eCommerce fraud prevention best practices

Think fraud won't touch your business? Think twice. A recent study tells that eCommerce fraud is about to skyrocket. We're talking about a 141% growth to $107 billion by 2029. Even more shocking? Ecommerce companies are estimated to lose $48 billion to fraud annually.

It's happening right now, potentially to businesses just like yours. Whether you're running a boutique online store or a massive digital marketplace, eCommerce risk is real, present, and hungry.

But here's the good news: you're not defenseless. This guide is your secret weapon in fraud detection in eCommerce. We're about to arm you with practical, powerful strategies to protect your eCommerce business.

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Why should it be our priority to stop eCommerce fraud? 

Let's talk numbers. Every $100 in fraudulent orders is a $207 loss for businesses. North American and European companies here spend an average of 10% of their total revenue just managing fraud. Think that's large? Hop over to the Asia-Pacific region, where merchants are spending 15% of their revenue fighting digital criminals. Why are these numbers so big? Deepfake fraud in this region rose by 194% in 2024.

The United Kingdom’s Office for National Statistics reported 3.6 million consumer fraud incidents in 2024 – a 19% surge. How is this possible? 56% of consumers admit to "wardrobing" – buying items just to use and return them. But return fraud isn’t always a shopper wearing a suit for the party and returning it afterward: A Jaipur gang exploited Myntra's return policies by placing 5,529 bulk orders for high-value items and requesting refunds by claiming product issues.

But businesses aren’t the only affected ones here. 43% of consumers have been victims of unauthorized transactions, identity theft, or fraudulent purchases. You might have heard of the GS Retail privacy breach that exposed data of 90,000 customers. Or take the Eriakos eCommerce credit card fraud scandal — cybercriminals created 608 fraudulent websites using mobile Facebook ads. The scam network used urgent offers to steal card data and funds.

So now you understand that commerce fraud is a big problem. What types of threats should you be ready for to avoid risking your revenue and customer trust?

A guide to eCommerce fraud types

eCommerce business scams have become a sophisticated game. Fraud continues to challenge shop pay fraud protection systems and other preventive solutions. Fraudsters continuously evolve their tactics, targeting vulnerable online platforms and unsuspecting consumers. 

• Friendly fraud: Customers exploit refund policies by falsely claiming non-delivery or misrepresentation of products. They file chargebacks with their bank, creating financial headaches for merchants who must defend against these illegitimate claims.
• Card testing fraud: Criminals use stolen credit card information to make small, inconspicuous purchases. These initial transactions verify the card's validity before proceeding with larger fraudulent transactions, often going unnoticed by cardholders.
• Refund abuse: Fraudsters manipulate return policies by returning damaged, used, or even stolen items. They exploit gaps in verification processes to receive refunds for products they never intended to keep or use legitimately.
• Online payment fraud: Scammers steal payment details and use them to make unauthorized purchases. They may create fake websites mimicking legitimate stores or directly use stolen credit card information to complete transactions.
• Account takeover fraud: Criminals gain unauthorized access to customer accounts, typically through weak passwords, phishing, or malware. Once inside, they use stored payment methods to make fraudulent purchases.
• Promotional fraud: Fraudsters exploit marketing incentives by manipulating affiliate programs, loyalty schemes, and promotional offers. They find creative ways to game the system and obtain products or points without genuine intent.
• Triangulation fraud: A complex scheme where fraudsters list products on marketplaces, sell to customers using legitimate cards, and then purchase the actual product with stolen credit cards, pocketing the price difference.

To understand how to protect yourself against these threats, let’s now deal with the key reasons why it happens in the first place.

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Key factors that increase eCommerce fraud risk

E-commerce fraud prevention is like trying to plug holes in a constantly leaking ship. Fraudsters have discovered a goldmine of opportunities to exploit vulnerabilities. What are they, typically?

• Data vulnerabilities

Merchant monitoring and fraud prevention struggle to keep up with increasingly sophisticated breaches. Stolen customer information becomes a currency traded in dark digital corners, enabling fraudulent purchases that slip through security cracks.

• Credential compromises

Weak passwords are the welcome notes for cybercriminals. Phishing attacks and credential theft turned marketplace fraud prevention into a high-stakes game of digital cat and mouse. They use stolen login information to infiltrate accounts and make unauthorized transactions.

