Juniper Research analysts have revealed the top three emerging technologies set to play a critical role in preventing ecommerce merchant fraud.
eCommerce fraud is projected to skyrocket from $44.3 billion in 2024 to $107 billion by 2029, marking a 141 percent increase. Online marketplaces, increasingly targeted by fraudsters, have seen more vulnerabilities since the COVID-19 pandemic fueled the rapid growth of eCommerce.
Fraudsters exploit weaknesses in merchant systems, prompting the urgent need for advanced fraud detection and prevention strategies. These solutions, essential across industries, help businesses avoid unnecessary revenue loss from chargebacks, order reprocessing, and other financial risks. As fraudsters constantly evolve their tactics, merchants must adopt equally agile anti-fraud measures.
Key Fraud Tactics:
First-party Fraud: In this scenario, a consumer deliberately defrauds a merchant, often through chargebacks or policy abuse. Sometimes, fraud originates from within the business itself, making detection harder.
Account Takeover (ATO) Fraud: Fraudsters gain unauthorized access to customer accounts through compromised credentials, session hijacking, or device takeover. Once inside, they make unauthorized purchases or access sensitive customer information.
AI’s Role in Fraud:
The rise of artificial intelligence (AI) is significantly impacting fraud tactics. Fraudsters are using AI to enhance their attacks, such as creating deepfakes that can bypass verification systems, or scaling up attacks with synthetic identities. AI allows for the automation of fraud, overwhelming traditional rule-based prevention methods.
To stay ahead, merchants must integrate AI-driven fraud prevention systems capable of recognizing emerging patterns and responding in real-time. Additionally, incorporating biometric identification, such as liveness detection at checkout, can provide a critical defense against AI-powered attacks.
In the increasingly sophisticated landscape of eCommerce, AI is both a tool for fraudsters and a solution for merchants. Its adoption will be pivotal in maintaining merchant profitability and securing transactions against future fraud attempts.
Juniper Research has identified several methods used by hackers to exploit vulnerabilities in e-commerce systems, with tactics ranging from chargeback fraud to session hijacking. As e-commerce continues to grow, especially in the wake of the COVID-19 pandemic, these fraudulent activities are becoming more sophisticated and widespread.
Key E-commerce Fraud Tactics:
Chargeback Fraud: A fraudulent transaction occurs when a consumer requests a chargeback from their bank or credit card company after making an online purchase. This results in the business refunding the consumer while losing both the goods and the payment.
Friendly Fraud: A form of chargeback fraud, friendly fraud occurs when a cardholder disputes a legitimate transaction. This can happen intentionally or due to misunderstandings, such as forgetting the transaction or misinterpreting the billing process.
Promotion Abuse: Malicious actors or opportunistic customers create multiple accounts to take advantage of promotional offers beyond the intended limits. While this might appear harmless, the hidden costs from multiple discount claims can accumulate and negatively affect businesses.
Refund Abuse: Genuine customers often exploit return policies, making frequent returns that turn the relationship loss-making for the merchant. Refund fraud can also occur through the creation of fake receipts or reselling returned merchandise.
Phishing: Fraudsters send emails or text messages posing as legitimate organizations to trick victims into providing sensitive account information. Phishing attacks are evolving with the aid of AI, making them more widespread and harder to detect.
Phone Scams: Similar to phishing, scammers impersonate businesses over the phone to extract sensitive information, often targeting senior citizens. These calls typically claim an urgent account issue requiring immediate resolution.
Credential Stuffing: Using bots, fraudsters test stolen usernames and passwords across multiple platforms to access accounts. Password-cracking tools combined with leaked credentials make this technique highly effective. Brute force attacks are another common method, using repeated attempts with different password variations.
Session Hijacking: Attackers steal authenticated user tokens stored in browser cookies or other session data. Techniques like Man-in-the-Middle (MITM) or Man-in-the-Browser (MITB) attacks allow fraudsters to take over user accounts without needing login credentials.
Rising Threats
With AI becoming a key player in fraud schemes, these tactics are becoming increasingly automated, scalable, and sophisticated. Fraud prevention systems must adapt quickly to mitigate the growing risks and protect businesses from significant financial losses.
