7 Types of E-Commerce Fraud You Must Know and How to Avoid Them

7 Types of E-Commerce Fraud You Must Know and How to Avoid Them

Building a new business is difficult at times. It can be stressful and costly to boot, and you will not always cut a profit. This goes doubly so for up and coming businesses or first-timers.

One might be asking what kind of E-commerce fraud there is. Well, there are seven types, and we will list them below:

1. Classic Fraud

2. Triangulation Fraud

3. Interception Fraud

4. Card Testing Fraud

5. Account Takeover Fraud

6. Fraud By Identity Theft

7. Friendly Fraud (Aka Chargeback Fraud)

E-Commerce fraud, or fraud that hits you in the form of electronic sales, can cripple or outright kill a business. Below we will dive into the various forms of E-commerce fraud, define them individually, and give some tips on how you can go about avoiding these sinkholes.

What Is E-Commerce?

Taking a step back, so everyone is on the same page, E-Commerce in itself is simply the purchase and selling of things over the internet. This business model in itself can be broken down into four basic categories.

  • Business to business
  • Business to consumer
  • Consumer to consumer
  • Consumer to business

Running with the above information, most of us have a firm grasp of what business to consumer sales look like. Anything ranging from your basic transactions with your electric bill to your personal internet services would be an example of a company to consumer, would fall into this category. 

A business selling critical desks to another company for employees would be business to business; consumer to consumer would be like a farmer selling some of his crops to you.

A consumer-to-business interaction could take the shape of an influencer working for a business to generate traction to their website. Customer reviews would fit in here as well, and potentially even participating in select focus groups.

What Are The Types Of Frauds In E-commerce?

Now that we have laid the groundwork for what e-commerce is, understanding what types of fraud can happen whilst participating in this facet of the economy can be broken down much more efficiently.

These methods are defined by the interaction required to cause it, how it is done in the first place, and finally, the impact it sets your company up for.

It is worth keeping in mind these are the broad definitions of these fraud types, select changes and steps may make them a more intricate version, but they would still fall within the same category.

1. Classic Fraud

The original tried and true method of fraud, you cannot skip the classics you know, that or the criminal is not intelligent enough to do anything better.

Essentially someone with ill-intent obtains the credit card information of another person and utilizes said information to make purchases in their name. 

People can obtain the victim's credit card information in a myriad of ways. Still, most often, active people in this community will receive the data via the dark web, with any fraudulent purchases being sent to what's called a "reshipper" to obtain the ill-gotten goods.

In most cases, purchases under this banner are made behind internet proxies, so tracing the source of the fraud is incredibly difficult.

2. Triangulation Fraud

© Fraugster

If you thought a love triangle was complicated, wait until you get a fundamental understanding of triangulation fraud. In this, as the name might suggest, there are three involved parties.

That of the e-commerce store, the fraudster, and the final participant, granted unbeknownst to them, the legitimate shopper. 

In this scenario, the legitimate shopper approaches the fraudster looking for high-demand goods at ridiculous prices. To this end, the fraudster collects the credit information of the shopper. It uses that newly obtained information to purchase goods directly from a legitimate website, shipping them to whoever's name they obtained in the process. In most cases, people can trace this one back through the bought products and the storefront where you purchased said goods.

3. Interception Fraud

Anyone in trading dislikes a middle man because splitting profits is painful in itself, but this method takes that ideology to an entirely new level.

This fraud method would see the criminals altering the product's shipping information before it is sent to the correct address and have it delivered to a different location so they might steal the product itself.

Another more risky variant of interception fraud can come into play depending on how close the criminal is in proximity to the victim.

Assuming they are close enough, the fraudster would lay in wait by the customer's house, anticipating the arrival of the package and nab it before the customer can obtain it.

4. Card Testing Fraud

As you might guess, this one is broken down into obtaining any credit card information and attempting to check it for validity. Once the credit card information is "good," aka being used at another location, the fraudulent act commences.

In this particular fraud base, more talented fraudsters, or in most cases, bots, will be able to know when a wrong expiration date is given and repeatedly ask different questions to obtain the correct information in a concise amount of time.

Some of the more rudimentary aspects of this scam might come from something as short-handed as saying, "We'll run the card for just 1$, and once it goes through, we'll schedule the full balance for a day of your choosing!".

5. Account Takeover Fraud

While imitation is the most sincere form of flattery, nothing about this fraud is going to make anyone blush unless, of course, losing money is something you desire. In this method, the criminal obtains the correct login information of the victim, and in turn, uses that information to utilize any stored or listed credit cards and make fraudulent purchases.

As you might imagine, living on the cutting edge of technology is causing this particular method to boom, especially with the recent surge of data breaches many businesses suffer from.

The final nail in the coffin for this fraud variant occurs when the criminal changes the delivery address to ensure they obtain the wares.

6. Fraud By Identity Theft

Identity theft is more often than not self-explanatory. This is the act of assuming someone else's identity for financial gain, which is done by taking the person's personal information. People then create a multitude of credit cards or additional accounts in their name, all with the sole purpose of making fraudulent purchases afterward.

The same way data breaches are effectively saturating the above kind of fraud, this method is blooming from it to an even higher degree, with matching a person's identity being child's play with pocketed information from a data breach.

