As holiday sales soar, so do fraud risks. Discover the top 3 threats to e-commerce and how TrustDecision’s solutions can protect your business this season.
November 29, 2024
7 minutes
Wang Ying, Yuqi Chen
As the year winds down, two global shopping phenomena—Black Friday and Cyber Monday—are about to ignite a frenzy of consumer. For global cross-border e-commerce merchants, it’s not just a time for booming sales—it’s also prime time for fraudsters to strike.
As 2024's holiday season approaches, merchants must prioritize enhancing their fraud prevention strategies to safeguard their profits and reputations. TrustDecision has identified three major fraud risks that tend to spike during these massive sales events: namely promo abuse , SMS channel exploitation, and chargeback fraud.
One of the most prevalent threats is promotional abuse. During the holidays, platforms roll out discounts, coupons, and flash sales to entice shoppers. While these promotions boost engagement, they also open doors for fraudsters who exploit system vulnerabilities for illicit gains. Professional scalpers, which now has developed into a million-dollar-industry, often armed with sophisticated tools and well-organized networks, exploit marketing campaigns to score quick profits. Here’re two common tactics they use:
Fraud starts with a simple step: creating an account. In the world of online scams, fraudsters team up with shady players like card sellers, SMS verification services, and account brokers. Using automated tools, they churn out fake accounts in bulk, building a massive database of profiles ready for misuse.
Another go-to move for these bad actors is credential stuffing. They gather leaked usernames and passwords from the web and use automated tools to try logging into multiple platforms. If they crack an account, it becomes a launchpad for all kinds of fraudulent schemes, putting the platform and its users at risk.
Once these fraudsters have access to fake or stolen accounts, they go to work. Armed with bots and scripts, they dive into promotional campaigns, pulling off schemes like fake referrals, sham orders, coupon hoarding, and reselling rewards points.
Take flash sales as an example. Fraudsters use automated tools to flood the system with requests, snatching up limited items faster than real shoppers can react. These items are then flipped for profit. Coupons, rewards, and other promotional perks? Those are scooped up in bulk with fake accounts and sold off on third-party marketplaces.
By exploiting loopholes in promotional campaigns, fraudsters not only frustrate businesses but also leave real customers out in the cold. The result? A wave of complaints and a dent in brand trust.
These scams don’t just harm merchants—they mess with the entire ecosystem. Platforms see skewed ad performance metrics, disrupted operations, and rising costs as they scramble to respond. The ripple effects hit everyone, making fraud prevention a must-have for any platform looking to thrive in today’s competitive market.
Fraudsters are quick to exploit SMS verification systems, a cornerstone of e-commerce security. E-commerce platforms commonly use SMS one-time passwords (OTPs) to verify user accounts or send important customer notifications, but fraudsters turn these channels into vulnerabilities. Using a huge amount of fake phone numbers and automated tools, they overload SMS systems, hijacking the interface to send messages. This disruption prevents legitimate users from receiving critical notifications and damages their shopping experience, while also enables fraudsters purchase with fake accounts and leads to financial loss.
This kind of attack can happen for a few reasons: it might be outright cheating by SMS service providers, sabotage from competitors, or direct assaults by fraud rings.
The consequences are far-reaching. Beyond draining resources and racking up costs, these attacks can spark a flood of user complaints, sometimes leading to SMS services being suspended entirely. Innocent users get caught in the crossfire, and platforms risk serious damage to their brand reputation. To keep systems running smoothly and users happy, businesses must take robust measures to secure their SMS channels against abuse.
Payment fraud is the most common—and most damaging—threat in cross-border e-commerce. At its core is the issue of chargebacks, which come in two main forms:
Unauthorized chargebacks are often the result of a sophisticated chain of fraud. Stolen card data is obtained through phishing, hacking, or other illicit methods. Fraudsters test these cards with small transactions before making larger purchases. Once they’ve secured high-value items, these are quickly resold, leaving merchants to deal with the fallout. This activity has grown into a full-fledged industry, with fraud rings building entire supply chains around stolen card data. Let’s take a quick look at how it works:
This is the foundation of their operation. They obtain credit card data through phishing scams, database breaches, malware, or social engineering tactics to gather personal details. These "data vendors" play a key role in feeding stolen information into the fraud ecosystem.
Fraudsters use specialized platforms or tools to sift through the stolen data, separating usable credit card information from outdated or invalid records. This ensures that only working cards make it to the next stage.
