How to Protect Your E-commerce Business From Online Fraud

Online fraud is a major challenge for e-commerce businesses. It can cost you money and put your customers’ sensitive data at risk. E-commerce businesses owners need to be proactive to prevent online frauds and take the necessary precautions to protect their customers. In this blog, we’ll be diving into the different types of online fraud and how you can reduce your risk.

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Common Tactics Scammers Use

Over the years, technology has evolved to prevent scammers from finding success. However, this means scammers have also become more sophisticated with their tactics. Some of the most common forms of fraud include:

  • Credit card fraud
  • Affiliate fraud
  • Phishing
  • Friendly fraud
  • Triangulation

We’ll dive deeper into each of these types of fraud in just a bit. But first, how susceptible is your business to these types of scams? Are they something you really need to worry about.

What Kinds of Companies are Prone to Scams?

The truth is that nearly every business is prone to scams. E-commerce sites are especially prone to scams. Any business that utilizes online transactions are vulnerable and at risk of being targeted by scammers.

While you may think that you can avoid scams, it’s not worth the risk to be unprepared. Every business should prepare for scam scenarios and make sure their business and customers are as protected as possible.

The Different Types

One of the best ways to avoid scammers is to be familiar with the different types of scams. Knowing how these scams work can help you take proactive measures to prevent them from happening. Let’s take a look at some of the most common scams.

Credit Card

Credit card fraud refers to fraud committed using credit or debit cards. Scammers will use stolen credit card information to purchase products and services from e-commerce merchants. This can happen due to a cardholder losing their card or being scammed themselves. Hackers can also sometimes get this information from data breaches and leaks. Credit card numbers can even be purchased on the dark web.

E-commerce merchants need to be wary of card testing scams in particular. These scams involve fraudsters attempting to use multiple credit cards to find out which are still active. These scams can lead to chargebacks and hits to merchant revenue.

Merchants should make sure they have credit card fraud prevention measures in place to prevent these scams. Identify verification, address verification systems, and card security codes can help prevent credit card fraud.


Affiliate fraud is when scammers illegally manipulate affiliate marketing systems to get fraudulent commissions. The legal way to use affiliate marketing involves merchants giving affiliate partners unique web links to promote their products and services. The affiliate receives a commission from the merchant when a shopper clicks on the link and converts.

Scammers can use this system to their advantage, generating fake purchases or tracking links to bring in commissions. Typosquatting is another way that scammers take advantage of the affiliate system. Typosquatting is when a scammer registers misspelled domain names of websites and redirects to the real URL with an affiliate link.

Merchants need to stay on top of affiliate activity and look at analytics to ensure scams aren’t happening. Fraud prevention tools can also help protect from these threats.


Fraudsters will sometimes use phishing scams to trick customers into giving them information to log in to their e-commerce accounts. Many sites will have customers set up accounts to store information for future purchases. A scammer may send something like an email that tricks a customer into entering their username and password. These phishing schemes can look incredibly legitimate, which is why even discerning customers can fall for them. Once the phishing scam gets this confidential information, the fraudster can log in to the customer;s account and make purchases, change passwords and get access to other personal data.

E-commerce sites need to make sure they’re encrypting and protecting customer information. There should also be security setting in place for customers that notifies them of suspicious activity, so they can lock their account as needed.

Friendly Fraud

One of the most common scams used against e-commerce merchants is friendly fraud. Friendly fraud occurs when shoppers make a purchase with the intention to return the item or dispute the charge. A shopper may claim the item never showed up or that the product didn’t meet expectations. This can be a difficult form of fraud to fight or prevent.

This can be especially frustrating, because some scammers may frequent your site to appear legitimate before pulling the friendly fraud scam. Of course, there are also the customers that are genuinely wanting to return their product or are dissatisfied. It can sometimes be difficult to discern these customers from the scammers with bad intentions.

Again, fraud protection measures go a long way to helping minimize friendly fraud. Having customers create accounts, tracking order history and providing excellent customer service are good ways to reduce cases of friendly fraud.


Triangulation, as the name implies, is a three-step process that is used to scam e-commerce merchants. The first step involves creating a fake online storefront that collects customer data. Once the scammer has this data, the second step is to purchase the items the customer ordered from the real store and ship it to the customer. Finally, the scammers will eventually use the customer data to make additional purchases and ship the items to themselves.

Triangulation can be hard to detect, since the customer receives their purchase and has no reason to suspect anything is going on. Strong security measures that detect suspicious activities can help you crack down on this tricky scam.

Look Into Chargeback Protection

As mentioned earlier, chargebacks can be detrimental to your revenue. When a customer fraudulently requests a chargeback, you’re out the inventory and the money. Fortunately, there are services that are designed to protect you from this common scam.

Charge protection services can provide enhanced security measures that detect this type of fraudulent activity. You should also make sure to regularly check your chargeback rate, ensuring it’s not higher than usual. Remember to clearly outline your chargeback conditions and always provide top-notch customer service, so you can reduce the number of chargebacks overall.

Run a Security Audit

Security audits are one of the best things you can do to minimize online fraud risk. A comprehensive security audit will involve taking a look at your site and finding vulnerabilities and potential security risks. A security audit should also identify opportunities for updates and improvements.

As weaknesses are identified, you should have solutions to fix these weaknesses and strengthen your security. It’s important to note that you should be conducting security audits on a regular basis. You security needs will evolve and you need to ensure your system is up to date and ready to take on the latest security threats.

