Discover the Main Fraud Schemes in Retail Business and Ecommerce

Fraud schemes represent significant challenges for ecommerce businesses, which is why it's important to understand the main threats and how to mitigate them.

Retail companies and ecommerce businesses face ongoing fraud challenges that can lead to significant losses, high mitigation costs and damage to brand reputation.

In this article, we'll explore the main types of ecommerce fraud, highlighting their financial and reputational impacts, as well as discussing detection strategies and Threat Intelligence solutions to identify suspicious activities. Let’s get started!

The Three Main Types of Ecommerce Fraud Schemes

Ecommerce fraud schemes represent true threats against businesses of all sizes, requiring them to implement robust security measures such as multifactor authentication and other resources. Here are the primary fraud attempts:

Payment fraud

This type of financial fraud involves false or fraudulent transactions during the online payment process. Scammers use stolen, cloned or counterfeit credit cards to make online purchases -- or they may use third-party payment information.

Fraudsters also exploit chargebacks or make false reimbursement claims after deliveries of products or services, leading to financial losses for businesses.

Account fraud

In this scheme, scammers obtain unauthorized access to clients’ accounts with online businesses. This can happen in a variety of ways, such as phishing, where clients are tricked into divulging login and password information.

Those who commit fraud can also employ hacking techniques to access client accounts. Once they gain access, scammers can make purchases, alter payment details or even steal personal information.

Delivery fraud

This type of fraud occurs during the product delivery process. Scammers can provide fake delivery information or use third-party delivery addresses to take receipt of fraudulently acquired products.

They can also allege that they never received the products (even in cases where these were actually delivered), seeking to obtain reimbursements or reshipment of the articles. Some scammers can also return damaged products or replace them with lower-cost articles prior to the return, causing companies to suffer financial losses.

Financial and Brand Reputation Impacts

Ecommerce fraud can directly result in financial losses, and the erosion of customer trust can have a negative impact on sales and the company’s brand image in the marketplace. The main impacts are discussed below:

Direct financial losses

Ecommerce fraud can cause the company to suffer direct financial losses. These include the cost of the products or services that were fraudulently acquired, costs associated with chargebacks and reimbursements to legitimate customers affected by the fraud, expenses related to investigating and resolving fraud incidents, and costs involving the implementation of additional security measures.

Costs related to fraud prevention and mitigation

Once a company has been the victim of fraud, it will frequently invest in additional security and preventive measures. These can include implementing advanced fraud detection systems, hiring cybersecurity specialists, updating policies and procedures, and training employees to recognize and manage fraudulent activities.

Impact on earnings and profitability

Beyond the direct financial losses it causes, ecommerce fraud can affect a company’s earnings and profitability. Customers who have been affected by fraud can lose confidence and decide to buy elsewhere. This can result in lower sales, a reduced client base, less revenue and fewer benefits.

Damage to brand reputation

When a company is publicly exposed as a victim of fraud, its reputation can suffer significant damage. Customers’ perception of a brand’s security and reliability may be compromised, leading to a loss of confidence. It may prove difficult to recover from a hit to brand reputation, and this situation can have a negative long-term effect on the company’s financial performance.

Legal and regulatory impact

Depending on the nature and scope of the fraud, the company can also face legal and regulatory consequences. These can include investigations by government authorities, demands from affected customers, and fines for failure to comply with data security regulations or for breaches of privacy — in addition to damage to the company’s public image with respect to regulatory agencies.

Protection Measures to Monitor and Reduce Fraud Risk

Against this backdrop, how can companies guarantee their ecommerce sales are secure? It starts with investing in security.

Cyber Threat Intelligence solutions play a crucial role in fraud detection, connecting open-source investigations to identify suspicious patterns and behaviors.

This technology utilizes advanced analysis of data and threats to identify possible fraud and proactively take steps to mitigate risks. To stay protected against ecommerce fraud, businesses should adopt efficient protective measures, such as proactive monitoring performed by threat intelligence experts.

In addition, investing in advanced fraud detection technologies, like those available from ClearSale, and implementing rigorous security controls can help reduce the risk of malicious attacks and protect the company’s integrity with respect to commercial operations, customers and reputation in the market.