackers usually don’t know if the credentials belong to a valid card or if the card has a maximum spending limit. That’s why they’ll start testing the card by making small purchases before moving on to progressively bigger orders until they’ve maxed out its limit.
Business impersonation fraud: Also known as business email compromise, this kind of fraud relies on exploiting the trust and authority of high-level executives to manipulate employees, customers or business partners into bypassing security measures. Typically, a fraudster will use phishing techniques to make their email or text message appear legitimate. They’ll mimic the writing style of a trusted executive and instruct recipients to make wire transfers or disclose confidential information under a rushed timeline. Sometimes, they may even threaten the recipients with consequences like employment termination, or extra charges for customers, if they don’t follow their instructions. Business impersonation fraud can cause significant financial losses for your organization, as well as reputational damage and the compromise of confidential information.
To protect against business impersonation fraud, you’ll need to educate your employees about its risks and warning signs. For example, train them to verify any requests for financial transactions or sensitive information through multiple channels, such as in person or over the phone, before taking any action. It’s also important to keep your customers in the loop in case they’re targeted. Let them know what to look out for if they suspect they’ve received a fraudulent email or text message claiming to represent your company.
Promotion, affiliate or loyalty abuse: Promotion abuse has become increasingly popular, and in recent years it has been used by regular customers instead of practiced cybercriminals. Ravelin, a fraud prevention company, reported that 52% of companies in 2021 noticed an increase in promo abuse, making it the fastest growing type of fraud. While a few customers cheating your promotional offers doesn’t sound bad, it can leave your business with many hidden costs if the practice continues to grow unnoticed. This can be extremely detrimental when you’re looking to save on shipping costs.
There are three kinds of promotions that some customers and cybercriminals tend to take advantage of:
- Sign-up bonuses offer customers discounts for creating a new account; however, this privilege can be abused if a customer or spam bot creates multiple accounts to take advantage of the bonus more than once.
- Referral bonuses are when customers are rewarded for referring others to your e-commerce store. This can be abused if a single customer simply creates multiple accounts and refers themselves multiple times.
- Vouchers are when webstores send out codes that customers can use to receive promotions and discounts. But when these codes are too predictable, fraudsters may be able to guess future codes and receive multiple discounts. This can also damage your relationship with your customers, as they won’t be able to redeem the codes that have already been predicted and used by fraudsters.
Merchant fraud: In merchant fraud, also known as triangulation fraud, a cybercriminal tricks an ordinary shopper to help them carry out a bigger scam. The fraudster usually creates a fake e-commerce store or sets up a false storefront on a digital marketplace. When a customer makes a purchase from the store, the fraudster steals their credit card information and uses it for their own gain.
Website theft: If a fraudster manages to hack your e-commerce platform, it’s possible that your customers’ personal data has been compromised. This is called website or data theft. It’s when a cybercriminal steals login credentials, saved credit card numbers, addresses, phone numbers, names and other personal information straight from the backend of your e-commerce store. Not only does this leave your customers vulnerable, it can also lead to more crime in the future, as the fraudster can use or sell the stolen information. A best practice in collecting customer info for online purchases is to only collect necessary data, such as first and last name and shipping information, and remove all information that’s not needed for transaction.
E-commerce and shipping fraud: What you need to know
The red flags of fraud
Here are a few warning signs that you and your employees should look out for when investigating a customer’s account. The more boxes you check off, the more likely there may be fraud involved.
- High-order volume and low-valued items: Has your customer been making many high-volume orders containing many low-valued items? If this trend drastically differs from their usual order volumes and item costs, check this box.
- Larger-than-average order: Is a recent order larger than your customer’s typical purchases? Check this box if the order includes many more items and is of a significantly higher cost than your customer’s previous orders, or if it’s the first order being made by a new customer.
- Unusual address or uncommon time of day: Was your customer’s typical shipping and/or billing address changed, misspelled or inconsistent with past orders? Are their shipping and billing addresses mismatched? And was the order made during hours outside their usual purchasing times? If you answered yes to all these questions, check this box.
- Multiple orders from many credit cards: Are there orders placed on three or more credit cards on one customer’s account? Be sure to look into the details of the individual credit cards, making sure that identifiers like name and address match. You can check this box off if you see multiple different names and addresses on the cards.
- String of orders from a high-risk country: Is there a recent string of orders being made from a new address in a different country than your customer’s usual place of residence? If so, check this box.
