August 29, 2022

Fraud Detection in E-commerce : 7 Ways to Safeguard your Website

E-commerce frauds are common and cost billions of dollars in losses each year. Learn how you can overcome them with the help of technology.

In today's world of e-commerce, fraud detection is critical for businesses. It is also one of the most challenging tasks for e-commerce companies. It's almost a never-ending war with fraudsters and scammers. 

Several online retailers are losing lots of money due to the unreliability of their fraud detection solutions. Fortunately, this article has everything you need to know to improve your e-commerce business' fraud detection mechanism.

What is Fraud Detection in E-Commerce?

Fraud detection is a process that helps you identify transactions made by people who don't have the right to make them. The global payment fraud losses in e-commerce were estimated at USD 20 billion in 2021. It was an increase of 14% from the previous year.

E-commerce frauds can be anything from a customer using someone else's credit card information to buy something to someone creating an account with your company under a false name. Fraud detection is crucial because it helps prevent money from being lost. It is the money you can use to grow your business or improve operations rather than spending it on fixes after a hacker steals your customers' data.

Fraud detection works by analyzing past purchases and comparing them with new ones. If you notice a sudden change in spending habits from one to another, this might indicate fraudulent activity. For example, if someone usually buys three items per week but suddenly starts buying 20 per day, you'll want to investigate further before processing those transactions and sending out any product.

Another way fraud detection works is by looking at IP addresses: Where are they coming from? Do they match up with what you know about your customers? Is there any evidence that they're trying to hide their identity?

Common E-Commerce Frauds

Here are some of the most common e-commerce frauds you will come across.

1. Card Testing Fraud

Card testing or card cracking fraud occurs when fraudsters gain access to stolen credit card numbers. In this type of fraud, the thief will test a card number by attempting to make small purchases with it online. If they can successfully purchase items, they will use that information to make larger purchases.


If you notice a sudden increase in sales from one particular area or customer, it may be an indication that something is wrong with your system and needs investigation.

2. Chargeback Fraud

Chargebacks occur when a customer disputes a transaction with their credit card company or bank and asks for a refund. It can happen for many reasons, including the customer claiming they never received the item or didn't authorize the purchase.


Chargebacks can be costly for you. Even if you win the dispute, you still have to pay the chargeback fee and other fees associated with collecting payment from your customer. On top of all this, there's also a chance you will get penalized by your payment processor if too many chargebacks occur on your account.

3. Refund Fraud

It happens when someone uses a stolen credit card to purchase on an e-commerce website. After making the purchase, they contact the business and request a reimbursement due to an accidental overpayment.


The business will then issue a refund, which ends up getting charged back to them by their credit card processor. This can lead to penalties and fees for your business and lost sales opportunities.

4. Account Takeover Fraud

Account takeover fraud happens when fraudsters hack into a user’s e-commerce account to conduct malicious activities. There are several ways this can happen, but it usually involves the perpetrator gaining access to personal information such as email address, username, or password. 


Once they have this information, they can log into your account and make purchases on behalf of the user or change the billing details. They can withdraw the money from the user’s account in their name. When this fraud happens, it brings a bad name to a business. Customers are also less likely to trust the brand in the future.

5. Interception Fraud

Interception fraud occurs when criminals place orders on e-commerce websites. The billing and shipping address corresponds with the information linked to stolen credit cards. The fraudsters intercept the package before it reaches the buyer's address and keep it for themselves.


This fraud can have a damaging impact on e-commerce firms because it often goes unnoticed for a long time before getting detected. Many customers don't check their credit card statements closely enough to notice strange activity. In addition, firms need to go through their records carefully to identify which orders were intercepted by fraudsters.

Tips to Overcome Fraud in your E-Commerce Website

Here are some tips that help you detect and prevent e-commerce frauds.

1. Conduct Regular Site Audits

If you have an e-commerce store, it's important to conduct frequent site security audits. These audits should get done by someone with extensive knowledge of e-commerce fraud prevention and detection, as well as someone who understands the technical aspects of your website.

If a hacker has managed to penetrate your website's security, they could collect information about your customers' credit cards and other personal information. The last thing you want is for a hacker to use that information fraudulently or sell it on the dark web.

