E-Commerce Fraud

Any e-commerce business that accepts online payments can be affected by e-commerce fraud due to the ability to hack and access financial information, if successful. 

For this reason, Know Your Customer (KYC) verification, where the user is asked to capture their ID document and complete a quick biometric check, is becoming more popular not only among financial platforms, but also e-commerce apps, especially in high-risk cases, for example, before a large purchase that exceeds the merchant’s set threshold. This can be easily customized through no-code KYC apps, like iDenfy’s Shopify integration. 

Identity theft on an e-commerce site happens when a bad actor uses someone else’s personal information (such as their name or address) to make unauthorized purchases or register and open new accounts for fraud. Common methods that help bad actors succeed with their tactics include sending phishing links and impersonating the platform’s support staff, for example. Once stolen, the information is used to impersonate the victim and make new purchases using their identity. 

Return fraud is the process of manipulating and breaching the actual item return policy to keep the funds and gain financial benefits out of the transaction. Return fraud can be combined with other fraudulent practices, such as phishing, using stolen identities, etc. 

Return fraud works in different ways, for example:

• The fraudster purchases a genuine product and returns a damaged or counterfeit version to claim a refund.
• The fraudster bulk-purchases limited-stock items to create scarcity, resells them on secondary markets, and later returns the unsold inventory for refunds.
• The fraudster returns the item after use and then repurchases it at a discounted “open-box” rate. 

Several important indicators ultimately point to e-commerce fraud, for example:

• Mismatched shipping and billing addresses, especially across different countries
• Unusually large or high-value orders, often placed due to payment fraud
• High-risk or anonymized IP addresses, possibly hiding the true location
• Suspicious payment methods, such as gift cards, prepaid cards, or cryptocurrency
• Repeated order attempts with the same card or address, often automated

Monitoring these red flags helps businesses detect fraud early, reduce financial losses, and maintain customer trust. For that, AI and automated software help, since real-time monitoring for large-scale e-commerce platforms is nearly impossible or would require huge internal teams and investments. 

For example, identity verification, address verification, or bank account verification from iDenfy would help solve this issue by detecting fraudulent clients and attempts to bypass security checks in e-commerce. 

Businesses can reduce risk by monitoring for these warning signs, using automated fraud detection tools, and implementing strong fraud prevention measures such as KYC verification and advanced retail fraud detection systems that are powered by AI and machine learning.  

For example, fraudulent orders often come from high-risk regions or anonymized IPs (such as VPNs). Monitoring IP data through solutions like Proxy Detection from iDenfy helps businesses spot unusual access patterns and prevent fraudulent transactions even after the user is onboarded, securing the whole journey. Extra steps, like reverification before high-risk transactions, are also vital.