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Who are the losers and benefactors of online fraud?

  by Isaac Thuku  
  Losers and Benefactors of Online Fraud  
  image courtesy of  

Electronic Commerce is used for any type of business that carries out financial transactions through an online platform and credit card transactions. Mobile devices are playing an increasing role in ecommerce activities as it not only allows them to sell to customers but also engage them. A large volume of investments by companies have been used to create mobile applications to increase opportunities to reach out to customers around the world and decrease the limits of time and space.

The growth of online retailers of goods and services, digital content for immediate consumption and online market places has increased exponentially as it benefits both small and large businesses worldwide. The increased use of online tools for commercial purposes exposes companies and consumers to fraudulent activities as money can be transferred through the internet.


The payment methods include the use of credit or cash cards or electronic online transfers, which are readily acceptable by online vendors. Given the scale of information that is transferred across the web and increasing monetary value of transactions this has become highly susceptible to cyber criminals.

Trulioo provides there are two common types of fraud that impact eCommerce namely account takeover fraud and chargeback “friendly” fraud. Both types of fraud are a real threat to corporate security and personal information, as according EMC’s security division, RSA, one out of seven payment cards used in 2013 was exposed to data breach. These leaks involve sensitive, protected, or confidential information that is copied, transmitted, viewed, stolen, or used by an individual unauthorized to do so.

Account Takeover Fraud

In the case of account takeover fraud, unauthorized individuals are usually scammers, cyber criminals who use the information leaked to benefit by purchasing products and services online.

The losers in this case are the victims whose personal information is stolen by data breaches and other means. The victims are unaware that their credentials have been stolen as the criminals change their registered contact information to delay notification of the purchase activities on their accounts.The criminals also known as identity thieves proceed to make as many transactions on their account before they lose access once it has been detected.

The criminals benefit as they go on to sell the products purchased at 100% profit margin, an example provided by Siftscience is the criminal creates a listing for copies of a novel on an auction site or digital market place, a potential customer customers sees the listing and purchases a copy of the novel. The criminal then uses a stolen credit card belonging to a victim in another state to purchase the novel from the retailer’s site and has it shipped directly to his/her customer. This type of fraud is also known as auction fraud where the fraudster is a middle person purchasing goods using stolen card information and later selling them to unsuspecting buyers.

Chargeback Fraud

Chargeback or “friendly” fraud occurs when the online purchase is made by the consumer and once the merchandise is received the consumer, they dispute the purchase with the credit card issuer. In most cases losses are incurred by the bank as the product purchased is rarely returned and refund is provided. This generally happens because it can be costly between the chargeback fees and the time taken to establish the case and follow through in response. Another example for chargeback fraud is the online purchase perpetrated by a third party that has access to the cardholder’s information but does not have the authority to use it to make purchases.

One of the aspects that have played an increasing role in online fraud is the reshipping by recruiting an intermediary to reship the goods from the cardholder’s country of origin to international locations such as Asia and Africa making it more difficult to trace the orders.


How to Detect and Reduce Online Fraud

As online fraud in ecommerce is often difficult to detect and many ecommerce retailers may not be aware they are being duped at the time. It can be highly costly to the buyers and sellers where it is determined that fraudulent activities have taken place, as the costs of transactions fees, delivery and return charges among others. There are several steps that online retailers can take to detect and reduce fraud and they include:


- Using required data fields that can be confirmed easily such as telephone, area codes to billing address


- Verification of card holder information using electronic identity verification (eIDV) services


- Sending confirmation email


- Implementing transaction controls based on dollar amount of transactions


- Internal negative filing to protect from repeat fraudster activities.



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