Determine Best Practices for Company Passwords

E-commerce businesses need to have strong passwords in place to protect their site from cyber threats. All company passwords should be complex and unique. This means that passwords should be at least 15 characters long and contain a mix of lower case and upper case letters, numbers and special characters. The same passwords shouldn’t be used for multiple company accounts, because obtaining one password would allow a hacker to access other company software platforms.

You should also be updating passwords on a regular basis. Ensure your employees are informed of your password best practices and enforce the policy so you can minimize points of access for hackers. It can be helpful to utilize a password manager to keep your various passwords organized.

Be Able to Recognize the Warning Signs

One of the best ways to stay on top of fraud is by being familiar with the warning signs. Here are some common red flags to be aware of:

  • Rapid transactions - If there are numerous transactions happening in a short amount of time, there may be a risk of fraud.
  • Inconsistent data - If a customer’s data is changing often, it could be a sign they are committing fraud
  • Unusually large orders - Sometimes large orders can be a sign of fraud
  • Consistently declined transactions - If a customer’s payments are being declined over and over, it may be fraud
  • Shipping to multiple addresses - If a customer is shipping multiple orders to multiple addresses, it could be fraud
  • Location - It may be fraud if you receive random orders from locations you don’t usually serve, or if multiple orders come in from a new country.
  • Multiple credit cards - If a customer is making multiple orders with multiple cards, it may be fraud

While these occurrences don’t automatically mean that you’re being scammed, they can be warning signs that you should monitor and check on.

Educate Your Team on What to Look Out For

Once you know the red flags to watch for, make sure you’re educating your team on these red flags as well. Your team should be familiar with the different types of fraud and the suspicious activity that could indicate fraud. Include this information in your training materials and hold regular training sessions to make sure they’re aware of any new updates or changes.

Make sure your team also has processes in place to report when fraud occurs or when they see suspicious activity. Give them the tools and the resources they need to prevent fraud from happening. Having a well-educated team can help you catch potential threats and reduce risk overall.

Be Wary of Urgent Requests

Fraudsters will sometimes make urgent requests that push businesses to make rash decisions. They may also do this when phishing and sending emails or texts to your customers.

These urgent requests may tell a customer that they need to log in due to a security issue. This leads to them getting customer information. They may also try to send these scams to employees, trying to get company login information. These scams can be prevented by doing due diligence, ensuring a customer is legitimate and having processes in place for responding to requests.

Ensure You Are PCI Compliant

All e-commerce businesses need to make sure they are PCI compliant to reduce their risk of online fraud. PCI refers to the Payment Card Industry Data Security Standard, which is designed to protect customer credit card data. You must adhere to the outlined security regulations to be compliant.

You must also ensure you’re monitoring PCI standards to ensure your compliance measures are up to data. Being compliant with PCI will ensure you’re protecting your data and customer data from fraudsters. It’s also worth noting that failure to meet compliance standards can lead to fines.

Always Be On The Lookout For Suspicious Activity

In general, e-commerce businesses should always be vigilant and look out for suspicious activity. If customer behavior changes or you notice strange transactions, you should have processes in place to check on this activity and monitor it.

This also means being aware of the latest fraud trends and scams. Make sure you’re doing regular research to find out new ways e-commerce sites are being scammed. It’s essential to do everything you can to protect customer information and your sensitive business data. Diligence will allow you to always stay on top of the latest security standards and respond quickly when a scam scenario does arise.

Ask For CVV Numbers for All Purchases

E-commerce businesses can reduce online fraud by always asking for a customer’s CVV (Card Verification Value) numbers to complete a transaction. A CVV is necessary to confirm that a customer has the physical card in their possession. Also, you should require additional authentication steps like providing a billing address and ZIP code to help authenticate a customer’s identity.You should also have SSL encryption in place to protect financial information during transactions.

Clearly Outline Your Policies

All of your fraud policies should be clearly outlined and stated. Make sure you inform your customers of the dangers of fraud and potential threats. Also make sure you outline how fraud is handled, so fraudsters know the potential penalties they might face for committing fraud. This provides your customers peace of mind while also discouring fraudsters from seeing you as an easy target. This information can be contained in the privacy policy or another informational section of your site.

Only Collect the Data You Need

Only collecting the customer data you need is a great way to minimize the risk of online fraud. Customers should only need to enter the information required to complete their purchase. Providing unnecessary information, like social security numbers, will only increase risk for your customers to have their identities stolen. Also, make sure you’re protecting the data you do collect. Have comprehensive encryption and security measures in place to make sure customer data stays safe.

Finally, you should make sure you’re letting customers know about your data collection policies. Inform them about the data you’re collecting and why. Transparency creates trust between the merchant and customer. This will make them feel safer shopping with you.

Keep Detailed Records

Keeping detailed records of customer transaction history can help you detect anomalies and discrepancies in transaction activity. If you notice something is suspicious or abnormal, you can monitor that activity and potentially prevent fraud before it happens. You can keep detailed records by ensuring you have tracking and reporting software in place to help you keep tabs on customers and transactions.

Build Your Marketplace With Confidence Using the Dots API

If you’re a marketplace looking for a comprehensive and secure payout solution for your e-commerce sellers, Dots is your solution. Dots is a payout API that allows you to offer sellers multiple payout rails to send and receive payments. Dots also automates tax collection, transaction tracking and many other parts of the payment process. Schedule your demo with Dots today to learn more.