Protect your Magento Store From E-commerce Frauds: The Ultimate Guide for Magento Fraud Protection

Protect your Magento Store From E-commerce Frauds The Ultimate Guide for Magento Fraud Protection

If you are an online merchant we have good news as well as bad news for you. The good news is that e-commerce sales are expected to reach a valuation of $6.5 trillion in 2023.

And the bad news is that with this exponential growth of e-commerce, the e-commerce frauds will also match this growth. Online store owners frequently deal with e-commerce frauds without around 206,000 attacks on their online stores monthly. With the increasing popularity of online shopping and business, cybercriminals and unethical consumers find this an amazing opportunity to scam online businesses.

If you are running an online Magento store, you have to give special attention to protecting your store from such attacks and fraudsters. These cybercriminals will not just steal your money, but will also damage your brand reputation, move your customers away from your shop, and ultimately hurt your profits.

In this article, we will go through every aspect of online fraud, how we can protect against e-commerce fraud, and much more.

Let’s get started by understanding the e-commerce frauds.

E-commerce Fraud: What it is?

When we need to define e-commerce, the most simplistic and common definition is sell-and-buy transactions made electronically through the Internet, typically through an online store. To facilitate e-commerce activities, we mostly use desktops, laptops, mobiles, tablets, etc.

Fraud is defined as a criminal deception with the intent of getting a financial benefit or any other personal gain.

Therefore, e-commerce fraud is a criminal deception made during an online activity of selling or purchasing through an online store with the aim of financial gain while negatively affecting the online merchant in every possible aspect. It is also termed as payment fraud.

Why do Cybercriminals tend to commit E-commerce fraud?

There are multiple reasons for online payment or e-commerce fraud. Let’s know each of them…

1. Easy to Commit:

Before e-commerce, online fraudsters had to steal physical credit cards from people and it was a risky task without getting caught. Later, they start collecting the credit card slips that users and merchants discard and then use those card numbers to make orders over the phone.

Today, things have become much easier for these fraudsters. They can get as many stolen credit cards as they want over the dark web. In 2019, nearly 23 million stolen credit cards were available for sale on the dark web.

2. Completely hidden:

The fraudsters never have to reveal their identity in payment frauds. They don’t need to physically visit a store, speak to anyone, or face the risk of being captured by the cameras. They just need a computer and a reliable internet connection.

Online scammers usually use aliases that don’t reveal any personally identifiable information about themselves to rent post office boxes and create phoney email accounts.

3. Evasion:

E-commerce fraudsters also believe that police departments don’t give such high priority to e-commerce frauds because the amount involved in e-commerce frauds is generally less than other criminal activities. Furthermore, the rising transnational nature of internet fraud makes it more difficult for law enforcement to identify and apprehend cybercriminals abroad.

Types of E-commerce Frauds:

Generally, we think that stealing credit card information is an e-commerce fraud but e-commerce frauds are not limited to just that. There are 6 major types of e-commerce frauds which we should be aware of.

1. Credit Card Fraud:

This acts as an umbrella term for all frauds which are done by using the information of credit cards or debit cards. Credit Card fraud is also known as card-not-present fraud and payment fraud. In this fraud, the fraudsters use the information of the credit card to make purchases from the online merchants.

Generally, fraudsters get credit cards through the dark web and then they visit an online store to buy a product or service using that credit card. Initially, it defrauds the card owner but eventually, the Magento store owner also gets defrauded and must refund the purchase.

Card testing scams can also affect merchants; in these frauds, several credit cards that are still valid and enable purchases are tried to be tested. These purchases can have a significant negative impact on a merchant’s bottom line even though they are often modest, low-risk buys.

2. Affiliate Fraud:

In this illegal activity, the fraudsters tend to generate affiliate commissions. Firstly, let’s understand about affiliate marketing. In affiliate marketing, online merchants pay a commission for sales that affiliate marketers refer to. There is a unique web link which is shared by online merchants to track the traffic coming from those affiliations. When a user clicks on that link and makes a purchase, the merchants give a commission of a certain percentage of the sale.

In affiliate fraud, thieves manipulate the system to trick the online retailer by creating fictitious activities to either boost or create commissions.

Typosquatting is a popular sort of affiliate fraud when a criminal registers domain names that correspond to frequently misspelt variants of the official URL of an online store. Then, using an affiliate link, the scammer reroutes that domain name to the merchant’s website.

3. Chargeback fraud:

 Another common done by a credit card is chargeback fraud. In this fraud, the retailer has to refund a fraudulent or disputed transaction to a credit card provider.