- Multiple declined transactions: Have recent transactions on a customer’s account been automatically declined? Whether it’s due to declined credit card payments or inaccurate shipping details, be sure to check this box if you notice that it’s a trend or if it’s followed by multiple smaller transactions that go through.
- Repeatedly expedited shipments : Have you noticed a sudden series of rushed orders being made by an account? Check this box if this activity is rare or unusual for that account.
- Various orders from the same IP address: Are there a variety of orders with different addresses and billing details being made by the same IP address? Check this box if that’s the case.
How to protect your B2B e-commerce business
Now that you know the risks of e-commerce fraud and all the different forms it can take, it’s easy to understand why fraud protection is crucial in today’s digital landscape. When it comes to businesses engaging in business-to-business (B2B) e-commerce, they need to implement robust measures to safeguard themselves and their customers from fraudulent activities. These measures include a combination of proactive strategies and reactive measures to detect, prevent and mitigate fraud risks. By staying vigilant with a multi-layered strategy and regularly training employees on how to identify fraud, businesses can significantly reduce their vulnerability to shipping and e-commerce fraud.
The following fraud protection techniques will help you ensure the integrity of your B2B e-commerce operations, while also being applicable to your business-to-customer (B2C) branches as well.
- Monitor and block fraudulent web activity: Firewalls and suspicious email attachment blockers serve as a first line of defense, protecting your business from various types of cyber threats. Firewalls examine incoming and outgoing data packets while you’re connected to the internet, applying predefined rules to determine whether to allow or block web traffic. You can set up firewall rules that specifically target known fraudulent apps or websites, significantly reducing the risk of unauthorized access or data breaches.In addition to firewalls, suspicious email attachment blockers play a crucial role in preventing e-commerce fraud. After all, cybercriminals often use email as a means to distribute malware or phishing attacks. The best email attachment blockers help detect and quarantine potentially harmful attachments, preventing them from reaching your inbox. This adds an extra layer of protection, as you’re less likely to accidentally open or interact with malicious attachments.
- Offer secure payment technology: Another way to protect your business against e-commerce fraud is to implement various secure payment technologies. For example, using HTTPS websites. HTTPS ensures that the communication between your customer’s browser and your website is encrypted, reducing the risk of data tampering. Additionally, requiring customers to input their Card Verification Value (CVV) for all purchases adds another layer of security. The CVV is a three-digit code found on the back of credit cards that helps verify that the customer making the purchase physically possesses the card. By combining these measures, you can mitigate the risk of e-commerce fraud and enhance the overall security of your online transactions.
- Implement fraud detection software: Fraud detection software allows you to identify and prevent fraudulent transactions in real time, minimizing the potential impact on your operations. These software solutions employ sophisticated algorithms and machine learning techniques to analyze data and detect patterns associated with fraudulent behaviour. By automatically flagging suspicious transactions on your online store, you can take immediate action by investigating further or by blocking the transaction to mitigate the risk of fraud.
- Train your employees to identify and report fraudulent emails and transactions: If you provide your employees with the necessary knowledge and skills to recognize fraud, your entire organization will stand a better chance against cyberattacks. It doesn’t take much time to educate your team on the common red flags of suspicious emails, such as unofficial email addresses, grammatical errors and urgent requests for sensitive information. The same goes for suspicious orders and transactions. Train your staff to look out for signs like unusual transaction patterns, rapid movement of funds, multiple accounts involved in an order and inconsistencies in customer information. Additionally, when your staff are assigned to manually review orders, encourage them to promptly report any suspicious activity they catch. By prioritizing employee training, you can strengthen your business’s security measures and foster a culture of vigilance.
- Collect only the minimum required customer data: By limiting the amount of customer personal information you store, you reduce the potential risk of exposing sensitive data if a breach occurs. It also makes your company’s database less desirable to hackers and fraudsters, as there is less valuable information to exploit. Collecting only strictly necessary data—such as first and last name, shipping address, phone number and email—helps safeguard your customers’ privacy and ensures your site complies with data protection regulations.
- Use an address verification service: When your customers provide their address during an online transaction, you can check its legitimacy by using an address verification service. This can prevent fraudsters from using stolen credit card information, or shipping products to reshippers and non-existent addresses. Address verification services utilize databases and algorithms to compare a suspicious address against official records and postal standards. By implementing this service, your business can reduce the risk of fraudulent transactions and minimize chargebacks.
- Stay vigilant during the holiday season: With the jump in online shopping activity during the holidays, fraudsters often try to take advantage of the busy and distracted environment. To stay proactive, your business can implement several strategies:
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- Monitor and analyze customer data to detect any suspicious patterns.
