Breaking the Cycle of E-Commerce Payments Fraud

For any business engaging in e-commerce, payments fraud should be a top concern. Fraudulent activity is guaranteed to leave a negative impression on your customers, even if their loss is ultimately recouped. Both marketplaces and payment vendors have seen a sharp rise in fraud since the beginning of 2020, spurred by the pandemic.

To help you know what to look for and how to proactively prevent it from happening within your ecosystem, here's a roundup from Payoneer, a digital payments platform empowering businesses around the world to grow globally, that outlines the most common forms of retail payments fraud and how you can break the fraud cycle.

Common Types of Payments Fraud

1. Account Takeover

Account takeover (ATO) is near the top of the Merchant Risk Council’s list of fraudulent attacks experienced by e-commerce businesses. Frequently used for credit card fraud, ATO involves an attacker stealing a user’s login credentials to break into their account, where they can access private information. A potential warning flag might be a small seller with little history that suddenly has significant transaction volume, resulting in a very large payout from the marketplace. It may be legitimate, but it’s also possible that the account has been hijacked.

2. Gaming the System

There are a number of ways sellers can attempt to “game the system.” These include:

• Brushing: Fake reviews to increase or decrease store ratings.
• Store burning: A mass attack on a particular store engineered by a competitor for the purposes of discrediting or disbarring said store.
• Price manipulation: Artificially driving up prices by appearing to increase demand or availability.

3. Shipping Fraud

A seller may not ship items that have been paid for and close their account. More complex schemes involve providing shipping information and tracking numbers that are either fake, or real tracking numbers that pertain to a different shipment.

4. Counterfeit Goods

Fraudsters may set up stores that advertise certain labels but actually provide counterfeit goods. For example, the buyer thinks they're receiving a Rolex watch at an excellent price, and receive a watch that isn't the real deal.

5. Buyer-Seller Collusion

In buyer-seller collusion, the colluding parties form the two sides of a retail transaction: merchant and customer. This may be for any purpose, from increasing sales to collecting promotion money illegally, to sinking competitors to money laundering. Detecting and untangling collusion is particularly challenging as it could seem as legitimate as a claim of “service not received” (SNR) or items received “significantly not as described” (SNAD), resulting in a refund.

Reduce Risk by Breaking the Cycle

Fraud undermines the entire retail economy. Anyone who makes or receives any form of digital payment, anywhere along the supply chain, is at risk. And the numbers add up quickly.

It gets worse. Most seller fraud and abuse is part of a repeating cycle, and often involves multiple marketplaces or digital platforms. For example, a fraudulent seller’s store may be closed on one marketplace, so they open one on another marketplace. Multiple stores may be linked together in extremely complex ways to mask their affiliation from both buyers and marketplaces. Therefore, even if you detect it once, the cycle of payments fraud perpetrated by the same bad actor may well continue until it’s stopped for good.

As fraudsters become more savvy, the need to employ sophisticated measures to protect against payments fraud becomes more pressing. Unique solutions can help protect your business from threats at every layer of your payment flow. From implementing strict KYC procedures to prevent fraud to detecting fraudulent activity, to automating payments throughout your ecosystem to facilitating friction-free, secure in-app purchases, there are solutions out there that have unique visibility into marketplace trends and fraud patterns.

This cross-border and cross-marketplace visibility allows for breaking the cycles of repeated fraud, helping marketplaces avoid financial loss, bad PR, and compliance and legal issues.

Don’t let the fraudsters get away with it. It’s time to break the cycle of payments fraud.

Adam Cohen is the general manager at Payoneer Enterprise, a digital payments platform empowering businesses around the world to grow globally.