Ecommerce Fraud 101: How to Safeguard Your Business

You have built your Shopify store from ground up - late nights, countless hours tweaking product pages and a drive to make it a success. Sales are rolling in, you are generating revenues, and finally things are shaping up. 

Then, one morning, you check your inbox and see it—a chargeback notification. Then another. And another. Thousands of dollars wiped out overnight. Your heart sinks. A fraudulent order slipped through, and now you're paying the price—literally.

Sounds like a horror story? 

Unfortunately, it's a reality for many ecommerce businesses In 2025 alone, online merchants are expected to lose over $48 billion to fraud, with chargeback scams and identity theft leading the pack. 

Small businesses, in particular, are feeling the heat, as 75% of fraud cases now target independent online sellers rather than big-box retailers.

So, how do you protect yourself from becoming the next cautionary tale? Let’s break it down in this blog.

What Do You Understand By Ecommerce Fraud?

Ecommerce fraud is not just about stolen credit cards anymore - it is now a multi billion dollar industry where cybercriminals manipulate loopholes, exploit policies, and deceive businesses into financial losses.

What makes it even more dangerous? 

Unlike traditional theft, where a burglar breaks into a store and leaves physical evidence behind, digital fraudsters operate from behind screens, leaving little to no trace. They exploit automated processes, leverage AI-driven loopholes, and constantly adapt to new security measures. 

Online fraudsters don’t need physical access to products—they just need to manipulate payment systems, take advantage of store policies, or find weak points in customer verification processes.

So if you are still thinking that this won’t happen with you, think again! 

Some high-profile cases from 2024 includes:

• Amazon Lawsuit Against "Chin Chopa" Scam: A fraudulent network scammed Amazon out of over 10,000 items by abusing its refund policies, causing millions in losses. 

• PacSun's Return Fraud Crisis: Fraudsters used Telegram to share tricks on how to return fake items and exploit return policies, leading to huge losses for the retailer.

What makes ecommerce fraud particularly terrifying is that it doesn’t just affect big brands—it can destroy small businesses overnight.

While companies like Amazon or Nike can absorb fraud-related losses, smaller businesses often don’t have the financial cushion to survive. A single fraudulent transaction, especially if it leads to multiple chargebacks, can result in:

• Blocked merchant accounts from payment providers

• Lost inventory and revenue

• Damaged reputation, as fraud-related disputes create bad customer experiences

• Increased operational costs, as more resources go into fraud prevention instead of business growth

Top 8 Types of Ecommerce Fraud 

We'll explore some of the sneaky tactics fraudsters use to give you a clear picture of the landscape.

#1 Brand Impersonation

You’re casually scrolling through Instagram when - bam! - there it is. The bag that you’ve been eyeing for weeks, now at a price too good to pass. The website looks legit, the checkout process is easy, and you even receive a confirmation email. A few days pass. Then a week. Your package never arrives. Emails go unanswered. 

That’s when it hits you—you’ve been scammed. 

The website? Gone. The money? Vanished. And the product? It was never real to begin with. You've been duped by a fake site mimicking a legitimate brand.

This is known as brand impersonation.

In late 2024, Martha Brook, a UK-based stationery company, faced a surge of fraudulent websites and ads impersonating their brand. These fake sites lured customers with stolen images and discounted prices, leading to numerous victims receiving nothing after payment.

#2 Card Testing Fraud

This ecommerce fraud type is the most common and a favorite among scammers!

Fraudsters frequently obtain credit card information that has been stolen, but they are unsure if it is still active. To test the waters, they make little purchases on a number of websites. 

If the transaction goes through, they proceed to make larger, more damaging purchases.

A number of online merchants reported a surge in minor transactions in 2024, which were followed by larger illegal purchases. According to investigations, fraudsters were testing card data with automated bots, leading to significant financial losses and chargebacks for the affected businesses.

#3 Triangulation Fraud

This one's a bit more elaborate.

A fraudster sets up a fake online store offering popular products at low prices. When an unsuspecting customer places an order, the fraudster uses stolen credit card information to purchase the item from a legitimate store and has it shipped directly to the customer. 

The fraudster pockets the customer's payment, and the legitimate retailer is left dealing with the chargeback when the actual cardholder disputes the transaction.

#4 Return and Refund Fraud

Some scammers take advantage of lenient return policies by requesting reimbursements for products they never bought or returning stolen or fake goods for a refund. This causes inventory management issues in addition to monetary loss.

Retailers like PacSun noticed a surge in fraudulent returns in 2024, with individuals exploiting online return policies. Tips on manipulating return labels and policies were even being shared on messaging apps like Telegram, leading to significant financial and operational challenges for the retailers. 

