Chapter 5:
Enterprise Ecommerce Fraud Today

Friendly Fraud

Friendly fraud has become one of the leading causes of chargebacks, costing online businesses up to 2.4% of their annual revenues.

Using fraud tactics such as counterfeit returns and wardrobing fraud, criminals not only take advantage of the products businesses sell, they make money in the process.

Your team surely has its own set of steps to combat friendly fraud. However, make sure your customer service webpage plays a role. The clearer and more precise the language on your site and your customer service page, the easier it will be to dispute chargebacks and contest fraudulent returns.

Loyalty Fraud and Coupon Abuse

Loyalty fraud happens when a fraudster uses a customer’s loyalty points to redeem benefits. Similarly, coupon or promotion abuse involves a fraudster creating multiple accounts to take advantage of an offer or coupon multiple times. 

These types of policy abuse are tough to spot, especially when they stem from account takeover (ATO) fraud or are perpetrated by large-scale crime rings and mass registered fake accounts.

The best way to detect loyalty fraud and coupon abuse is to apply machine learning that spots abnormal behaviors, such as too many orders for the same user, IP address or device. Orders that are deemed suspicious should be reviewed carefully to determine whether they are valid.

Account Takeover Fraud

ATO fraud is one of the tactics that continues to persist in ecommerce. Nearly 60% of merchants have seen an increase in ATO fraud since 2021. As long as fraudsters can use stolen credentials to take over accounts and make purchases, ATO fraud will remain an issue.

Part of the issue is poor password management. More than half of people use the same password on all their accounts, and almost 60% of scamming victims don’t change their passwords. Whether criminals use phishing, malware or hacking schemes to steal those credentials, they can wreak havoc on victims’ accounts and make fraudulent purchases to their hearts’ content. 

Gift card fraud

Gift card fraud is a popular form of policy abuse that increases during gift-giving seasons. It increased considerably during the pandemic: Just between March and October 2020, there was a 30% increase in fraudulent online gift card purchase attempts.

This is troubling for enterprise businesses. Why? Because gift cards are virtually untraceable and easily converted into money or merchandise.

That goes double for virtual gift cards, which have become more popular in the last few years. And when you consider that some businesses allow multiple people to contribute to a single online gift card, it’s even more difficult to determine if a purchase is legitimate.

And fraudsters count on that.

So, when a fraudster uses stolen credentials to buy gift cards and then buys other products with those gift cards, it creates a tangled web that is hard to trace, especially during peak sales periods when transaction volumes surge and resources are scarce.

(One strong red flag to track is activation timeline. When a valid customer purchases a gift card, they typically don’t activate or redeem the card immediately afterward. When that happens, those transactions should be flagged for follow up. The same goes for any known schemes involving resale, trading and counterfeiting.)

Return abuse

Return abuse is an advanced tactic that usually involves an expert fraudster. These aren’t first timers; they’ve done their homework and know how to read between the lines to determine the best way to abuse your return policy.

For example, some enterprise companies have a policy that allows customers to return items for a store credit higher than the purchase amount. This is intended to promote brand loyalty and repeat purchasing.

Fraudsters, however, abuse this policy for their own gain. As an example, if they buy a $50 shirt and return it for a 120% store credit, they can now purchase any item worth $60 when they originally spent $50.

Granted, that does promote repeat purchasing, but at a loss to the business. Return abuse is incredibly costly, accounting for up to $15 billion in losses per year. This type of fraud includes tactics like:

• Stolen merchandise returns – Shoplifters return stolen merchandise for the full price.
• Receipt fraud – Criminals use stolen or fake receipts to return merchandise. Even more clever, they may purchase a product on sale at one store and return it to another for a higher price.
• Employee fraud – Also known as “insider fraud,” employees help fraudsters return stolen goods.
• Price arbitrage – Fraudsters purchase similar products that are priced differently and return the cheaper one at a higher price. 
• Switch fraud – Criminals purchase a replacement product and return the damaged or defective item.
• Bricking – Fraudsters purchase and strip an electronic product, then return it without the valuable components intact.
• Wardrobing – Criminals purchase products (often apparel) to use or wear once and then return it.

To combat policy abuse and other types of fraud, enterprise ecommerce businesses need a strategy that can intelligently leverage data to detect suspicious orders without damaging the customer experience.

We’ll talk about that in the next section.