• Payment system weaknesses

Inadequate payment API integration creates massive security gaps. eCommerce platforms without robust verification methods roll out the red carpet for fraud. The absence of authentication tools like two-factor verification makes stealing card information too simple.

• Technological exploitation

Fraud detection in retail industry faces constant challenges from tactics like SQL injection, cross-site scripting, and advanced persistent threats. These methods allow criminals to bypass security, implant malware, and systematically extract valuable data.

• Global marketplace complexity

The explosive growth of online commerce has created a perfect storm. Fraud prevention eCommerce struggles with inexperienced merchants with minimal security, complex international transaction landscapes, and varying legal jurisdictions that complicate prosecution.

Knowing where your weak spots are enables you to patch them before they appear. Let’s dive into the common vulnerabilities of your systems that can be exploited.

How to prevent eCommerce fraud by knowing your vulnerabilities?

Understanding the fundamental weaknesses that enable fraud is crucial for retail fraud protection. These vulnerabilities aren't just technical glitches — they're systemic weaknesses that cybercriminals ruthlessly exploit.

1. Weak authentication systems: Ineffective user verification creates security gaps. When authentication processes lack robust checks, fraudsters impersonate legitimate users. Stolen credentials, weak passwords, and minimal verification allow them access to accounts and payment systems.
2. Data exposure risks: Breaches occur through poor encryption, unsecured databases, and insufficient access controls. Cybercriminals can harvest personal and financial details, which become valuable commodities in illegal marketplaces.
3. Technological infrastructure gaps: Outdated or poorly maintained tech infrastructure creates multiple entry points for fraud. Unpatched software, legacy systems, and incomplete security protocols provide natural vulnerabilities that sophisticated attackers can systematically exploit. Read more about the importance of IT maintenance.
4. Payment system weaknesses: Incomplete payment verification processes allow fraudulent transactions to slip through. Without comprehensive checks like multi-factor authentication, geolocation verification, and real-time transaction monitoring, criminals find numerous opportunities to manipulate financial exchanges.
5. Operational transparency challenges: Limited visibility into transaction processes and user behaviors creates blind spots. When merchants lack comprehensive monitoring and analysis tools, fraudulent activities remain undetected until significant damage occurs.
6. Human error and social engineering: The human element remains the most unpredictable vulnerability. Employees and users can be manipulated through phishing, social engineering, and psychological tactics that bypass technological safeguards.

Understanding core vulnerabilities is the first step toward better protection. So now that you know your enemy, let’s get to the most important part: eCommerce fraud prevention.

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How to spot fraud on eCommerce websites

Fraud isn't just about losing money — it's about destroying customer trust. One bad experience and shoppers vanish faster than free samples at a trade show. E-commerce fraud detection depends on recognizing these subtle yet significant warning signs.

• Unusual order volumes 

Unusual purchase volumes trigger alarm bells. Scammers using stolen credit cards often make large purchases or multiple transactions, spending money that isn't their own. Cloud and web security professionals know that extreme order sizes can signal potential fraud.

• Transaction value patterns

Tiny transactions around $1 are classic fraud analysis warning signs. Criminals test stolen card details with minimal purchases before attempting larger fraudulent transactions. Each small transaction is a potential gateway to bigger theft.

• Payment method inconsistencies

Multiple credit cards used by the same customer within a short period raise serious concerns. E-commerce fraud detection systems flag repeated transactions from different payment sources as potential unauthorized access attempts.

• Location and address mismatches

Suspicious IP addresses and conflicting shipping/billing information are critical indicators. Orders from unexpected geographical locations or with mismatched addresses often signal merchant fraud prevention opportunities.

• Repeated declined transactions

Consistent payment failures, especially due to security code errors, suggest fraudulent activity. Legitimate customers rarely experience multiple consecutive declined transactions. So, include checking these little events to fully use fraud analysis and prevention in e-commerce transactions for your business.

To consistently track and mitigate fraud risks, your business should adopt thorough security reporting that helps protect both you and your customers from these illegal attempts. The good news is that you can make the merchant fraud prevention process easier and more efficient with modern tech.

AI and machine learning for fraud detection

We mentioned human error as one of the fraud reasons. Now, what if you had a tireless, lightning-fast investigator working 24/7 to protect your business? In eCommerce, machine learning fraud detection is a sophisticated guardian against fraudulent activities.

