Triangulation Fraud

What is Triangulation Fraud?

Triangulation fraud is an e-commerce scam that involves three parties: the fraudster, the victim (cardholder), and an unsuspecting buyer. The fraudster sets up an online storefront offering discounted goods to attract buyers. When a buyer places an order, the fraudster uses stolen payment credentials (e.g., credit card details) to purchase the item from a legitimate retailer and ships it directly to the buyer. The fraudster keeps the buyer’s payment while the cardholder and the retailer bear the consequences of the fraud.

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This type of fraud is difficult to detect because the victim cardholder is unaware until fraudulent charges appear, and the buyer often believes they are engaging in a legitimate transaction.

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How Does Triangulation Fraud Work?

Step-by-Step Process

Step 1- Fake Online Store Setup

• The fraudster creates an attractive online store (often on marketplaces or social media) offering popular products at low prices.

Step 2 - Order Placement

• A buyer places an order on the fraudster’s site and pays the fraudster directly.

Step 3- Stolen Payment Usage

• The fraudster uses stolen payment information to purchase the product from a legitimate retailer.

Step 5 - Order Fulfillment

• The legitimate retailer ships the item directly to the unsuspecting buyer, completing the transaction.

Step 6 - Profit Collection

• The fraudster pockets the payment from the buyer while the cardholder disputes the unauthorized transaction, leaving the retailer to deal with the chargeback.

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Use Cases

Legitimate Scenarios (Prevention and Awareness)

• Fraud Detection Systems: Retailers use fraud detection tools to monitor unusual purchasing patterns, such as mismatched billing and shipping addresses.

• Customer Education: Educating buyers about the risks of purchasing from unverified online stores at unusually low prices.

• Authentication Processes: Verifying the validity of payment information before processing orders to prevent fraudsters from using stolen cards.

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Fraudulent Use Cases

• Fake Stores on Marketplaces: Fraudsters set up fake storefronts on reputable marketplaces to appear legitimate.

• Social Media Scams: Fraudsters advertise heavily discounted goods through social media ads, luring unsuspecting buyers.

• Reselling Fraud: Fraudsters resell high-value goods obtained through triangulation fraud on other platforms or in black markets.

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Impacts on Businesses

Financial Losses

• Chargeback Costs: Retailers face chargebacks when cardholders dispute unauthorized transactions, losing both the goods and the payment.

• Operational Costs: Resources are spent investigating fraudulent orders and implementing anti-fraud measures.

Reputational Damage

• Buyer Distrust: Unaware buyers receiving items from retailers through fraudulent means may lose trust in the retailer if the fraud is uncovered.

• Brand Misuse: Fraudsters often impersonate legitimate retailers or brands, damaging their reputation.

Operational Challenges

• Increased Scrutiny: Retailers must review suspicious transactions, such as those with mismatched billing and shipping information.

• Customer Support Strain: Businesses must handle inquiries and disputes from both cardholders and unsuspecting buyers caught in the fraud.

Consumer Harm

• Cardholder Losses: Victim cardholders face unauthorized charges and must dispute transactions to recover their funds.

• Buyer Losses: Buyers may unknowingly participate in fraud, risking their payments if the scam is uncovered.

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Prevention Tips for Businesses

• Implement advanced fraud detection systems to monitor anomalies in billing and shipping details.

• Educate customers about identifying fake online stores.

• Require multi-factor authentication for transactions to ensure legitimate use of payment methods.

• Collaborate with payment processors to detect and prevent stolen card usage.