Understanding and Optimizing Fraud Prevention

The Scope of eCommerce Fraud

According to a study by Juniper Research, online retailers could lose over US$206 billion in total between 2021 and 2025, as a result of CNP fraud.

Most Common Types of eCommerce Fraud

1. Card Not Present (CNP) Fraud or Payment Fraud

The Card Not Present fraud usually occurs when a fraudster tries to make an illicit credit card transaction without being in possession of the physical card. When transactions are conducted online or over the phone, the scammer only needs to provide the cardholder’s name, billing address, card number, three-digit security code, and card expiration date. These types of details can be stolen electronically, usually through phishing scams, or purchased by fraudsters from underground marketplaces.

2. Friendly Fraud or Chargeback Fraud

Friendly fraud occurs when a person willfully makes a purchase from a merchant, but afterward initiates a chargeback to receive a refund and remain in possession of the item they have purchased. In these cases, the cardholder may claim that they have never received the product or haven’t ordered it in the first place.

3. Card Testing

This type of fraud occurs when a fraudster gains access to many credit card numbers and then uses them to make small-value purchases repeatedly at the same store. The purpose of this activity is to identify which cards are good (valid) and can be used to commit more fraud later, for more expensive items. These fraudsters often choose online stores with no authentication or security measures in place, and frequently use bots and scripts to carry out this activity quickly.

Why Are eCommerce Merchants Particularly Vulnerable to Fraud?

There are many ways in which fraud can occur and just as many reasons why eCommerce providers are vulnerable to fraud. In the end, however, it comes down to two main themes: it’s easy for the fraudster, and difficult for the target.

eCommerce Fraud Prevention Best Practices

The health of any eCommerce business depends on not only detecting fraudulent activities when they take place, but also finding the best fraud prevention tactics to keep your business and your customers safe. Naturally, reducing the loss resulting from fraud can also significantly increase your eCommerce revenue and boost your customers’ satisfaction.

  • Knowing where your customer base tends to be located. When getting high-value orders from countries which don’t typically generate sales, it may be a good idea to apply extra care before fulfilling them.
  • Knowing what types of sales are typical for your customer base (dollar amount, frequency, preferred products/services, item quantities, etc.). Out-of-pattern transactions can sometimes indicate fraud, and it might be a good idea to screen such orders more carefully.
  • Requiring CVV and Billing Address input for all orders. A good way to combat eCommerce fraud is to require the CVV number when the online transaction takes place. The card security code (CVV) is a three-digit code that can be found on each card and can help authenticate online transactions. Collecting a full billing address also allows using address verification systems (AVS) when available. AVS is a transaction security measure that helps merchants prevent fraud by verifying if the cardholder’s address is correct or invalid, based on the cards’ billing address that is registered in the bank’s files. While only available in certain countries like the US, this can be an effective prevention tool when selling physical goods.
  • Utilizing 3D Secure 2.0 authentication. Another great way to prevent fraud is to implement the latest 3D Secure Systems as an additional security layer. The latest technology version of 3D Secure (3DS2) allows the card issuer (bank) to use a wide range of data points from the transaction to run a risk-based analysis. It enables a real-time, secure, more accurate way to authenticate customers without asking for a static password or slowing down commerce. For example, for low-risk and low-value transactions (i.e., less than 30 EUR), the card issuer will not send any extra authentication requests to the cardholder. However, for all other customer-initiated transactions, the cardholder will be required to go through Two-Factor Authentication (2FA), whether via text (SMS), app push notifications, or biometric means (fingerprint, etc.).
  • Implement CAPTCHA or customer authentication. One of the most effective solutions against card testing fraud is CAPTCHA. Many providers offer both visible and invisible captchas, as well as configuration options to help tailor validation to the behavior of your customers and reach an optimal level of protection with minimal friction.
  • Communicate with your users. As a merchant, keeping yourself up to date with the status of your customers’ orders, shipping details, and past orders will make the whole payment process more resilient to fraud, as well as boosting your shopper’s confidence in your services and business.

Why Fraud Prevention Requires Teamwork

Essentially, stopping fraud is all about protecting your bottom line. When fraudulent orders are processed and fulfilled by your business, the negative impact is two-fold: loss of revenue due to refunds/chargebacks and loss of product due to the fulfillment of said orders.


Payment security is a crucial factor in any eCommerce business, and it’s still an active concern for merchants as well as buyers. One of the first steps in preventing online fraud is to be aware of the most common types of fraud and understand how and why they happen, and to try to figure out what your payment setup might be missing and the best way to improve it.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
2Checkout (now Verifone)

2Checkout (now Verifone)

1 Follower

2Checkout (now Verifone) is the leading all-in-one monetization platform for global businesses built to help clients drive sales growth across channels.