Funny enough, AI-based fraud is also gaining traction, and you have nothing left to do but fight fire with fire. This is what AI and machine learning offer you for fraud protection:

• Data-driven pattern recognition

Think of fraud detection data analytics like a detective. AI systems don't just look at numbers; they decode behavioral patterns across transactions. Every click, purchase, and interaction becomes a clue in an investigation, revealing potential threats before they strike.

• Predictive intelligence

eCommerce fraud detection machine learning algorithms learn from past fraud attempts or commonly known threats, developing an almost supernatural ability to spot suspicious activities. The more data they consume, the sharper their fraud-detecting instincts become.

• Real-time threat monitoring

Powered by fraud detection using big data analytics, AI systems analyze millions of transactions in milliseconds. Unusual IP locations, rapid-fire purchases, or strange payment patterns – nothing escapes their radar. It's like having a superhuman security guard who never blinks.

• Adaptive protection mechanisms

Fraud detection in eCommerce can leverage ML models to predict potential risks by analyzing complex, interconnected data points across multiple dimensions.

By integrating AI-driven tools into your infrastructure, you don't just detect fraud – you do so with remarkable precision. False alarms become a thing of the past, replaced by smart, contextual threat assessment that protects both businesses and customers.

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7 steps to build a strong fraud management in eCommerce

Building a strong fraud management system is no longer optional — it's a must for every ecommerce business. We’ll walk you through 7 practical steps to strengthen your fraud defenses. Plus, check out Cloud and Web Security Checklist — a valuable resource to ensure your infrastructure is protected from the ground up.

1. Trust your gut

Your big data fraud detection tools are the first line of defense, but human oversight remains very important. When an order looks fishy — maybe it's coming from an unusual location or doesn't match a customer's typical buying pattern — dig deeper. Here’s what to look at:

• Flag orders with mismatched billing/shipping addresses.
• Highlight transactions from high-risk geographical locations.
• Set up alerts for unusual purchase patterns.

Develop a standardized review process where suspicious orders require manual verification. Reach out, verify details, and trust your instincts. A quick conversation might save you from a fraudulent nightmare.

2. Quantity control

Scammers love bulk purchases with stolen credit cards. eCommerce credit card fraud prevention starts with setting smart limits: 

• Analyze historical sales data to establish baseline order volumes.
• Configure automatic blocks for orders exceeding 200% of typical transaction size.
• Create tiered purchasing limits for new versus established customers.
• Implement progressive verification for larger orders.

Automatically block orders that scream "too good to be true." It's like having a bouncer who knows exactly who's legit and who's trying to sneak past.

3. PCI compliance

PCI (Payment Card Industry Data Security Standard) compliance builds an impenetrable fraud management eCommerce security framework: Strong passwords, encrypted data, restricted employee access, and regular security tests aren't just checkboxes — they're your shield against cybercriminal invasions.

Regularly update default system passwords and create strict employee access protocols. And sure, use multi-factor authentication for administrative systems to further protect your assets.

4. Delivery documentation

Return fraud is the sneaky cousin of online scams. Combat this by partnering with shipping carriers who provide ironclad proof of delivery. 

• Partner with shipping carriers offering detailed tracking.
• Require signature confirmations for high-value purchases.
• Implement digital proof-of-delivery documentation.
• Integrate photographic evidence collection into shipping workflows.

These are your weapons against fraudulent "I never received it" claims.

5. Transparency

Clear policies are your secret weapon in eCommerce fraud prevention techniques. Craft robust password requirements, and outline crystal-clear return and refund policies. When expectations are explicit, fraudsters have less room for their moves.

You should also provide easy-to-understand security explanations and explicit terms for promotional activities — promotions drive loyalty and boost ROI, but they also give a battlefield for fraudsters.

6. Verification software

Deploy verification software like a digital bodyguard. Here’s what you can do to protect your digital security against account takeovers and data breaches:

• Integrate card verification value (CVV) checks.
• Use address verification systems (AVS).
• Implement identity validation protocols.
• Explore biometric verification options.
• Configure real-time transaction risk scoring.

All these validation tools work together to create a strong and reliable fraud prevention network criminals will have a really hard time breaking (and hopefully, they will fail and go cry a little).