#5 Account Takeover (ATO) Fraud

In this type of ecommerce fraud, scammers usually have unauthorized access to a user’s account - often through phishing or data breaches. The scammer then makes unapproved purchases or siphon off personal information.

#6 Phishing Scams 

Fraudsters send deceptive emails or messages that appear to come from trusted companies, tricking recipients into providing sensitive information or clicking on malicious links.

#7 Gift Card Fraud

Fraudsters either steal gift card numbers or use stolen credit cards to purchase gift cards, which are then resold or used to launder money.

#8 Interception Fraud

After placing an order with correct billing and shipping information, fraudsters attempt to intercept the package by rerouting it to a different address or physically intercepting it upon delivery.

Read More: eCommerce Growth Multiplier : 5 Steps To Success

How To Protect Your Shopify Store From Ecommerce Fraud - A Detailed Guide 

Let's explore detailed strategies to safeguard your Shopify store against fraudulent activities, with practical steps for implementation.

#1 Use Shopify's Fraud Analysis Tools

Shopify has built-in fraud analysis tools that evaluate purchases based on a number of factors - including IP address anomalies, multiple unsuccessful payment attempts, and mismatched billing and delivery addresses. These tools help detect orders that can be fraudulent before they are fulfilled.

How to Implement:

Access Fraud Analysis: In your Shopify admin panel, navigate to Orders and select an order to view its fraud analysis indicators.

Review Indicators: Look for red flags like high-risk IP addresses or discrepancies between billing and shipping information.

Take Action: For orders flagged as high-risk, consider contacting the customer for verification or canceling the order if fraud is suspected.

#2 Enable Two-Factor Authentication (2FA) for Your Shopify Store

Adding an extra layer of security to your Shopify admin account helps prevent unauthorized access, reducing the risk of internal fraud or data breaches.

How to Implement:

Navigate to Security Settings: In your Shopify admin, click on your username, select Manage account, and then go to the Security section.

Set Up 2FA: Click on Two-step authentication and follow the prompts to set up 2FA using an authenticator app or SMS.

#3 Leverage Address Verification System (AVS) and Card Verification Value (CVV) Checks

AVS compares the billing address provided by the user with the address on file with the credit card issuer, while CVV checks verify the card's security code. 

Enabling these checks adds layers of verification, making it difficult for scammers to use stolen card information.

How to Implement:

Configure Payment Settings: In your Shopify admin, go to Settings > Payments.

Enable AVS and CVV: Make sure that your payment gateway settings require AVS and CVV verification for transactions.

#4 Set Up Manual Payment Capture

By default, Shopify automatically captures payments for orders. By switching to manual payment capture, you can examine orders before they are processed, giving you the chance to confirm information and decline orders that seem suspicious. 

How to Implement:

Adjust Payment Capture Settings: In your Shopify admin, navigate to Settings > Payments.

Select Manual Capture: In the "Payment capture" section, choose Manually capture payment for orders and save your settings.

#5 Limit High-Risk Transactions

Set order quantity and value thresholds so that orders that surpass normal buying patterns—which may be signs of fraud—are flagged or held.

How to Implement:

Set Order Limits: Use Shopify's settings or third-party apps to set maximum order quantities or values.

Monitor High-Value Orders: Regularly review orders that exceed your set thresholds and verify their legitimacy before fulfillment.

#6 Use Geolocation Blocking

Restricting access from high-risk regions known for fraudulent activities can reduce the likelihood of fraud.

How to Implement:

Install a Geolocation App: Choose a geolocation app from the Shopify App Store that allows you to block or redirect traffic based on IP addresses.

Configure Blocking Rules: Set rules to block or flag orders originating from high-risk regions.

#7 Regularly Update Your Shopify Store and Apps

Keeping your Shopify platform and installed apps up-to-date ensures you have the latest security patches and features. This helps to eliminate vulnerabilities that fraudsters could exploit.

How to Implement:

Enable Automatic Updates: Where possible, enable automatic updates for your apps and themes.

Monitor for Updates: Regularly check for updates in the Shopify App Store and apply them promptly.

#8 Educate Your Team on Fraud Prevention

Training your staff to recognize signs of fraudulent activity and understand your store's security protocols enhances your overall fraud prevention strategy.

How to Implement:

Conduct Training Sessions: Regularly train your team on common fraud indicators and response procedures.

Establish Clear Protocols: Develop and distribute guidelines for handling suspicious orders and customer interactions.

#9 Display Clear Store Policies

Transparent policies regarding returns, refunds, and shipping can deter fraudsters and provide a reference point in case of disputes.

