Sift Logo Several blue dots forming a sphere to the left of the word Sift in italic font.
  • Products

    Digital Trust & Safety Suite

    Fight fraud without sacrificing growth

    Learn more →

    Passwordless
    Authentication

    Account
    Defense

    Content
    Integrity

    Payment
    Protection

    Dispute
    Management

    Sift
    Connect

    PSD2
    Solution

    New Releases & Enhancements

  • Partners

    Sift Partner
    Program

    Join the leader in Digital Trust & Safety

    Learn more →

    Commerce platform partners


  • Industries

    One solution, many applications

    Learn how Sift can work for your industry

    Learn more →

    Featured industries


    Fintech

    Retail

    Food & Beverage

  • Customers

    See case studies by industry

    Sift works across every use case and region

    Learn more →

    Featured customers


  • Resources

    Explore our resources

    Access trends, guides, and insights from Sift

    Learn more →

    Blog

    Ebooks

    One Pagers

    Demos

    Videos

    Webinars

    Infographics

    Podcasts

    Trust & Safety University

  • Fraud Center
  • Company

    Why leaders choose Sift

    Technology, community, and partnership

    Learn more →

    Our mission: Help everyone trust the internet


    About

    Careers

    News & Press

Request a demo
Products
  • Digital Trust & Safety Suite
  • Passwordless Authentication
  • Account Defense
  • Content Integrity
  • Payment Protection
  • Dispute Management
  • Sift Connect
  • PSD2 Solution
  • New Releases & Enchancements
Why Sift
  • Salesforce
  • Magento
  • Shopify
Industries
  • Fintech
  • Retail
  • Food & Beverage
Customers
Resources
  • Blog
  • Ebooks
  • One Pagers
  • Demos
  • Videos
  • Webinars
  • Infographics
  • Podcasts
  • Trust and Safety University
Fraud Center
About
  • Search Careers
  • Our Company
  • Contact Us
  • Engineering Blog
Request a DemoSign In
  • Blog Home
  • Fraud
< prev / next >
Share this article on LinkedIn
Tweet this article
Share this article on Facebook
SOCIALICON
Share this article via email

Welcome to Sift University: Ecommerce Fraud 101

By Sift  / 

7 May 2015

Chargebacks. Card testing. Reshipping. If you’re new to the world of ecommerce fraud, these terms may seem like abstract names for even more abstract processes. Dealing with online fraud can be a frustrating experience if you don’t quite grasp how it works or where it comes from. Fraud affects multinational corporations and mom-and-pop shops alike, so learning how to protect your business is key to preventing unnecessary problems. To help you out, here’s an overview of the basics of ecommerce fraud, how it impacts your business, and how to curb its effects.

Who are we dealing with here?

There are two broad categories of fraudsters: friendly and hostile.

Friendly fraud is carried out by a customer who engages with the merchant directly, making online transactions with personal account information. In a typical scenario, the customer receives his purchased merchandise, then disputes the charge through his bank. The bank investigates the claim but usually approves the customer’s request, resulting in a chargeback. The merchant not only has to return the customer’s money, but also pays additional processing fees and penalties. It’s a tricky situation because some customers might forget that they received their purchases, but many cases are deliberate attempts to obtain merchandise or services for free.

fraud

Hostile fraud involves a third party who illegally obtains and uses someone’s account information to purchase merchandise. One way to spot a fraudster is with card testing transactions, where fraudsters test numerous stolen credit card numbers by making small purchases online. If those transaction attempts are successful, the fraudster can use the card number to make larger fraudulent purchases. Even if the merchant doesn’t accept the payment method and issues a “payment authorization failure” message, the fraudster can tweak card verification data (e.g. expiration date, CVV code) until the transaction goes through successfully. Hostile fraud can be perpetrated by anyone, from organized crime rings to individual actors with access to black markets.

What should I look out for?

Online fraud can happen in a variety of ways, and all of them can cause considerable harm to your business. Here are some common types of fraud that affect merchants:

  • Reshipping: International orders are usually more closely monitored than domestic ones, which is problematic for a fraudster who lives in a country other than the one associated with a stolen credit card. To bypass that basic rule of detection, the fraudster can recruit someone from within the cardholder’s country to receive and reship the merchandise to the final destination. Reshipping fraud can be responsible for hundreds of thousands of dollars of goods lost, and is often associated with organized crime rings.

forwarding

  • Auction fraud: Auction sites and digital marketplaces have low barriers to entry, so virtually anyone can sign up and start selling merchandise. An unknowing customer might purchase goods from a fraudulent seller, who then uses stolen credit card information to buy and deliver the merchandise from a legitimate retailer. Although the customer receives his purchase in the end, the fraudster collects the sale. Once the credit card transaction is flagged as fraud by the actual cardholder, the legitimate merchant is left with no payment and lost inventory.
  • Refund abuse: Malicious customers, instead of requesting a refund from their bank, may reach out to merchants directly. These customers could include those who falsify receipts, return stolen merchandise, or make a purchase with the intent of returning it after short-term usage. A single customer might create multiple accounts to obtain fraudulent refunds, which can result in recurrent losses.

How much does fraud cost?

Losses from ecommerce fraud can be damaging not only to your bank account but also your online reputation. Billions of dollars are lost every year to fraud, hurting businesses big and small. Fraudulent chargebacks and associated fees, illegitimate refunds, and loss of inventory are just a few costs that can be avoided. Investing in the tools to detect and reduce fraud will allow you to spend more time on your business and less time dealing with fraudsters.

Don’t let fraud get in the way of your business. Start a free trial today

Related

featured

Sift

  • < prev
  • Blog Home
  • next >
Company
  • About Us
  • Careers
  • Contact Us
  • News & Press
  • Partner with us
  • Blog
Support
  • Help Center
  • Contact Support
  • System Status
  • Trust & Safety University
  • Fraud Management
Developers
  • Overview
  • APIs
  • Client Libraries
  • Integration Guides
  • Tutorials
  • Engineering Blog
Social

Don't miss a thing

Our newsletter delivers industry trends, insights, and more.

You're on the list.

You can unsubscribe at any time. Please see our Website Privacy Notice.

If you are using a screen reader and are having problems using this website, please email support@sift.com for assistance.

© 2022 Sift All Rights Reserved Privacy & Terms

Your information will be used to contact you about our service and subscribe you to our direct marketing communications. You can, of course, unsubscribe at any time. Please see our Website Privacy Notice.