7. Strategic blocklisting

Create a dynamic blocklist of known fraudulent identifiers — IP addresses, credit card numbers, and shipping details. It's like maintaining a most-wanted list for digital criminals. The great thing is you constantly enhance it: 

• Regularly update the blocklist with new threat indicators.
• Create nuanced blocking mechanisms.
• Establish clear unblocking request procedures.

eCommerce fraud prevention techniques aren't about building walls — they're about creating intelligent, adaptable defense systems. But what tools should you use to truly transform potential vulnerabilities into robust protection mechanisms?

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Top tools to ensure fraud detection in eCommerce

We compiled a list of tools and solutions you can use to ensure your security. Each tool offers unique strengths. The right choice depends on your specific e-commerce infrastructure, transaction volume, and fraud prevention requirements.

Fingerprint

A power player in real time fraud detection analytics, Fingerprint specializes in device intelligence. Its sophisticated technology assigns unique visitor IDs, leveraging machine learning and smart signals to identify potential fraudsters.

Main strengths:

• Advanced device fingerprinting.
• Machine learning algorithms.
• Mobile app traffic intelligence.

Price: Pro Plus at $99/month (for up to 20K API calls), Enterprise pricing is custom.

Perfect for online stores seeking precise, stable identification across user touchpoints.

Shopify Protect

Built specifically for Shopify merchants, this detection analytics tool offers seamless, integrated protection. Leveraging machine learning across the network, Shopify Protect provides automatic fraud screening and chargeback protection.

Key features:

• Free Shop Pay transaction protection.
• Machine learning fraud algorithm.
• Automatic dispute resolution.
• Zero-cost chargeback coverage.

Price: Free for Shopify merchants.

Best for: Shopify store owners seeking instant, integrated fraud protection with zero additional cost.

ClearSale

Focused on global e-commerce protection, ClearSale uses statistical technology solutions that support merchants worldwide. Its comprehensive approach ensures fewer false declines and legible and safe chargeback guarantees due to its robust fraud detection eCommerce capabilities.

Main functions:

• CNP fraud protection algorithm (user data and behavior analysis and highlighting suspicious cards).
• Cloud-based integration API documentation for developers.
• Integration with various platforms like Shopify, Magento, and BigCommerce. 

Price: Three pricing models: one based on a chargeback percentage KPI limit, a fixed fee for every approved transaction, and one hybrid.

Best for: Technically skilled developers with a knowledge of AWS cloud technologies.

NoFraud

NoFraud offers deep transaction vetting using sophisticated multi-point verification. Its proprietary system examines extensive data points to ensure transaction legitimacy. The solution uses powerful AI models and helps reduce risks, drive loyalty, and minimize cart abandonment.

Key features:

• Proprietary transaction screening.
• Detailed background verification.
• Automatic pass/fail transaction assessment.
• Comprehensive data point analysis.

Price: Calculated based on the total monthly eCommerce sales and the average order value.

Best for: Online retailers needing detailed transaction verification with flexible screening options.

SEON

A versatile platform for fraud detection using big data, SEON provides comprehensive protection through multi-layered analysis. Its modular APIs offer flexibility in detecting complex fraud patterns across email, phone, and IP addresses. Also, its AI model allows to track millions of transaction patterns in real time and flag suspicious transactions and activities, as well as the lack of online presence, IP address mismatch, etc.

Major benefits:

• Email and phone verification.
• Web behavior analytics
• Geographical and financial-based transaction analysis.
• Customizable machine learning suggested rules and clear reports.

Price: Three plans available, pricing by request.

Best for: Businesses needing flexible, data-rich fraud prevention with modular integration.

Signifyd

Leveraging advanced data analytics, Signifyd helps e-commerce stores differentiate legitimate from fraudulent transactions. Its risk-scoring system provides nuanced protection for businesses of all sizes.

Main functions:

• Integration with major platforms.
• Return abuse prevention.
• Auth rate improvement.
• Adaptive chargeback protection.

Price: Custom (based on business metrics, type, and the platform).

Best for: Mid to large-scale e-commerce businesses requiring advanced, global fraud prevention with financial guarantees.

Riskified

This AI-powered platform shows exactly what machine learning fraud detection should look like. Riskified is designed to maximize revenue while blocking threats through intelligent risk intelligence. It promises up to 594% ROI improvement and advanced decision support with 480+ data attributes analysis.

Key features:

• Chargeback liability reduction.
• Transaction approval rate optimization.
• Automated threat blocking.
• Advanced reporting capabilities.

Price: Custom (request-based).

Best for: Growing e-commerce stores needing scalable, AI-powered fraud management.

