The Impact of Fraudulent Account Creation in Ecommerce

Ecommerce has been growing rapidly in recent years and is projected to continue its rise. Although this growth has brought many benefits, such as more convenience for consumers and online stores alike, it’s also opened the door for criminals to engage in fraudulent activity.

The rise of fraudulent account creation is just one way that bad actors are victimizing ecommerce merchants. In this blog post, we’ll explore how chargeback fraud and fraudulent accounts impact small businesses and what you can do about it if you’re an ecommerce store owner.

What are Fraudulent Accounts?

Fraudulent accounts are created for the purpose of defrauding an online retailer. The account is created using stolen credit card information, then it’s used to make purchases on your site or others.

Fraudulent accounts can be used to purchase goods from you and then sell them through unauthorized third-party websites, or they can be sold directly by the fraudster to other customers who don’t realize they’re buying stolen goods.

The point is this leads to making fraudulent purchases that cost you thousands of dollars in lost revenue, sometimes in the span of only 24 hours.

How Does it Impact Ecommerce?

Many merchants see chargeback fraud as a problem that only impacts big businesses. They assume that because they are small and don’t have a lot of revenue, chargebacks and fraudulent accounts will never be an issue for them. This couldn’t be further from the truth.

Fraudsters target both large and small businesses alike and can cause significant damage to smaller companies’ revenue streams without warning or notice.

With the ecommerce site industry expected to exceed $5 Trillion, there are many incentives for bad actors and fraudsters to commit some kind of ecommerce fraudulent activity.

In 2021 alone, new account fraud grew 109%, costing the U.S. economy more than $6.7 billion. That resulted in 26% of merchants experiencing a nearly 10% loss in revenue. 

In other words, if you do not prepare your ecommerce store for friendly fraud, chargeback fraud, and other fraudulent account activity, you will lose money.

Fraud is One of the Most Damaging Types

Friendly fraud occurs when a customer buys an item from you, claims not to have made the purchase, and then demands refunds from your payment provider. It might sound surprising that people would do this, but it happens all the time.

There are several types of ecommerce fraud that exist, and they all have the potential to be detrimental to your business. These include

  • Shopping cart abandonment: This is when a shopper fills out their order and then leaves without completing it. It’s estimated that 50% of shopping carts are abandoned each year, which amounts to $10 billion in lost sales annually for online retailers.
  • Credit card fraud: With credit card fraud, hackers produce fake copies of credit cards using stolen data from past breaches. They use these cloned cards for small purchases until they get caught by banks or stores.
  • Account takeover attacks: Attackers find ways to access user accounts by guessing passwords or getting hold of login credentials through phishing scams or clickjacking bugs on social media platforms.
  • Interception fraud: An attacker uses a stolen card but completes the information with legitimate data. Then, the goal is to intercept the package before it arrives at the target location.

Prevention Starts with Tracking Red Flags

Tracking red flags early in the process can limit fraudulent activity and prevent losses later. As an ecommerce business, you have the opportunity to identify fraudulent accounts early in the customer engagement process. By tracking red flags, you can limit fraudulent activity and prevent losses later on.

The easiest way to do this is with some essential security practices like requiring complex passwords, matching credit card info to addresses, asking for the CVV number on cards, or installing an advanced tool to guard against fraud.

At OPMC, we have built a phenomenal Anti-Fraud plugin that works with the WooCommerce platform. This prevents fraud by blocking purchases from potential risk buyers, restricting purchases from specific areas, and placing a value on a purchase to assess its risk in real-time.

Having an advanced tool like this in place proactively protects your ecommerce store from a wide variety of fraudulent activities.

Conclusion

As ecommerce continues to grow, so does the risk of fraudulent activity. With the rise in account creation frauds like chargebacks and account takeovers, it’s more important than ever for merchants to protect themselves from scams by paying attention to red flags that could indicate possible fraud.

While there are many types of fraud that can impact your business, there are steps you can take today to protect yourself and your customers against these attacks. Be sure to read some of our in-depth articles on how to best protect your online store from fraudulent attacks.

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