Understanding the different types of online fraud
There are many kinds of e-commerce fraud, but below are four of the most common:
Account takeover (ATO) fraud
ATO attacks occur when fraudulent actors use stolen identities, bot attacks, phishing, malware, and other tools to acquire user credentials and take control of an e-commerce account. After they’ve breached the account, the criminal can transfer money, make purchases, modify the account, or even target the victim’s other accounts. Spikes in sign-ins, lockouts, and changes to account profiles can all signal potential ATO attacks.
Often referred to as “friendly fraud,” this kind of fraud has a financial impact on merchants even though it’s often not malicious. It occurs when an online purchase is made by the cardholder or a family member, such as a child. The cardholder then either forgets they made the purchase or is unaware of the purchase made by the family member, and reports it to their bank as fraud which results in a chargeback.
Card testing fraud
In this common form of credit card fraud, when malicious actors obtain stolen credit card account numbers, they’ll often use scripts or bots to quickly make multiple online purchases to verify that the accounts are still valid and ascertain the associated credit limits. Before the typically small test purchases are detected, the criminals will make several large purchases, usually right up to the credit that’s available on the accounts.
Also referred to as third-party misuse, this is one of the most common types of e-commerce fraud. It happens when a bad actor gains access to stolen payment information, like a credit card number, and uses it to make an online purchase. When the actual cardholder becomes aware of the unauthorized purchase, they report it to the bank which results in a chargeback to the merchant.
Fraudulent activities like these can be significantly reduced with the right fraud prevention solution. For example, those that use advanced AI techniques and learn from a wide network of data can review online purchases and spot patterns that indicate if the activity is real or fraudulent.
These solutions work like this: When an online purchase is initiated, it analyzes many aspects of the transaction such as who’s initiating the purchase, what device is being used, which product is being purchased, and what card is being used. Then, when the system detects suspicious patterns, it alerts you that the purchase has been flagged as possible credit card fraud so you can block the transaction from going through.