E-commerce Fraud on Shopify: What It Is and How to Protect Yourself

8 mins 28 secs read

Online sales are constantly increasing their volumes, spreading around the world lightning-fast. In 2021, users made 14% more purchases in online stores than in the previous year. The popularity of e-commerce is easily explained: online sales benefit buyers and business owners. In addition, internet trading offers a wide range of niches and products for marketing and allows entrepreneurs to manage the process of receiving orders, payments, and delivery. 

Not surprisingly, the growing popularity of e-commerce is attracting the attention of dishonest people. Unfortunately, store owners are increasingly faced with fraudulent schemes. Vending businesses can lose money if they don't take steps to limit theft. This article discusses the types of commercial fraud and ways to protect your biz from being hacked by third parties.

Table of Contents

What is e-commerce fraud?

How much income is lost to fraud?

How to identify deception on Shopify

The best fraud prevention methods

Fraud prevention software for Shopify


Internet scams are illegal actions used to take possession of other people's financial or material wealth. Villains resort to various tricks and cheat to deceive the victim and get personal gain. 

In most cases, liars make purchases with stolen bank cards, try to refund the cost of an allegedly undelivered order to another financial account, or redirect people's packages to their address.

Online store owners suffer the most from e-commerce fraud. They are attacked by third parties and lose reputation or the stuff itself. 

Ultimately, sellers namely incur financial losses:

  • returning the clients’ money for the order;
  • losing the items in which they invested cash;
  • paying fees to the trading platform for an unsafe transaction. 

How to act as an entrepreneur with a risk of fraud in online shopping?  Stop your business? Of course not. There are many ways to combat scammers on trading floors. But, it is necessary to clearly understand possible criminal schemes to prevent them in time.

Types of fraud that online store holders may encounter: 

  1. Payments refund (friendly scams). It can be initiated by both a fraudster and an ordinary buyer. After vendors send orders to the direct customer, the latter declares the need for money to be returned. The reason may sound different: delivery lack, low-quality product, etc. In fraudulent schemes, the buyer receives goods and wins the dispute for a refund. As a result, deceivers get free stuff, and sellers lose both the product and the money even before they learn how to report Shopify fraud. 
  2. Financial transactions with stolen requisites. A scammer can order goods from a stranger’s credit card and have time to get them delivered when the actual cardholder declares an unfair transaction to the bank. Payments will be canceled and returned to the card owner. The scammer will receive goods for free. Thus store owners incur triple losses: for the stuff, the total money refund, and commissions to the card network. In addition, sellers face a lousy reputation and negative reviews. 
  3. Vendor account hacked. Bandits can access the merchant's profile on the e-commerce platform whether you do print on demand with Shopify or run wholesale trades.  A weak password is one of the main reasons for it. Using bots or virus programs, fraudsters may receive your profile’s personal information, including bank account numbers. They can purchase items on the Internet at your expense, transfer your funds to another card, or take possession of the customer’s personal information in your shop.
  4. Purchase returns. The swindler pays for products in your store with a stolen card. Then returns the goods according to the consumer law and asks for a refund on another card. Again, the seller remains in the red, having no idea how to stop e-commerce fraud.
  5. Order interception. In this case, scammers do not receive money but the goods themselves. Making a delivery to the stolen cardholder’s address, fraudsters at first do not raise doubts. But later, they ask the logistics service to change the endpoint to another. And again, the merchant loses stuff and costs to reimburse payments from a stolen card. 
  6. Triple scheme. Three parties are involved in such a fraudulent operation: an online store holder, a swindler impersonating another shop, and a client. How does cheating happen in this situation? Customers order goods from fraudsters and send them money. A fake seller pays for an order from an actual store with a stolen card. Under the terms of dropshipping stores on Shopify, the victim merchant sends a purchase to the final buyer. The cardholder submits a bank complaint about withdrawals from his account. As a result: the client receives goods, the fraudster takes the client's money, and the genuine cardholder - a refund. But the seller loses goods and reimburses the commission.

Criminal plans can look quite diverse, but each fraud has its way of checking. We'll talk about this later in the article.

Statistics show e-commerce lost more than $20 billion worldwide in 2021. This is 14% more than a year earlier. 

In 2020, the e-business suffered $17.5 billion due to fraud attacks. About 40% of online merchants said they were victims of illegal online transactions. Most of the scams involve friendly frauds. For example, buyers deceived merchants, demanding a refund for an unreceived order or partial reimbursement for broken goods. 

Why do sellers fall for scammers? They devote little time to the issue of security, apparently prioritizing the task of increasing sales. Virtual fraudsters use such imprudence. After all, swindlers can steal anonymously, and buy information on the darknet. However, there is justice for every offender. Below, we will figure out how to avoid online shopping fraud on the Shopify trading platform example.

Creating a Return Policy for Your Print on Demand E-Store: The Practice of Fostering Trust

It is not difficult to recognize suspicious individuals making purchases in your Shopify online store. But first, teach yourself to check customers. This will not take much time, but it will help to avoid financial fraud due to your inattention. Of course, a suspicious buyer doesn’t need to be a scammer. But it is better to be safe than to suffer waste. 

