E-commerce Fraud Prevention
Online payment fraud is a significant cost for e-commerce merchants — both direct fraud losses and the chargeback fees and operational costs it generates. Effective fraud prevention protects revenue while minimising false positives (legitimate orders incorrectly declined) that are also a direct revenue loss and customer experience failure.
Types of E-commerce Fraud
- Card-not-present (CNP) fraud: Using stolen card details for online purchases. The most common form.
- Account takeover (ATO): Gaining access to customer accounts to use stored payment methods or loyalty points
- Friendly fraud/chargeback fraud: Customer makes a legitimate purchase then disputes it as fraudulent to get a refund while keeping the goods
- Promo abuse: Multiple accounts created to abuse signup discounts and promotions
- Refund fraud: Claiming non-delivery or returning empty boxes/different items
Fraud Prevention Layers
- 3D Secure 2.0 (3DS2): Bank-issued authentication that shifts liability to the card issuer. SCA (Strong Customer Authentication) requirement under PSD2 in Europe. Adds friction but dramatically reduces CNP fraud.
- Machine learning fraud scoring: Real-time risk scoring of orders — Stripe Radar, Signifyd, Kount. ML models trained on fraud patterns identify high-risk orders.
- Device fingerprinting and velocity checks: Multiple orders from same device, same IP, or with similar details in short windows — high fraud signal