In the e-commerce world, chargeback fraud happens when a person makes an order to an online store for a product or service and makes the payment through a credit card. After receiving the product or service, this person waits for weeks if not months and then raises a dispute that the transactional activity was fraudulent and raise a dispute. The credit card bank then pushes the merchant to give the refund. In this fraud, the fraudster hopes that the merchant doesn’t have much time to raise a dispute against the claim, or simply gives them the benefit of the doubt. This fraud is also called “friendly fraud”.

4. Phishing:

In e-commerce stores, most users have to sign up and create a profile account. These profile accounts hold their personal as well as financial information including credit card and debit card information. The cybercriminals hack these accounts through phishing schemes. The most common methodology is that cybercriminals send emails to trick customers and ask for their data like usernames and passwords. After getting this information, they use it to log into their accounts and then they change the passwords and make unauthorized purchases. It is also called account takeover fraud.

5. Interception fraud:

In this fraud, the fraudster buys items from online stores using the credit cards of the people, gives the address for shipping of the credit card owners but then intercepts before the final delivery. In easy words, a cybercriminal will go to Amazon, add the credit card information of any other person X and make a successful transaction. Before the final delivery, the criminal will call customer care service to change the delivery address to a new address from where he/she can pick up.

6. Triangulation fraud:

There are three steps involved in the triangulation fraud. Firstly, fraudsters create a counterfeit online storefront, generally one that offers branded goods at discounted rates. This storefront aims to gather customers’ data such as names, addresses, and credit card information.

After getting this information, in the second step, the fraudsters go to a genuine online using the stolen data, and make the exact purchases that customers did, and ship it to the customer.

The final step is the payoff to the fraudsters. They make more online purchases that they ship to themselves using stolen consumer info. Since the victim’s first purchase (from the phoney website) raises no warning flags, this kind of fraud usually goes undetected for a longer period than other forms of online fraud.

How to Identify a Magento Online Fraud?

There can be numerous ways in which online fraud can happen in your Magento store. Always remember, the success of a fraud depends upon the skill and anonymity of the fraudster. As online merchants start taking strict security measures, online hackers also crook up their methods and run other cunning ways to defraud their targets. Here are the common indicators of online fraud:

1. Unreliable order information:

There are no matches between the zip code and the city mentioned, or the IP address of the email used and the buyer doesn’t match.

2. Inconsistent order value:

If the order made by the customer is significantly higher than the average order the customer typically makes, then this is a red signal of fraudulent activity. There can be others as well like multiple units of the same item in one order, and expedited shipping.

3. Anomalous location:

Your customer generally makes orders from New York but now the IP location address is coming from somewhere in Europe.

4. Multiple transactions within less time:

Fraudsters tend to make multiple transactions back-to-back in a very short amount of time.

5. Multiple orders from multiple credit cards:

If there are multiple orders from multiple credit cards within a day or a very short period then this is a sign of fraudulent activity.

6. Multiple declined transactions:

An honest customer makes only 2-3 attempts (a mistake is common in honest customers) but only fraudsters try 4,5,6 or more times.

How to prevent frauds in your online Magento store:

To prevent online frauds from phishing, credit card transactions, affiliate fraud, and other types of fraud is not by just identifying the frauds but also by taking action in response to them.

Magento 2 comes with highly advanced mechanisms and protection against phishing and the admin also has two-level verification. However, if the hackers are doing fraudulent activities from the customers’ end then there are other ways to protect your store from these cyber frauds.

There are many tools at your disposal for fraud detection. The Magento platform takes care of the technical part, but you have to manage the non-technical aspects. Here are those ways to protect your Magento store from fraudulent activities:

9 Ways To Protect Your Magento 2 Store Against Fraudulent Activities:

1. Make your Magento 2 Store PCI Compliant:

Payment Card Industry (PCI) compliance adheres to security rules focused on protecting customers’ card data during a period when a financial transaction happens and after it has been completed. PCI compliance requires several guidelines mentioning how credit & debit card information is captured, processed and stored. These rules aim to eliminate or reduce any fraudulent activity.

Remember, even if you are a small store don’t think that you are fully protected from data breaches. The small merchants should be PCI compliant. In 43% of the cases, cyber attacks target small businesses. It is easy to target small businesses for hackers as they don’t have huge resources as big giants like Walmart, Amazon, or Ebay have. A hacker has to put less effort into a few smaller e-commerce sites than to hack a site like Amazon.

