6 most common online payment fraud trends and solutions to prevent them

E-commerce has forever changed the way people transact. However, alongside the good that digital transactions bring, there are some dangers as well. One of the biggest threats is payment fraud.

As the global transaction value of digital payments is projected to rise to $11.55 trillion in 2024, so does the increase in fraud. Online shopping fraud statistics show global losses from payment fraud reached $48 billion in 2023 - up from $32.39 billion in 2020. And according to Juniper Research, losses from online payment fraud could exceed $362 billion globally by 2028.

Fraudsters and people with malicious intent try to take advantage of unknowing people online. Fraud only takes up a minuscule fraction of the overall market. But as fraud incidents rise, abandoning online payment isn’t the solution. Protection from fraud is.

When choosing an online payment method for your business, it’s essential to know the types of payment fraud and how you can prevent them. Here are six of the most common trends and best practices to outsmart fraudsters who use these techniques.

One common strategy fraudsters deploy is identity theft. While this scheme is as old as commerce itself, the methods have evolved. Nowadays, identity thieves steal consumers’ information by impersonating a website or online shop and requesting personal data. Phishing attacks, which use social engineering to trick people into sharing sensitive information such as their names, emails, contact numbers, and payment information, are also on the rise.

E-commerce companies can help their customers by constantly reminding them of official channels, websites, and payment platforms. Make them aware of any fake websites that might try to take their information. Consumers should also check websites before passing on any sensitive information like bank details, credit cards, and online wallets by keeping an eye out for missing trust signals and suspicious URLs that might not have the same name as the original site.

When scammers perform a business email compromise, they lure a company’s staff to initiate a transfer to the fraudulent person’s account by impersonating a higher-up with a fake business email. The FBI’s Internet Crime Report revealed this form of fraud cost companies $2.7 billion in losses in 2022.

Another similar malicious practice is invoice redirection. Fraudsters use social engineering to alter payment information on legitimate payable accounts, often impersonating a supplier asking for invoice fulfillment and providing the scammer’s bank details instead of the original suppliers. One specific instance might be if a scammer impersonates a supplier of raw materials and emails a billing statement with the fraudster’s bank details asking for the invoice's immediate settlement.

Companies can curb this trend by providing frontline training, restructuring controls, and using centralised finance apps. Flagging protocols can automatically block any incoming emails or messages from fraudulent accounts, while companies can also apply new data and technologies like voice analytics.

Payment interception, or “man-in-the-middle fraud,” occurs when malicious actors take over a payment process. Fraud is shifting from credit cards to e-wallets and social media-based transactions. Some impersonate a company representative and direct hot leads to another fake website. For instance, a fraudster might skim through an online shop’s website’s comment sections and respond to inquiring customers with a link going to an unauthorised payment page.

Payment interception can be very tricky to spot. Fraud detection in this category involves carefully studying a payment page before making any payments. Avoid using any payment option that doesn’t allow for disputes or refunds. Use legitimate payment gateways that offer money-back guarantees to ensure safety.

Password and code hacking have become more sophisticated over the years. Scammers and phishers deploy dozens of strategies to capture personal information and credentials. This poses a threat to any website using an online platform to distribute, handle, or accept the currency. With 60% of millennials, 57% of Generation Z and 52% of Generation X primarily using mobile banking apps, young users are particularly vulnerable. But that doesn’t mean everyone else is safe. We should all be wary of password or code hacking to avoid account takeover.

One of the best e-commerce fraud prevention practices to avoid password or code hacking is always to encourage customers to use a secure password, meaning it contains a long string of characters, numbers, and symbols. Consumers should be advised of the importance of not using the same password for multiple sites and using a secure password-storing app like LastPass. It’s also important e-commerce websites play their part by using a payment partner that adheres to the strictest data security standards.

Google Pay, PayPal, or any other partner that allows refunds is a great way to avoid certain scams. But fraudsters also use refund options as a form of online payment fraud. In these cases, they will place an order and then prompt for a refund once fulfilled.

They place orders and then request refunds after fulfilment. According to the National Retail Federation and Appriss Retail, merchandise losses are estimated at over $101.9 billion annually, up 20% year-on-year.

The way to avoid refund fraud is to be upfront about your return policies and publish them on your website. Without a clear return policy, companies put their customer service staff in a tight spot when a dispute is raised, which pressures them to make unauthorised returns or refunds. Always demand a receipt and proof of return of the product before issuing any refunds. You can also consider placing restocking fees for high-value products or those that can be difficult to ship.

Some malicious fraudsters will try to completely take over an e-commerce store by hacking them through a plugin or app inside the store. Some hackers are known to take over WooCommerce accounts and Shopify stores using a fake or outdated plugin, which they use to access company credentials and information.

In these cases, fraudsters might change payment credentials, bank details or card information to redirect all online payments to a fraudulent account instead of the e-commerce store’s official account.

If you’re a store owner, try using an up-to-date security plugin like WordFence to protect your account from takeovers. Perform regular audits of your apps and plugins and regularly change access information to avoid hacking or store takeovers.

Despite all the accounts of fraud, phishing, and hacking, it’s hard to deny that digital payments are the future of commerce. Fraudsters will always be present, either in online or offline transactions, so abandoning virtual transactions isn’t the best solution. The overall solution is to be aware of today’s best and most popular payment gateways and stick to the one you’re familiar with.

So, educate yourself on the future of online payments and start using solutions that provide data security, contingencies, and dispute opportunities.