Ecommerce shopping continues to be the driving force behind retail. Nevertheless, with the expansion of ecommerce comes the rise in online fraud. According to Statista, the value of revenue losses due to online payment fraud has more than doubled since 2020. In 2022, it amounted to $41 billion U.S. dollars (£38 billion).

Fraud is a serious liability for payment service providers (PSPs), acquirers, and merchants alike, as it can lead to both financial and reputational damage, and even account shutdown.

To stop fraud in its footsteps, PSPs need to become familiar with the different types of fraud and offer a technology-based fraud solution. Fraud solution provider Signifyd has outlined the most common payment fraud scenarios and how to tackle them.

Return fraud

Returns have become the norm among online shoppers. Unfortunately, fraudsters are also seeing an opportunity to take advantage of the lucid returns policies, which has led to the increase in return fraud.. Unfortunately, fraudsters saw an opportunity to take advantage of the new process, and return fraud increased.

Return fraud can take many forms, including item-not-received claims, that what arrived didn’t match the product description, or that the item was damaged on the way. Signifyd data shows that there was a 35% increase in false claims that an item never arrived in 2022 in Europe, and a 68% increase in false claims about the condition of a product.

According to NFR, a total of $23.2 billion U.S. dollars (10.6%), which is £19.1 billion, online purchases were deemed fraudulent in 2021 in the U.S.

Bot fraud

In recent years, automation and AI have been on the rise. But while they can be a valuable integration that improves a business’ operations and efficiency, they are also being used for malicious purposes by fraudsters.

Bots, which are software programs that imitate human actions, have been used to go on a shopping spree and attack merchants, resulting in fraudulent transactions. Research by Javelin Strategy & Research shows that malicious bots generate as much as 70% of traffic to ecommerce checkout pages, of which 10.6% is deemed fraudulent.

Account takeover fraud

Account takeover, also known as identity theft, is a type of fraud where fraudsters gain control over a legitimate account. The purchase of thousands of stolen usernames and passwords from the dark web has become increasingly popular at a surprisingly small sum of money.

Once fraudsters have breached an account, they can change the user’s account details, make purchases on ecommerce websites, withdraw funds, and even breach other accounts for this user. For merchants and PSPs this causes not only a financial loss but also a high reputational damage.

Social engineering fraud

This is one of the most difficult types of ecommerce fraud to detect and prevent. Fraudsters pay legitimate card holders, known as mules, to use their credentials to commit fraud. The mule receives a percentage of the profit, but if caught, can be put on a watch list or even go to jail.

The Signifyd Commerce Network detected between five and seven orders per day on average that appeared to be fraud-mule purchases since April 2020. The number is up from one or two mule fraud purchases prior to the pandemic.

Signifyd have detected various instances of social engineering fraud. For example, in a fraud mule scheme, a woman became a victim of a working-from-home position where she shipped stolen goods to criminals. More than $15,000 worth of goods were procured from about 25-30 retailers in just one and a half months’ time.

Chargeback fraud

Chargeback fraud is one of the most common types of ecommerce fraud. Chargeback procedures are meant to protect the shopper but are subject to massive abuse.

When a shopper has become a victim of fraud, such as identity theft or a stolen card, they file a chargeback for the transactions that were not made by them. That way, both the cardholder and the merchant have suffered fraud.

Other times, shoppers would file a chargeback because they haven’t received a refund for an item-not-received claim or for when the product didn’t match their expectations. This is called friendly fraud, but there is nothing friendly about this type of fraud, as the cardholder is purposely trying to make profit out of legitimate purchases. According to Signifyd data, during the third quarter of 2022, 64% of chargebacks classified as fraud were in fact “friendly fraud”. Usually, the merchant is held responsible and is liable for the chargeback amount. An exception can be made if the merchant can prove that the cardholder agreed to make the transaction.

Chargeback disputes end up costing a lot and are very time-consuming. Data from Mastercard predicts that global chargeback volume may reach $117.47 billion by 2023.

The majority of those losses will not be linked to the cost of the initial transaction. Ultimately, the average chargeback will cost merchants $3.60 for every $1 in sales value.

It’s likely that the main reason for those staggering costs is that the chargeback process is antiquated. That’s why merchants need to adopt the right chargeback management strategy.

In case a merchant exceeds a certain threshold of chargeback to sales ratio, the card organisation can place the merchant on a fraud monitoring program until the ratio improves. Both the merchant and the payment service provider suffer financial loss and reputational damage.

How to detect and prevent payment fraud?

The best way to prevent payment fraud is developing a robust fraud strategy that considers the shopping journey end-to-end beyond the checkout stage. Merchants may try to fight fraud in-house with time-consuming manual order review, but their fraud prevention rate wouldn’t improve significantly.

Instead, PSPs can partner with outsource fraud prevention solutions that utilise automation and AI to detect and prevent all types of fraud. That way they can offer merchants a robust tool for protecting their ecommerce websites and revenue.


Payment fraud is a big challenge for ecommerce merchants, but with the right use of tools and solutions, it can be minimised, resulting in higher authorisation rates and optimised revenue for both PSPs and merchants.