Preventing ecommerce fraud

Protecting your small-to-medium business against ecommerce fraud in 2024



It wasn’t so long ago that large, global corporations were the primary targets of fraudsters. In turn, these big fish organizations got to work, investing in full-featured detection and prevention technologies. Today, given the dramatic changes to the spending habits of consumers, with >50% increase to U.S ecommerce sales alone since 2019 and with the U.S. market expected to reach over $1.1TR in sales this year, fraudsters are feeling much more…inclusive.

That’s right. Those forward-thinking small to medium businesses (SMBs) who have established an ecommerce presence to meet demand over the past few years are today facing ever-increasing risk from ecommerce fraud, promo abuse and chargeback fraud. In fact, global ecommerce fraud loss is expected to reach $48B by the end of this year, with North American merchants bearing the brunt, expected to account for 42% of the total loss.

Common types of ecommerce fraud

  • Account takeover (ATO)

A well-known identity theft attack – and a universal problem for companies across industries – ATO fraud happens when a hacker illegally accesses a site using stolen credentials. Based on a recent study, 22% of US adults have fallen victim to identity fraud in the last year, costing households across the nation nearly $288B. Quantifying the cost to merchants is more significant still, considering the costs associated with customer service operations, lost customer lifetime value and the impact on brand reputation.

  • Synthetic identity theft 

As you will read in our eBook, in synthetic identity theft the identity isn’t stolen per se, it is created by a fraudster using legitimate personal data. The Federal Reserve cites synthetic identity fraud as the fastest-growing financial crime in the US, accounting for nearly 80% of all identity fraud.

  • Chargeback fraud and abuse

A recent report states that merchants are expected to pay over $100B in chargebacks this year alone. Also known as first-party fraud or, ironically, friendly fraud, illegitimate chargebacks make up the majority of chargebacks most merchants receive. In fact, research suggests that friendly chargeback fraud will represent 61% of all chargebacks come the end of this year. Furthermore, recent reports have found nearly one in four consumers admit to disputing legitimate purchases. Given the average cost of a chargeback is $191, with merchants bearing more than 75% of the financial impact, there is nothing friendly about this scam.

  • Promotion abuse 

So prevalent, we wrote an eBook about it, promo abuse is a fast-growing area of concern, with 49% of ecommerce businesses having experienced an increase since 2020. In fact, in 2021 73% of US retailers with revenues of >$100M reported some level of promo fraud, costing upwards of $89 billion annually nationwide. For smaller businesses, this loss of revenue and reputation cannot be afforded.

What’s a merchant to do?

It’s clear that fraudsters won’t go gentle into the night. In fact, according to the Fraud Prevention in Ecommerce 2022-2023 Report, the current global economic downturn may further expand fraudsters’ area of reach, “looking for additional vulnerabilities from both merchants and end-users to carry on their criminal activities.”

Unfortunately, the solution isn’t as simple as “invest in digital fraud prevention.” As we break down in our eBook Friction – Friend or Foe?, walking the tightrope between best-in-class fraud-fighting technology and a seamless customer experience is paramount to staying in business.

This means multi-layering your fraud prevention strategy. A recent Ekata survey found that 70% of ecommerce companies use three or more tools to help strike the right balance between fraud prevention efforts and a smooth consumer experience at each touchpoint.

To discover how Ekata can help your SMB protect itself from promo abuse and chargeback fraud while providing customers with a secure transaction, unburdened by unnecessary step-up authentication, get in touch with us today.

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