How to Implement:

Publish Policies: Clearly display your store's policies on your website, ensuring they are easily accessible to customers.

Consistently Enforce Policies: Apply your policies uniformly to all customers to prevent exploitation.

#10 Use Third-Party Fraud Prevention Apps

Improve your store's security by integrating third-party apps that specialize in fraud detection and prevention.

How to Implement:

Explore the Shopify App Store: Search for reputable fraud prevention apps that suit your business needs.

Integrate and Configure: Install the chosen app and configure its settings to align with your store's risk parameters.

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Some Clear Signs That You’re A Victim of Ecommerce Fraud

Spotting the signs of e-commerce fraud early can save you a ton of headaches down the road. Let's break down some telltale indicators that your business might be under attack.

#1 Unusual Order Patterns

You typically sell one or two high-end watches a month, but suddenly, you receive five orders in a single day, all for the same model. While a sales spike can be exciting, such anomalies—especially for high-value items—should raise a red flag. Fraudsters often target expensive products to maximize their gains.

#2 Mismatched Information

An order comes in with a billing address in New York and a shipping address in Tokyo. While international gifts are a possibility, discrepancies between billing and shipping details can indicate fraudulent activity. It's worth taking a closer look when such mismatches arise.

#3 Multiple Failed Payment Attempts

A customer tries to complete a purchase but faces several declined transactions before finally succeeding. This pattern can suggest card testing, where fraudsters experiment with stolen card details to identify valid ones.

#4 Rush or Overnight Shipping Requests

Scammers often want to receive goods quickly before any potential red flags halt the transaction. If you notice an uptick in orders with expedited shipping, especially to unfamiliar addresses, it's time to be cautious.

#5 Abnormal Purchasing Behavior

A new customer places a large order without any prior purchase history or buys multiple units of the same high-ticket item. Such behavior deviates from typical customer patterns and can be indicative of fraudulent intentions.

#6 Use of Proxy Servers or Unusual IP Addresses

Orders originating from IP addresses that don't match the provided billing or shipping locations, or those routed through proxy servers, can be suspicious. Fraudsters often use these methods to mask their true location.

#7 Multiple Orders from Different Cards

Receiving several orders in quick succession, each using different credit cards but shipping to the same address, is a glaring warning sign. This tactic is commonly employed to bypass security measures.

#8 High Volume of Chargebacks

If you're experiencing an increase in chargebacks, especially with reasons like "unauthorized transaction" or "product not received," it's essential to investigate. While some chargebacks are legitimate, a surge can indicate systemic fraud issues.

#9 Inconsistent Customer Information

Details that don't align—such as a phone number's area code not matching the billing address, or email addresses that seem randomized (e.g., user1234@example.com)—can be signs of fraudulent activity.

#10 Suspicious Email Domains

Be wary of orders coming from temporary or disposable email services. Fraudsters often use these to avoid detection and maintain anonymity.

Frequently Asked Questions 

Q: Is your Shopify store a target for fraudsters?

Yes! any online store can be a target, especially those with high order volumes. fraudsters exploit weak security, lenient return policies, and fake chargebacks. implementing fraud detection tools and strict verification processes can significantly reduce risks.

Q: Can fraud really drain your profits overnight?

absolutely! chargebacks, refund fraud, and fake transactions can quickly eat into your revenue. Even a single large fraudulent order can result in financial losses, extra fees, and inventory depletion. Proactive fraud prevention is key to protecting your bottom line.

Q: How can you spot a suspicious order before it's too late?

Look for red flags like mismatched billing and shipping addresses, unusually large orders, rushed shipping requests, or multiple failed payment attempts. Shopify's fraud analysis tools and manual order reviews can help you identify high-risk transactions before they happen.

Q: Are chargebacks just an inevitable part of ecommerce?

Not necessarily! While chargebacks are common, you can fight them by keeping detailed order records, using fraud prevention tools, and requiring strong customer verification. Shopify's chargeback protection and dispute management tools can help you win fraudulent claims.

Q: What's the easiest way to strengthen your Shopify store’s fraud defences?

Use shopify’s built-in fraud analysis, enable two-factor authentication, and invest in third-party fraud prevention apps like signifyd or nofraud. Tightening return policies, verifying large orders, and educating your team can also help prevent costly fraud incidents.

To Wrap Up 

Ecommerce fraud is a relentless threat, constantly evolving and targeting businesses of all sizes. While major retailers may have the resources to absorb losses, independent Shopify merchants are often left vulnerable to devastating financial setbacks. But you don’t have to become another statistic.

Stay ahead with the right security measures, continuously monitor suspicious activity, and build a fraud-resistant Shopify store that not only safeguards your revenue but also earns your customers' trust.

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