Arkose Labs

Innovative fraud prevention using interactive authentication challenges. By implementing adaptive tests, Arkose Labs makes it difficult for automated bots to penetrate e-commerce systems. It spots fraud in varied stages: account registration, login, and transaction (using multi-layered device fingerprinting and behavioral detection).

Main strengths:

• Interactive user verification.
• Bot prevention mechanisms.
• Adaptive authentication.

Price: Custom (request-based).

Best for: E-commerce platforms needing advanced bot prevention and user verification.

So as you see, the market for fraud detection tools is vast and diverse. However, sometimes you need a tailored solution that touches all bases in your processes and fills your needs fully. In this case, a marketplace app development company can develop a custom solution that will be a part of your existing setup. Speaking of which — how to ensure any security tool integrates correctly with your infrastructure?

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Best features to look for in merchant fraud detection tools

Choosing the right eCommerce fraud prevention tool isn't just about spending money — it's about protecting your business's lifeline. Let's break down what makes a top-tier fraud prevention solution. 

• Device intelligence: Tracks unique device fingerprints by analyzing hardware and software characteristics, detecting suspicious logins and potential fraud attempts through comprehensive digital identification.
• Bot detection: Check fraud prevention tools that identify and block automated attacks by distinguishing between human and bot interactions, preventing mass fraud attempts through intelligent pattern recognition.
• Machine learning: Continuously adapts fraud detection algorithms by analyzing historical transaction data, learning from past patterns to predict and flag potential fraudulent activities with increasing precision.
• Chargeback protection: Shifts financial liability for illegal transactions, providing automated risk assessment, dispute management, and reimbursement guarantees to protect your business from fraudulent chargeback claims.
• Behavioral risk scoring: Monitors user behavior in real-time, assigning dynamic risk scores based on transaction history, network connections, and unusual activity patterns to flag potential security threats.

eCommerce fraud prevention strategies aren't one-size-fits-all, so even if your QA engineers know all the best practices, they might fall behind without up-to-date solutions. That’s where our strategic technology consulting makes a difference — we help you assess risks, implement tailored fraud prevention systems, and stay ahead of evolving attack patterns.

Integrating merchant fraud detection within your ecosystem

eCommerce development software is the backbone of successful online stores. Integrating fraud prevention solutions requires a strategic approach that ensures smooth, secure operations. But to successfully integrate fraud detection eCommerce solutions within your systems, take into account these aspects:

• Platform compatibility
• Seamless data transfer
• Minimal user experience disruption
• Scalable implementation

Modern businesses need flexible, intelligent systems that adapt quickly. This is where our teams at COAX choose the most effective software integrations to ensure your technology works smarter, not harder — connecting fraud prevention tools, payment gateways, and business intelligence platforms. 

Ready to strengthen your defenses? Talk to our experts and build a fraud management strategy that truly works.

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FAQ

How can merchant fraud detection systems differentiate between legitimate customer behavior changes and actual fraud patterns?

Modern systems use behavioral biometrics and historical data to establish baseline customer behaviors. During peak seasons, these systems adapt their risk-scoring algorithms to account for unusual but legitimate purchase patterns while still flagging truly suspicious activities.

What differentiates the best eCommerce fraud protection solutions from standard payment gateway security measures?

Advanced eCommerce fraud protection goes beyond basic payment verification by incorporating multi-layered analysis including device fingerprinting, IP intelligence, and machine learning models that assess hundreds of data points in real-time. Unlike gateway security, these systems can detect complex fraud patterns across multiple transactions and accounts.

What role does velocity analysis play in detecting eCommerce application fraud in high-volume marketplaces?

Velocity analysis tracks subtle patterns across multiple applications, identifying suspicious activities like rapid-fire account creation or multiple applications using slightly varied personal information, even when individual applications appear legitimate.

How is data analytics for fraud detection being used to predict and prevent fraud before transactions occur?

Predictive analytics use machine learning models trained on historical fraud patterns to identify high-risk transactions before they're completed. They analyze customer behavior patterns, device information, and transaction characteristics to assign risk scores in milliseconds.

What are the key differences between rules-based and AI-powered merchant fraud detection systems for cross-border transactions?

AI-powered systems adapt to regional variations in legitimate shopping behavior while maintaining fraud detection accuracy, while rules-based systems often generate false positives for cross-border transactions due to their rigid parameters.