Signs of possible e-commerce fraud detection in retail chains: 

  • New buyer. Usually, scammers create multiple profiles on different trading platforms, place orders, and get off the radars with your money or goods. A buyer with a zero rating, a newly created page, and orders absence should stay under the close vendor’s supervision. 
  • Fast shipping. Clients frequently want to save on delivery. Therefore, they choose the cheapest but most extended logistics option. On the other hand, the scammers want to turn the deal as soon as possible until the stolen card owner makes a phone call to the bank. 
  • Strange addresses. Here’s delivery to another country and the IP addresses do not match? This should alert the attentive Shopify store owner. Perhaps this "friend" wants to fool you. So be cautious and check newcomers twice to prevent e-commerce fraud in your Shopify store.
  • Large orders. The swindler tries to spend the maximum amount of money from someone else's card before discovering. Therefore, such an order can include many goods or several kinds of products for an amount significantly higher than the average deal.
  • Multiple orders from one IP address with different cards. Such activity may indicate fraudsters. They try to make the most of the theft until the account is blocked due to complaints.

As you see, these creepy guys know exactly how to use their fantasy and are very clever. Of course, it is hard to see them right away in the crowd of customers. However, with time you’ll definitely learn how to distinguish them within their first steps. And next, we will discuss how to help your Shopify-based shop stay safe and sound.

You already know what signs a potential scammer may have. Now let's think out how to avoid Shopify fraud and what to do for your safety while running an online shop: 

  • Perform data verification for all your customers. Do it by yourself or train the front desk staff to screen customers. Check the IP address with special tools like www.ip2location.com. It will not be superfluous to check the phone number’s validity. If the subscriber is unavailable, this is a reason to doubt the client’s honesty. If the e-mail address is provided, you can find out if it is blocked on trading forums.
  • Use AVS and CVV. Credit Verification Value (CVV) is a 3-digit short number on the back of the card. This is the most popular type of credit card fraud prevention for e-commerce. The payer must have a physical copy to make allowance for payments. Add a CVV check when paying for an item in your store. This step will help you significantly reduce the risks of bad people coming to your beloved Shopify store.
  • The credit card company’s Address Verification Service (AVS) will help you determine if the specified delivery location matches the address associated with the bill. Further decision to continue cooperation remains with the seller. 
  • Shield your Shopify store. Specify complex passwords and use merchant fraud protection with SSL encryption (your store URL must start with HTTPS). Turn on firewall security and anti-malware against viruses and cyber-attacks. 
  • Use a third-party payment processor (Stripe and PayPal) to perform financial transactions when trading goods online. Companies providing the service are interested in their product’s quality and will prevent money theft from your site.
  • Purchase Shopify fraud analysis tools. An application integrated into the e-commerce platform will perform most of the above operations, identifying suspicious persons on your web page. Cyber security web development is a crucial area for maintaining online commerce’s security and you better use it!

Fighting fraudsters is really hard because they live for the discovery of new scam options. Therefore, the IT community is always on guard for humanity and its rights. Let’s see what they have for this!

how to avoid online shopping fraud

A product developed for the needs of the e-commerce business allows running the Shopify fraud analysis process at the deal’s initial stage (when the client places an order), all while assessing the risks of cooperation between your Shopify store and the distrustful customer.

Thankfully fraud prevention software also integrates with Magento and WooCommerce online stores and brings forth a fraud defense. 

Here is what you may expect from the anti-fraud applications:

  • checking a client's IP address; 
  • searching for e-mail in the markets’ black lists; 
  • analyzing the correspondence of the delivery and bank card registration addresses, etc.

The following instruments are most in-demand among traders:

  1. Kount fraud and consumer insights solutions. The program detects attempts of unauthorized access to the seller's profile, stops bots attacks to read passwords and take over the owner's online store, and also blocks chargeback scams.
  2. Subuno. An app minimizes time on detecting fraud orders and increases sales by accepting purchases after clients' validation. You can customize the criteria for check-ups and create the best anti-fraud template for your needs.
  3. Riskified. The tool eliminates vendors’ risks in the market, providing cards, geolocations, proxy, and other authentication to exclude fraud.
  4. Fraudlabs. The Shopify fraud prevention application is doing precisely the same protecting functions, keeping the trading process in your shop fair and safe. No scams will interrupt your successful commerce. 

Buying programs to catch fraudulent activity may seem like an expensive service, but it is worth evaluating its benefits: 

  • protecting your site from interacting with swindlers; 
  • saving time on checking potential customers;
  • guaranteeing your personal data’s safety.

The e-commerce business growth has also contributed to an increase in fraud cases. Therefore, having an insecure online store can be pretty risky. However, by applying the knowledge gained from the article, internet shop holders will be up to recognize a scam at the stage of order confirmation and protect their trading platform from unauthorized access. 

E-commerce fraud detection with machine learning can protect your commercial deals from possible financial losses and save your reputation. By automatically checking the store customers’ data, you can avoid the danger of fraudsters' invasion, increase the number of valid orders, and top up profits.

E-commerce PlatformAugust 16, 2022
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