2. Monitor Website for Suspicious Activities

Monitoring website for suspicious activities is a vital step in preventing fraud. A better way to monitor your site is by using an automated tool that tracks every click on your website and alerts you about potentially fraudulent activities. It will allow you to monitor all transactions, including those made on your website and with third-party vendors.

3. Do Not Collect Sensitive Data

If you're collecting a lot of sensitive data, it's easy to become complacent about the security of that information. But in reality, you're putting your customers at risk. Instead, make sure you plan to take appropriate measures with that data. Do not store it unless necessary and only for as long as needed.


Collecting too much sensitive information can also lead to a loss of trust on the part of your customers. They may feel violated and think they have no control over their personal information. It can lead to them abandoning your website, which is not great for business.

4. Set Purchase Limits

If you're not already doing so, ensure that your business limits how much money can be spent by a single customer in a given time. It will help you identify suspicious activities. One way to set your purchase limits is to look at what other companies in your industry are doing. If they have similar limits, consider using them as a starting point.


It's also worth noting there are other types of fraud prevention measures out there besides just setting purchase limits. For example, businesses use algorithms to analyze purchase patterns and detect unusual activity before it happens. It prevents instances of fraud before they happen.

5. Use IP and Credit Card Address Check Mechanism

If you're using a cross-check system, it's critical to ensure that the IP address and credit card address match. It is a common way to spot fraud, but it can be tough if you don't have the right tools. A lot of times, fraudsters will try to use a stolen credit card to make purchases online. 

But if you've got IP address verification set up on your site, you can catch this type of fraud before it happens. You can verify the IP address information, like city and state, by cross-checking it with the customer's billing address. If they don't match, that's a red flag for you to investigate further.

6. Establish PCI-DSS standards

The payment card industry is a multi-billion-dollar industry concerned about the security of customer data. The main concern for this industry is protecting customers against identity theft and credit card fraud. These are real threats to customers and merchants, especially in today's digital world, where there are many ways to steal or compromise sensitive information.

One way to mitigate these threats is through Payment Card Industry Data Security Standard (PCI-DSS). Merchants who accept credit cards online must adhere to specific standards that protect their customer's credit cards from being stolen by hackers or criminals. If you do not follow these standards, it will be difficult for you to compete with other e-commerce sites that follow them.

7.Use an Address Verification System

Address verification systems verify the address of a customer. They're often used in conjunction with other fraud detection techniques and can be helpful for businesses that need to ensure their customers are who they say they are.

Address verification systems work by comparing the address provided by a customer on their order form with the address on file for the credit card used to pay for it. For an address verification system to be effective, it must work in real-time and accurately determine whether a given input is legitimate.

IDP for E-Commerce Automation and Fraud Prevention

Intelligent Document Processing (IDP) helps with e-commerce fraud detection by identifying potential fraud cases at the first stage of a transaction. IDP uses machine learning to analyze documents and data. This process can determine fake or fraudulent documents, like those used in identity theft and payment fraud. It will also detect other types of fraud.

IDP works by comparing the document or data against known patterns or templates to determine whether it is real or fake. These templates come from historical data collected from known fraudulent information. The system then analyzes the document for similarities to these historical templates and decides whether it is real or not based on this analysis.

IDP also acts as an automated system that processes information in real-time. It works by scanning the data and identifying any inconsistencies within it. This includes things like:

  • Redundancy and repetitions of data
  • Data that doesn't match up with other data on the same document
  • Incorrect or missing information for certain fields of information

Bottom Line

Fraud detection is a critical issue for your e-commerce business and one that will only become more crucial as time goes by. Thankfully, there are several ways that will help you reduce fraud and protect your business. There's no single right answer for all this. Every online store has its unique factors to consider. But the sooner you implement a fraud detection program, the better off you will be.

If you are thinking of leveraging an IDP solution to automate the processing of information for your e-commerce website, VisionERA can help. It is a next-gen Intelligent Document Processing platform that makes it easy for you to make the best sense of available data. VisionERA accelerates information processing to help your business experience increased productivity.

Contact us today to know more details on how VisionERA can help you with e-commerce fraud detection and prevention.

Get Started with your Document Automation Journey

$0 Implementation cost | $0 monthly payments -> No Risk, No Headaches

Pay only for Satisfactory Results!

Sign up for Free Trial