Recurring Payments May Make You Susceptible to Ecommerce Fraud

So, you think you’re exempt from ecommerce fraud risk because your online business is based on recurring payments? Unfortunately, that’s not the case. In fact, you may already be approving fraudulent transactions right now. To truly protect your business and your customers, you need to understand how and why fraudsters target businesses like yours.

Why You Should Be Concerned About Subscription Fraud

The very nature of an ecommerce business based on subscription services or recurring payments makes it an ideal target for fraudsters. Why? Because subscriptions tend to be smaller-ticket transactions, which fraudsters know are not monitored with the same vigilance as high-value transactions. 

This makes recurring payments and subscriptions ripe for several types of fraud.

Friendly Fraud in Recurring Payments

One of the most common types of fraud we see with recurring payments is friendly fraud. It accounts for 61% of disputes, costing merchants over $100 billion in 2025. 

Friendly fraud happens anytime an account holder disputes a valid transaction. The reasons for the dispute vary:

• The customer may have forgotten they signed up for the subscription or recurring payment.
• The customer doesn’t recognize your business name on their statement.
• The customer experiences buyer’s remorse and opts not to go through the proper channels to cancel their subscription.

Friendly fraud continues to be among the top fraud trends for e-commerce merchants year after year. Specifically, online businesses selling subscription services can end up paying more in chargeback fees than the subscription itself. According to a 2023 Chargeback Field Report, over 90% of respondents indicated that the majority of their chargebacks stemmed from friendly fraud rather than criminal fraud.

Account Takeover (ATO) Is Another Big Risk

One of the biggest threats to ecommerce merchants today, account takeover (ATO) fraud is a go-to for fraudsters and the perfect way to take advantage of businesses selling subscription services. In 2024, account takeover fraud resulted in $15.6 billion in losses, up from $12.7 billion in 2023. 

Thanks to data breaches and hacks of big banks and social media giants like Facebook and LinkedIn, criminals can access sensitive information for hundreds of thousands of consumers and easily pretend to be those valid customers.

Because the cost of subscription services tends to be relatively low, consumers often overlook these charges on their statements until they’ve been appearing for months. And since most banks allow up to a year for a consumer to request a chargeback, the online business may find out months in that the customer has disputed multiple charges — resulting in even higher chargeback fees. 

Gift Card Fraud Also Impacts Subscription Services

Gift card fraud is a favorite among fraudsters because it’s so difficult to prevent and so easy to perpetrate. It’s also a significant issue, with 57% of consumers experiencing this type of fraud in the past year.

Here’s how gift card fraud works:

• A fraudster uses stolen credentials to buy a gift card online. 
• Then they use that gift card to make purchases. If the gift card value is high enough, they can potentially purchase a subscription from your website.

It’s the perfect crime – the gift card is generally untraceable, the legitimate account holder has no way of cancelling the gift card, and the online merchant can’t tell if the gift card was purchased honestly or through fraudulent means.

What’s at Stake for Ecommerce Merchants?

In today’s social media-driven market, reputation is everything. That means a bad review or a bad reputation can sink an online business.

If enough consumers are burned by fraudsters via your company, consumers will steer clear of doing business with you and recommend that others do the same. You can lose your brand exclusivity and reputation, as well as sales.

There’s something else you could lose as well. If your subscription-based business experiences a high number of chargebacks, you can be hit with considerable penalties and potentially lose your merchant account altogether.

How to Protect Against Subscription Fraud

To fight subscription fraud, merchants need to understand the industry and pay attention to the initial transaction.

Focus on the First Transaction

Fraudsters often use subscription accounts to test a first transaction with stolen information. The lower purchase amounts allow them to slip under the radar. If they aren’t caught, the stakes will get higher as fraudsters expand to larger purchase amounts. That’s why it’s important to carefully examine the first transaction from a new customer. 

At ClearSale, our algorithm focuses on the fraud rate for all first-time customers of subscription services businesses — not just the overall fraud rate. Any suspicious transactions or customer accounts are then flagged for manual review.

Without a thorough evaluation of the first transaction — no matter how small — you risk allowing fraudsters to gain trust and keep making purchases.

Pay Attention to Resellers

If your online business accepts debit and credit cards for exclusive subscriptions, such as wine selections and the like, you’re a prime target for fraudsters who know they can easily resell your products. Fraudsters purchase your products through the subscription (often at a discount) and resell them for more money on the black market.

Another example of reselling is when businesses sell prereleases of books and other creative content through a subscription. Again, fraudsters purchase those products or downloads and resell them at a huge demand and an increased price. Digital downloads, especially, can be resold almost as quickly as they are purchased.

Look Out for Changes in Customer Data

When it comes to detecting fraud, data— specifically, data inconsistencies — is your friend. For example, it’s natural for a customer to accidentally enter the wrong address or use the wrong credit card for a subscription purchase, but that doesn’t mean every mistyped data point is a mistake. All of those errors should be flagged for review.

Why?

Because fraudsters often change payment methods or delivery addresses after a purchase – once the screening has already passed.

Implement a Fraud Protection Solution

Overall, the key to preventing subscription fraud is balance. Online merchants need to know what good transactions look like, they need to analyze transaction data, and they must thoroughly screen new and changed accounts. The easiest way to accomplish this is by working with a trusted fraud protection partner.

At ClearSale, our hybrid fraud prevention solution involves four essential components that result in the highest approval rates and lowest chargeback rates in the industry — a key focus of online businesses selling subscription services.

Detect Obvious Fraud Using AI

Our solution starts with an AI-enabled algorithm that analyzes transactions against our massive fraud database. Because we’ve been fighting fraud since the very first online purchase was made, our global transaction database is unmatched. Using machine learning, we’re able to quickly detect fraud with certainty, while suspicious transactions (about 2%) are flagged for manual review.

Increase Approval Rates Through Manual Review

Transactions identified as potentially fraudulent are analyzed by our fraud analysts who possess the experience that comes from decades of fighting fraud around the world. The goal is to clear as many transactions for approval as possible, as quickly as possible, without compromising on chargeback prevention. In some cases, our analysis may mean contacting the customer to confirm their purchase. This “white glove” level of service is something our clients value as part of their efforts to protect their customers from being victims of fraud.

Improve Fraud Detection Accuracy Through Data Sharing

Once our fraud analysts complete their assessment, they feed the insights into our algorithm so it can “learn” about new fraud patterns and trends. This further improves the accuracy of our solution and increases the speed at which we can detect fraud.

To understand how decision speed impacts your company’s fraud prevention and overall business health, explore which decision speed is best for your business.