Using legitimate cards—either their own or rented ones—they simulate genuine user transactions to understand the platform’s payment process. Once familiar with the system, they switch to stolen cards to conduct payment tests, often using varying amounts to gauge transaction success rates. Advanced techniques, such as proxies, browser fingerprinting, and phishing attacks, are deployed to bypass security systems, including 3D authentication.
Armed with tested and verified cards, fraudsters target high-value, easy-to-resell items, placing large orders on e-commerce platforms. Some sophisticated rings mix small and large transactions or use specific timing strategies to evade fraud detection systems. Once the goods are delivered, they quickly liquidate them through various channels, turning stolen data into cash.
When the rightful cardholder discovers the fraudulent transactions, they report them to their bank, triggering a chargeback. The merchant not only loses the product but also has to refund the payment—effectively a double loss.
Card organizations like Visa and Mastercard monitor fraud and chargeback rates closely. If these exceed acceptable thresholds, merchants face penalties, including fines or, in severe cases, the suspension of their payment processing privileges. This adds to operational costs, damages customer trust, and hurts brand reputation, leading to long-term financial repercussions.
Not all chargebacks stem from stolen cards. Friendly chargebacks, which arise from known customer disputes over legitimate transactions, are another thorn in the side of merchants. These often occur when a buyer claims the product didn’t match the description or arrived damaged. While these disputes can sometimes highlight service quality issues, a subset of customers exploits chargeback policies maliciously.
Retailers are expected to experience a peak in chargebacks during the upcoming shopping season - no matter friendly or not, both will greatly damage merchants’ profitability and operational efficiency.
Addressing fraud risks in e-commerce requires a blend of expertise and technology, and TrustDecision has developed a comprehensive approach to help businesses stay ahead of evolving threats. With a focus on efficiency and precision, TrustDecision’s solutions are designed to adapt to the unique challenges of each client, ensuring seamless protection during even the busiest shopping seasons.
Fraud can happen at any point in the user journey, so TrustDecision ensures that every step is protected. From registration and login to browsing, promotions, payments, and after-sales interactions, the monitoring system tracks activity in real time. Key touchpoints—like promotional participation or checkout—receive instant risk validation to verify the authenticity of users, transactions, and traffic. This full-chain oversight minimizes vulnerabilities and keeps operations running smoothly.
Understanding how users interact with your platform is critical for detecting fraud. TrustDecision uses proprietary technologies like device fingerprinting and passive/active tagging to analyze user behavior at critical points, such as browsing and order placement. By applying advanced AI models like Long Short-Term Memory Network (LSTM) and Transformer, we can extract meaningful patterns from user behavior sequences, identifying subtle differences between legitimate shoppers and fraudsters.
Fraud doesn’t happen in isolation, and neither should fraud prevention. TrustDecision’s global risk database allows businesses to benefit from shared intelligence. For example, if a user engages in coupon abuse or payment fraud on one platform, their history informs TrustDecision’s risk scoring for other platforms, enabling proactive countermeasures. By mapping fraud rings and unusual behavior patterns across systems, TrustDecision empowers merchants to act before fraud impacts their business.
Chargebacks are one of the most damaging forms of fraud, but they can be mitigated with early intervention. TrustDecision’s partnerships with Visa, Mastercard, and other major card networks ensure transparency and accuracy in transaction data. With tools like RDR (Rapid Dispute Resolution), CDRN (Chargeback Dispute Resolution Network), and Ethoca alerts, merchants receive real-time notifications of disputes and a window to resolve them before they escalate. If handled within this timeframe, disputes won’t count toward fraud-related chargeback metrics, helping businesses avoid fines and preserve access to payment channels.
The holiday shopping season means more sales—but it’s also prime time for fraud. Alongside the challenges mentioned earlier, merchants are likely to face increased threats such as identity theft, surges in invalid traffic, and other fraudulent transactions. An all-round protection covering each touchpoint - including account security, transaction monitoring, promotion abuse prevention, and user profiling - is essential. With the right measures in place, businesses can focus on sustainable growth while keeping the holiday spirit alive for their customers.
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TrustDecision empowers businesses with AI-driven decision engine designed for fraud prevention, credit risk decisioning and ensure regulatory compliance. It leverages on machine learning models and big data capabilities to deliver real-time risk insights with accuracy and automate decision-making process to deliver maximum operation efficiency.
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