7. Friendly Fraud (Aka Chargeback Fraud)

Last but certainly not least, we have chargeback fraud. This one is committed when someone attempts to make an online purchase and immediately issues a chargeback on the account, stating that their information has been stolen.

Essentially they wait for the product to be delivered, then say it either never arrived, was damaged, or some other method of attempting to get the money back. Oddly enough, this one is typically committed more often by your average consumer than experienced criminals.

How Do You Identify E-Commerce Fraud?

Even with all the information above, identifying e-commerce fraud is still a complex and often grueling process. This is because so many steps can be altered or unique to a situation that coming up with the culprit's information can become impossible to all but the most experienced trackers. 

Despite this being the case, you can be active in your defense against fraud and take intuitive steps to ensure you have the advantage over would-be fraudsters and have operational reasons in place for your company and finances.

Preparation for each type of fraud will be the heaviest deciding factor in this equation, and whether or not you will be able to keep yourself or your customers safe.

1. Customers Create New Email Addresses To Make Purchases

Utilizing things like email insights can help make this notable portion of fraud reasonably conspicuous. Still, suppose an older account spontaneously registers a new email. In that case, it's something to take note of, especially considering the older the original email contact date, the more established the rapport is with said customer.

2. Customers Place Higher Or Lower-Than-Average Orders

Taking note of how much product an older customer is purchasing may be a quick indicator that some manner of fraud has occurred, especially purchases in large quantities or less than average.

This is because an influx in the investment can indicate a change of the individuals themselves over the product's general need. Being vigilant over this aspect of your business or having someone in place to monitor this is essential for keeping fraudsters at bay.

3. Customers Place Multiple Orders In Quick Succession

Seeing this happen, or more specifically, a multitude of attempted purchases occurring back to back, the newly acquired fraud may be trying to test the boundaries of the card itself and mark themselves all the more evident for it.

This information is crucial to them because it shows which of the cards listed are active and allows them to plot a map of sorts in how many purchases they can make next.

4. Customers Pay More For Expedited Shipping

In this instance, you are looking at a customer breaking the norm for faster shipping despite not typically tend to do so.

This is because a fraudster would know that stolen credit info has a very short lifespan before it is canceled, and as such, the faster their ill-gotten gains arrive, the better for them.

It's rather obvious, but this ties in quite nicely with customers placing substantial orders outside the norm because the criminal stands a much better chance of profiting and getting away with it in general.

5. Customers Ship Items To Unusual Locations

A change of address should be a red flag by default, especially if the difference to addressing is outside of the state, or worse, country.

This is because it sets the precedent that it's someone different attempting to get the goods than the original owner

It is especially true if the address changes don't have notes specifying why or aren't marked as being gifts.

6. Customers Use Multiple Shipping Addresses

In most cases, a customer will only have but a single, or maybe two depending on the business type. Still, for a customer to suddenly have a multitude of shipping addresses, more so with the change happening overnight should be a considerable call sign there is a fraud attempt being made. 

7. Customers Use Shipping Or Billing Addresses That Don't Match Their IP Addresses

These instances can easily be fraud attempts due to the apparent discrepancy in the information provided and listed. The IP address given from someone's digital connection shows where they are located when they purchase.

If this doesn't line up with the listed address, it's worth notifying the customer or asking for more detailed information on the investment.

8. Customers Use Multiple Cards From A Single IP Address

In much the same way utilizing a different address from a separate IP address, multiple cards from a unique IP address indicate the same yet different problem.

People can own several cards; they typically won't use them separately for the same purchase types. In such an event, it's wise to reach out for clarity before you or your business ends up potentially paying the price.

9. Customers Ship Multiple Orders To The Same Address Using Different Cards

Yet another variant of the above guides, essentially the rule of thumb on these instances, is significant discrepancies of information or purchase patterns that don't make logical sense. If it's outside the norm of the customer, or yourself, there is obviously a problem that is at the very least work looking into.

Ensuring Your Safety

All of the above scenarios have a tinge of suspicion about them, ranging from minor discrepancies to being outright blatant in how obvious they are. Despite this being the case, they are vital factors to consider to identify potential fraudulent advances on your customers or yourself. 

While in the motions of protecting yourself, here are a few key takeaways in how you might better protect yourself or your clients from fraudsters. Keep in mind the amount of diligence put into protecting yourself or your customers will ultimately yield similar results.

Guaranteeing that your company or the one you are dealing with has a native real-time chargeback prevention solution can allow you to take action before either side incurs any losses. You can inquire about this directly with a representative or look into a company's policies to see if they have this in place.

Ensuring your passwords and private personal information are well guarded and cryptic unless absolutely necessary is your bread and butter to have a strong defense here, or encouraging your consumers to have this kind of information from a business perspective.

The more extravagant the password and protection guarding your information, the less likely you will be compromised. This also goes hand in hand with only going to reputable websites and clicking on trustworthy links. One wrong choice can get a keylogger on your device and make your information forfeit. 


Ultimately fraud is something that will happen if criminals are allowed to do so. Protecting yourself fiercely with dedicated passwords of a complex variable and being very close pocketed about your personal information will provide you with, as a consumer, the best chance of not becoming a victim of fraud.

As a business owner, it's your responsibility to protect customers from fraud and provide great scrutiny over purchases that go against a customer's normal tendencies or break out of traditional buying patterns.