2. Conduct regular site audits:

It is necessary to conduct regular audits of your e-commerce website to identify any red flags or threats in your online store. You must ask these questions while conducting security audits:

  • Are all your plugins and the shopping cart software up to date?
  • Are you using the latest SSL version and is it up to date?
  • Does your online store meet all the necessary compliances such as HIPAA, PCI-DSS, GDPR, etc.?
  • Are you taking the backup of your online store data regularly?
  • Are you using strong credentials for important logins such as Admin, hosting, Cpanel, FTP, CMS, etc.?
  • Are you scanning your website for malware or any other Trojan regularly?
  • Have you removed inactive plugins?
3. Check your site regularly for any suspicious activity:

Bricks-and-mortar stores are aware of shoplifters that’s why they use CCTV cameras and other measures to prevent any fraud. Similarly, you must also regularly check your site to identify suspicious activity. Check your accounts and transactions for red flags such as contradictory billing and shipping information, as well as your clients’ physical location. Use technologies that track client IP addresses and notify you of any addresses from recognized fraudster hotspots.

4. Use an Address Verification Service (AVS):

Most credit card providers and banks offer an Address Verification Service to prevent fraud by credit cards by detecting suspicious credit card transactions in real-time. AVS check the billing address given by the buyer with the address given on the credit card used by the buyer. This verification is a part of the process of the credit card authorization. The merchant requests the payment processor to share the data of the address. If the billing address and the credit card address don’t match then either the transaction is declined or go for further investigation.

5. Use HTTPS:

The Hypertext Transfer Protocol Secure (HTTPS) is the secured version of HTTP and is responsible for the data exchange between a customer’s web browser (like Google Chrome) and your website. The secure layer encrypts the data within the transmission which includes both personal and financial information. To get this secure layer, you have to obtain an SSL certificate. Also, most customers don’t trust a website if it doesn’t have an SSL certificate as Google also highlight a website mentioning “Non-secure”.

6. Don’t collect too much sensitive data about customers:

If you don’t want to use the customer data then there is no need to store a lot of customers’ sensitive data. The hackers won’t be able to steal anything if you have nothing to provide. So only collect the data that you essentially require to complete the transaction and ship the product. Don’t collect social security numbers, birth dates, and other unimportant personal data.

7. Make purchase limits:

Set restrictions for the number of purchases and total cash value you’ll accept from one account in a single day based on your order and revenue trends. This limits your exposure in the event of fraud.

8. Try Anti-fraud solutions:

As an e-commerce store owner, it is always fruitful if you are using a technical solution to detect and eliminate any type of fraud. There are many extensions available on the Magento marketplace that can fit your needs and budget. There is a variety of tools available for specific purposes. Some merchants would prefer a hands-on solution, while others would rather leave it in expert hands.

Rudimentary anti-fraud extensions: These extensions have a single function and use ML algorithms to identify frauds through IP tracking, email addresses, verify addresses, and conduct device fingerprinting.

Mid-level anti-fraud tools: Unlike the rudimentary extensions, these extensions have multiple functionalities like chargeback guarantees, auto decline high-value orders, protection against new account fraud and account takeover protection.

Top-level anti-fraud extensions: Top-tier anti-fraud tools include outsourced case management, expertise working with large merchants, loyalty fraud management, policy abuse protection, automatic decisions, and manual review of suspicious transactions, ensuring that no good order is mistakenly declined by the software.

9. Avoid anomalous delivery address:

The fraudsters don’t use a concrete address for delivery for anonymity and instead, give the address of a PO box or any other similar location. The police don’t come to such addresses which can be used by any person.

As an online merchant, you must not ship the orders to PO boxes or any other anonymous address like freight forwarders.

Wrapping up:

In this article, we begin by understanding e-commerce frauds, then the types of e-commerce frauds and finally go through the plausible ways of detecting and eliminating e-commerce frauds. The Magento platform gives you the best level of security but as an online merchant, you also have the responsibility to take all the required steps to protect your store and the users’ data. Ceymox Technologies, the best Magento development company in India, has expertise in developing e-commerce stores with the utmost level of security. Let us know your requirements.

Sreehari N Kartha

Hubspot SEO Certified

Hubspot SEO II Certified

Google Ads Search Certified

Google Analytics Certified

Sreehari N Kartha is a certified SEO expert, currently serving as a Digital Marketing Analyst at Ceymox. Specializing in diverse digital marketing endeavors, he adeptly manages advertising platforms such as Google Ads, Facebook Ads, Instagram Ads, Whatsapp Ads and LinkedIn Ads. With a strong focus on SEO (Search Engine Optimization) and SMM (Social Media Management & Marketing), Sreehari excels in optimizing online presence and engagement. Additionally, he harbors a keen interest in Crypto, NFTS & Web3 technologies, enhancing his proficiency in the ever-evolving digital landscape.

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