11 Types of Telecommunications Fraud: How to Detect & Prevent It

by Gergo Varga
Ecommerce is fast-paced, competitive, and at times challenging. The last thing you want to worry about is how to deploy a RiskOps or fraud prevention system.
And yet, as we’ve seen time and time again, every online store owner soon realizes that they must protect themselves against fraudsters. In fact, the COVID-19 pandemic has greatly accelerated this need, as fraud rates skyrocketed by 70% during the health crisis.
This is why, in this article, we’ll go through the most common attacks on online stores, and we’ll give you pointers on how to defend yourself.
Now let’s get started with some basic definitions.
Ecommerce fraud includes any kind of malicious action designed to exploit online stores. The most common attacks are related to fraudulent transactions, made with stolen credit card numbers. However, ecommerce fraud increasingly takes the form of account takeover or return fraud, among other methods.
While ecommerce allows retailers to access a global audience, it also opens the door to bad agents who can impersonate customers to attack online stores. Using false information and stolen credit cards, they can purchase goods and services in order to resell them.
One of the most impactful consequences of ecommerce fraud are chargebacks. Having a high-chargeback rate due to ecommerce fraud can fray your relationship with card networks, which could qualify you as a high-risk commerce with higher credit card fees.
Here are seven examples of how fraudsters may target your ecommerce in order to exploit it:
Transaction fraud happens when bad agents make purchases with stolen credit cards. This is also known as credit card fraud, or CNP (card not present) fraud.
When this happens, you will have to accept that you lost a sale, and issue a refund to the legitimate cardholder when they ask for a chargeback.
To make matters worse, if too many chargebacks are requested on your site, the card network may put you in a high fraud target category, where the fee you pay for processing each payment will increase.
Friendly fraud, or first-party fraud, tends to fall into three categories:
These attacks also result in chargeback fees, so the problems are essentially the same as with standard transaction fraud – with the added challenge of having to prove the cardholder’s bad intention when disputing the chargeback.
Another booming trend sees fraudsters abuse online stores’ return policies, often in combination with transaction fraud. Here are ways in which they attempt to exploit online merchants:
While it is a from of both return fraud and friendly fraud, it is worth highlighting the exploit known as wardrobing.
It is one of the most common return fraud tactics in the world and it happens when users purchase an item of clothing with the intention of wearing it for a short period of time and returning it later. This used to be a problem for brick and mortar shops, and it’s even more frequen with online purchases, where the buyer does not have to lie to a shopkeeper in person.
A report by the Retail Technology Review claims that wardrobing costs retailers £1.5bn ($1.89bn) per year.
Triangulation fraud it involves a legitimate customer, a legitimate online store, and a fake online store operated by a fraudster who has access to stolen credit card details.
In this scenario, the initial seller receives the item they paid for. The marketplace seller appears legitimate to them. But behind the scenes, someone’s money is stolen, and it’s you, the online store, that has to refund it, despite shipping an item.
If your online store lets customers hold store credit in their accounts, they effectively become e-wallets. This is a strong incentive for criminals to steal the accounts, which is known as an account takeover.
Account takeover fraud is extremely damaging, as it is the gateway to more fraud. For instance, once a fraudster has access to one of your customer accounts, they can mine it for personal information and commit more crimes.
It also damages your reputation as the customer is likely to complain about their account being “hacked”, shifting the blame on your security.
As the online store landscape becomes increasingly competitive, retailers attempt to attract customers with coupons and bonus offers. Once again, this is a strong incentive fro fraudsters.
In order to abuse your bonus programme, they will create multiple accounts and refer themselves. This can damage your bottom line, hurt your marketing efforts, and see you lose profit on items which could have been sold at full price to a legitimate customer.
Considering new ecommerce fraud prevention software? Read our insider tips on choosing what works for you and discover impartial reviews of several options.
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There are three key stages where you should focus your ecommerce anti-fraud efforts. These are the signup, login, and transaction stages. Let’s look at what works.
All of the above can be implemented via the right ecommerce fraud detection software, which should include features such as risk rules, risk scoring, user fingerprinting, and even machine learning to suggest better risk-management ideas.
Note that while some platforms like Shopify or payment gateways like Stripe offer built-in ecommerce fraud detection and prevention, their tools will not be advanced enough to flag more complex attacks such as triangulation fraud. That’s why it is key to have a robust system for online fraud detection & prevention.
Here are a few common data points to monitor, in order to be protected:
You have a few options here.
You can take all the above data points and perform an in-depth manual review, to confirm whether you are dealing with a legitimate customer or not. But because time is often of the essence when shipping products (especially digital goods), it’s worth combining all these data points together and feeding them through automated risk rules.
You can also perform behavior analysis, which will not just highlight suspicious data points but also flag risky customers over time.
For better fraud protection, your strategy should include ecommerce fraud prevention tools such as:
A good ecommerce fraud solution allows you to sift through all your customers’ data to find suspicious fraud patterns. With basic tools, that data is fed through risk rules. For instance, a rule can state that IPs from blacklisted countries will not be able to go through the checkout.
But because fraudsters adapt to your solutions and can learn to circumvent your risk rules, it’s important to anticipate new attack vectors before they damage your ecommerce.
This is why fraud detection with machine learning such as SEON’s can analyze hundreds of data points and identify connections between cases of fraud. It will then suggest rules that you can deploy to block online payment fraud, friendly fraud and other attacks as soon as possible.
SEON’s fraud prevention solution is more than just a tool. It is your business partner in fraud fighting and can keep you safe without interrupting your customers’ experience.
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Ecommerce and online stores are the targets of transaction fraud attacks (paying with stolen credit card numbers), account takeovers (stealing user accounts), return fraud and more.
Detecting ecommerce fraud starts by logging as much data about customers as possible. It helps to authenticate them at login, spot suspicious information that could point to chargeback fraud, and identify customers who abuse return policies.
Detecting friendly fraud is harder than standard payment fraud. However, fraud detection tools can help you acquire detailed transaction and user data, which will enable you to dispute a chargeback request from an unscrupulous buyer.
The key to preventing ecommerce chargebacks is to create a full profile of your users based on minimal data points and with minimal friction. For instance, an email address could point to a social media profile, which lets you know the person really exists.
Data Enrichment | Browser Fingerprinting | Device Fingerprinting | Fraud Detection API
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Gergo Varga is SEON’s Product Evangelist. With more than 10+ years of experience in the Hungarian and international risk management sphere, he has developed an astute knowledge of RiskOps and Open Source Intelligence. He is the author of SEON’s Fraud Prevention for Dummies guide.
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