E-commerce has reshaped global business and consumer behavior with unmatched convenience and choice. With millions of transactions daily, it also gives cybercriminals more opportunities to commit fraud.
In 2023, the Federal Trade Commission found online shopping scams as the most commonly reported social media-based scam, and all social media scams combined have accounted for $2.7 billion in reported losses since 2021.
Consumers face non-delivery scams and product substitution scams. In a non-delivery scam, buyers are taken in by a fake e-commerce site, then order a product or service but never receive it.
In a product substitution scam, the seller delivers a product, but it’s something substandard or counterfeit — not what the buyer thought they would get.
In both types of scams, the seller disappears or becomes unresponsive after the transaction, making it impossible to recover the funds.
Online purchase scams affecting businesses often involve fraudulent chargebacks. While some disputes are genuine mistakes, dishonest claims are considered “friendly fraud,” explains Pragya Agarwal, TaskUs Financial Crimes and Compliance Leader. This is when a customer disputes a purchase, claiming they didn’t make it or didn’t receive the item — when in fact they really did.
It’s known as "friendly" fraud because the customer is a real person, often a regular buyer, rather than a scammer with a fake identity.
The likely targets
Online purchase scams often target younger consumers, who may be less sophisticated and who spend a lot of time online. The Better Business Bureau reports that adults aged 18-24 were the group most likely to be scammed in 2020, a year when 38% of all scams worldwide were related to online purchases.
More recently, adults 35-44 were the most likely to report online shopping scams, and women reported more online scams than men (56% vs 42%), according to Dataprot.
“Scammers are using more sophisticated techniques and advanced tools to commit fraud on a massive scale. And as online transaction volumes continue to grow, we anticipate a corresponding increase in fraud, putting platforms at greater risk,” says Pragya.
Potential risk for businesses
Online shopping scams present a twofold risk for businesses, depending on who the scam is targeting. For scammers using fake identities to initiate bogus chargebacks or consumers engaging in friendly fraud, businesses lose money directly. They issue refunds or face credit card chargebacks for goods and services they actually delivered, which they then have to write off as a loss.
But the costs go beyond the dollar value of the chargebacks or refunds. According to Signifyd, every $100 in fraudulent orders results in $207 in losses, due to wholesale costs, lost shipping and fulfillment costs, and credit card processing fees related to the chargebacks.
Businesses also face a risk when non-delivery and product substitution scams target consumers. If the scam happens on an e-commerce platform, the platform itself suffers reputational damage, even if it was a third-party merchant perpetrating the scam. Such frauds decrease consumer trust and may cause them to leave the shopping platform for another one that they perceive to be more secure.
In fact, shoppers are more likely to buy from larger e-commerce platforms because of tighter security measures compared to smaller ones, according to a Finextra report.
Product substitution scams can also cause reputational damage to brands by flooding the market with inferior copies of their actual products.
How to prevent online purchase scams
To reduce the risk to consumers and protect them from online purchase scams, businesses can take a few basic steps:
Strengthen site security transparently: Implement HTTPS, keep SSL certificates up to date and offer secure payment methods to protect the integrity of transactions. Display trust badges and third-party verifications as a way of demonstrating your site’s commitment to security.
Educate consumers: Create resources that can help consumers identify fraudulent products, be smarter about scams and know which websites truly represent the brand.
Monitor the internet for fakes: Monitor the web and social media websites to ensure that scammers aren’t creating fake identities that mimic your brand. Monitoring services are available that can alert businesses to these kinds of fakes. Once detected, it may be possible to take them down or pursue legal action against them.
Respond to customer issues quickly: Ensure that your customer service team is adequately staffed and trained to respond to any potential issues of e-commerce fraud. Demonstrating your commitment to your customers’ safety online can help build trust as well as preventing loss.
More from TaskUs Fincrime + Compliance experts
The Cifas Fraudscape 2024 report revealed that “only 35% of organizations prioritize spend and resources on fraud detection at the account opening stage.” This is one of the reasons why many businesses struggle with prevention and lose a lot of money to fraud.
“But managing risks while keeping costs under control makes mitigation even more difficult. There are tradeoffs that can make it harder for organizations to deliver exceptional customer experiences,” explains Pragya.
Technology helps drive efficiencies, secure transactions, stop fake sign ups and improve customer engagement overall. Many AI-powered solutions can detect unusual account activities, suspicious payment patterns, social engineering tactics, exploitation of promotions and sudden spikes in refund requests — at scale.
She also recommends cross-sector collaboration and fraud prevention services. “Partners have the teams, tools and expertise to stay ahead of evolving schemes while ensuring data privacy and quality controls,” according to Pragya.
By enhancing security, educating consumers, monitoring for fraudulent activities and maintaining a responsive customer service, businesses can protect themselves and their customers from evolving schemes.”