- Implement an authentication process to help verify the identity of customers.
- Keep your software and systems up to date with the latest security patches.
- Prepare employees for the holiday season by reviewing common fraud techniques.
- Consider maximum order amounts: By setting a maximum limit on the amount that customers can order, you can mitigate the risk of potential fraudulent transactions. This limit acts as a preventive measure, as it makes it more difficult for fraudsters to make large purchases. It also serves as a deterrent, discouraging fraudsters from targeting your business in the first place.
- Implement a time limit for returns: Setting a specific time frame for returns can help minimize the risk of fraudulent activities, such as items-not-received fraud or refund abuse. This time restriction creates a sense of urgency for customers to make legitimate returns or purchases. By setting a time limit, you’ll have a legitimate reason to reject late returns. It also makes it easier to track and monitor return patterns for customers who repeatedly refund products. But this doesn’t mean you have to make returns difficult for your customers. Here’s how to create an easy and hassle-free e-commerce returns process.
How Purolator can help bolster your anti-fraud tactics
As a leading provider of integrated freight, packaging and logistics solutions, your e-commerce shipments are our top priority. Our shipping solutions combine convenience with protective measures, so you get the best of both worlds when you choose to ship with us.
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- Ship without worries in our closed loop network: Trust in our closed loop network. We use 97% of our own assets, which means your shipments will have minimal third-party contact with no hand-offs and brokering, which leads to reduced risk of damage or theft. Our vast network covers 100% of Canadian postal codes, so you can send products almost anywhere in the country, knowing they’re in the right hands.
- Our trucks are TSR certified: Know that your ground shipments are protected, as all our trucks have the Transported Asset Protection Association (TAPA) Level 1 Trucking Security Requirements (TSR) certification.
- Keep track of your critical deliveries: We offer a Mission Critical service to fulfil your most urgent deliveries. With best-in-class tracking and route optimization, you’ll have complete visibility into your most vital shipments.
- Get accurate estimates for shipments to the U.S. and internationally: Count on us to give you the right estimates for all your cross-border shipments, so you can show your customers accurate shipping charges. Begin by telling us where and when you want to ship.
- Combat fraud with a TAPA-certified shipper: As a TAPA-certified company, we meet or exceed all standards when it comes to protecting your shipment. Prevent package rerouting and hacked shipping account fraud with our expertise. All our online shipping orders and accounts are monitored for irregular activity, and we collect data for analysis and collaboration with industry security professionals, ensuring proper controls and practices are in place. On top of that, our facilities use cameras, thermal imagery, radar and communication networks to catch any suspicious activity. Last but not least, we provide all our employees with extensive and ongoing anti-fraud training.
- Our billing process is protected: We use integrated web shipping tools and authentic billing procedures to protect against scams or fraud. The Purolator Billing Centre uses payment verification steps to verify genuine transactions. And our Purolator E-Ship ® EDI (Electronic Data Interchange) tool allows you to consolidate invoices from all of your shipping locations, so you can easily spot any inconsistencies or suspicious payments.
- Clearly identify your shipments with our label creation services: You can easily create and print a shipping label online in minutes. Start preparing your shipment now and make labels with our user-friendly QR codes. And if you ever suspect a shipment has been lost or damaged, filing a claim is fast and easy.
- Give your customers a personalized shipping experience: Improve your customer experience with Purolator Your Way. Your customers will gain total visibility into their shipment’s journey with SMS notifications at every stage and tracking for each individual package. They can also fully customize the last mile of delivery with features like:
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- Flexible drop-off and pickup points with over 2,500 Purolator retail agents and Mobile Quick Stop locations throughout Canada.
- A next-day delivery guarantee via our wide range of courier services.
- Instructions for buzzer codes or specific drop-off locations.
- Added protective measures like Adult Signature Required or photo proof of delivery.
- A personalized customer service experience so recipients get the support they need, even en route! And if they happen to miss a delivery, there will always be clear next steps for how to receive it. Learn more about how you can win the last-mile challenge with the right shipping partner.
E-commerce shipping fraud continues to pose a significant threat to both businesses and customers. By knowing how to detect and identify e-commerce shipping fraud, and by taking steps to prevent and protect against it, you’ll be able to minimize its impact on your e-commerce business. But you don’t have to tackle this massive problem all on your own. Work with a trusted shipping provider who offers reliable payment methods and total visibility so you can rest assured that your customers are receiving their orders without a hitch.