E-Commerce Fraud is growing into an industry that hurts many participants. Despite the ceaseless effort in introducing top-notch security solutions for businesses, E-Commerce fraud and its impact remain largely unknown to the majority of online merchants.
In this entry, we provide the most common explanation of E-Commerce fraud, its impact to both merchants and cardholders, as well as a conclusion.
E-Commerce is simply explained as commercial transactions happening on the internet through online stores. Transactions alike could be made from desktops, laptops, tablets, and mobile devices.
Fraud is an act of criminal deception with intentions of financial or personal gains.
With all of that laid out, E-Commerce fraud can be understood as an act of criminal deception masked by a commercial transaction with the aims of financial or personal gains, also commonly known as payment fraud. Most of the time, fraudsters of E-Commerce target online merchants who list their products and allow for payment to be done via the web. Online fraudsters’ main goal is to carry out fraud unrecognized and undiscovered.
Fraud has existed in different forms long prior to the internet’s arrival. Before the fast and powerful network that connects almost everyone, fraudsters must physically steal payment cards in order to make purchases with them. Not to mention that the process of accessing the victim’s card appears to be too risky and easily-caught itself. For lucky criminals, carelessly discarded payment card slips can be stolen from stores and over-the-phone fraud can then be attempted.
With the convenience of the internet and online commerce, fraudsters can now access and buy stolen payment cards from websites on the dark web (sites that are only accessible by specialized browsers mostly for illegal intent) then perform their fraud on unprotected online merchants. To make these illegitimate purchases, fraudsters only need to fill in the card number, expiry date, and CVV number. In more complex attempts, robots and computer programs can be used to try different card and code combinations until a match is found.
Most of the activities conducted in E-Commerce remain unseen by both payment service providers and selling merchants, therefore, it is a lot easier for fraudsters to hide their true identity. Apart from that, eCriminals are only required to have a working device and an internet connection to carry out their illegal act.
On top of that, online fraudsters further conceal themselves with fake emails and rental post office boxes that do not reveal personal information, leaving fraudulent activities untraceable.
When compared with other types of crime, online fraud does not constitute a top priority to the authorities. The possible reason behind this could be because the amount of loss resulting from payment fraud is considered insignificant as opposed to other economic crimes.
Besides, online fraud can also be conducted cross-border, making it even harder to be traced and prevented by the police. Often, domestic police departments do not have the needed authority to frame or prosecute fraudsters outside of their operating country.
Merchants are the most vulnerable to E-Commerce fraud, since the majority of them are targeted at the sellers. Losses in revenue or resource is the most obvious consequence when fraudsters attack online merchants. Being too vulnerable or having suffered from once too many attacks makes a merchant or company look unprepared and undependable, which could severely affect stakeholder interests.
When E-Commerce fraudsters involve stolen payment cards or accounts into their crime, the legitimate card/account holder also suffers from the loss and usually ends up blaming the merchant for poor transaction security.
This happens because fraudsters remain anonymous and the only accessible information to the card/account holder is about the merchant. Not being able to prevent or simply letting fraud happen could likely sabotage E-Commerce companies' reputation and relationships with the victims, which reflects badly on online retail as a whole.
Long-term brand impact serves as an influential factor in determining online shopping consumer confidence. According to Riskified, 40% of the surveyed US consumers claimed they would directly blame the seller if their account was stolen, and 66% said they would not repurchase from stores where their account was compromised.
The fast-growing rate of E-Commerce definitely has a certain degree of impact on increased online fraud attempts. This puts participants of online buying and selling platforms at risk, especially in absence of comprehensive protection. Fraud prevention has come a long way to protect merchants from anonymous online payment fraud with the help of advanced technology in identifying cardholders for transactions on their sites.
E-Commerce is predicted to continue prospering as it has proven to bring about a significant degree of convenience for participants. What this will do is create even more opportunities for businesses to expand their territories and provide their products, services to more customers without having to own a physical store. However, online opportunities are coupled with ever-changing threats that are growing in complexity over time.
Constant development and active implementation of preventive measures are urgently needed in order to safeguard activities in the E-Commerce environment. If you are a merchant looking for solutions to identify and prevent fraud, we suggest looking into 3D Secure and its related functions to find the most suitable protection means for your transactions.