Financial Frauds to Avoid when Starting an Online Business

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Businesses that operate online today, either partially or entirely, have the potential to reach the widest audience imaginable. However, while having an online business gives you an amazing reach, it also comes with great risks. 

These days, online businesses often become easy targets for fraudsters and cybercriminals. Digitalization has provided criminals with plenty of opportunities to steal data, and funds, and with it ruin the reputation of the online business.

The damage that cybercrime has caused since the beginning of 2022 is $6 trillion – and we are still in the first half of the year.

Unfortunately, the numbers keep growing, but it’s not because there aren’t measures that businesses can take to prevent these things. Even though there are some very simple methods for avoiding different types of financial fraud, not all businesses focus on them. 

Avoiding financial fraud requires more methods than just prompting your customers to create highly secure, random passwords.

You should also be aware of the types of risks you are dealing with, know your options for preventing them, and dedicate some time and effort to making your business safe for the consumer. 

That’s what this article will teach you – how to differentiate between the most common types of financial fraud, as well as what to use to avoid it. 

7 common types of financial fraud 

The most important thing is to know how to prevent financial fraud from happening. A single case of financial fraud can mean the death of a new online business, so it’s wise to put this on your list of priorities. 

The first step to dealing with risk is to know what it is. That being said, here are the most common types of financial fraud that you should be looking to prevent. 

Affiliate fraud

Affiliate financial fraud is a very common occurrence these days. It includes any attempt to take advantage of the affiliate i.e. marketing opportunities with your company. There are many ways that fraudsters use to commit this type of crime. 

They do it by sending junk traffic to your website. They use bots to trigger any applicable affiliate rewards. In each case of affiliate fraud, the other party uses deceiving practices to get money from you without bringing you actual leads.

There are many known schemes for affiliate fraud that are mostly dependent on the payment model. Some of them include:

  • Cost-per-lead or CPL: when the affiliate gets paid when a visitor completes a registration form, delivers some form of user data or subscribes to a newsletter, but fraudsters use bots to fill the forms. This means false subscribers for you and big money losses.
  • Cost-per-acquisition or CPA: when the affiliate gets paid when a sale is fulfilled, but the fraudsters use stolen credit card numbers and IDs to finalize the conversion, as well as bots to automate these processes. The result of this crime is a huge chargeback fee for your new business.
  • Cost-per-click or CPC: when the affiliate receives money based on the number of clicks on an ad, but fraudsters automate clicks with bots and find ways to direct unreal users toward the link. 

Bots play havoc with new online businesses’ analytics, waste money unnecessarily, and are very hard to detect. As it affects the business, most new online store owners realize this when there’s too much damage to repair. 

Affiliate fraud detection and prevention with the help of tools

There are just so many places from where you can become a victim of crime, and so many ways for this to happen. The good news, however, is that there are tools that offer you a great deal of security at a highly affordable price. 

By using a very simple combination of affiliate fraud detection, device fingerprinting, traffic monitoring, and other features in tools like SEON, you can avoid and prevent tons of criminal activities that often affect new and old online businesses. 

According to SEON, three approaches can help you detect fraudsters that are targeting your business: monitor the traffic, enable device fingerprinting, and perform a thorough behavior analysis. 

Thankfully, you can automate this and much more with SEON. 

Financial Frauds

Card testing fraud

Another common financial fraud is card testing or card cracking. This type of fraud jumped by over 200% in 2017, accounting for 16% of all fraud in the e-commerce industry.

What does it mean, though?

Card cracking fraud is when someone gains access to different card numbers by purchasing such data on the dark web or through theft. These scammers have the card numbers but aren’t aware if they can use them to complete the transaction, or how much money they have at their disposal. 

If you are one of the online businesses that these scammers use, they’ll make small test purchases to see if the cards they stole are valid and full. They often use bots and scripts for this purpose, and the initial purchases are minor. 

When the fraudsters detect the cards that work, they will most likely start making more expensive purchases. 

Since the first purchase is so small in most cases, this goes undiscovered by most merchants. You can realize that you’ve been a victim of card testing fraud when they start making significant purchases or when a customer reaches out to you with that issue. 

Friendly fraud

Friendly or chargeback fraud is when a criminal purchases an item or service from your online store and then requests a chargeback from the payment processor.

They use your product or service but claim that the transaction was invalid. If the banks or credit card companies return the money to the customer, you’ll be suffering a loss. 

This type of fraud is named ‘friendly’ because the individuals in question usually appear friendly and honest. That’s how they get items for free. For example, they may get the item but claim that they never received it.

Account takeover fraud

As the name tells you, this type of crime occurs when a person gains access to the account of your users on your website or online store.

They can do this by using a variety of methods such as purchasing stolen security codes and passwords on the dark web, using stolen personal information, or implementing a phishing scheme against your customers. 

When criminals gain access to your customers’ accounts, they can change the details, make purchases with their saved cards, withdraw funds, etc. 

Account takeover fraud

This is a form of identity theft and while it mostly affects the customer, it can cost you your reputation as a new store on the market. If customers feel that their data is vulnerable on your online business website, you’ll lose your reputation before you even start to succeed on the market. 

Refund fraud

This is quite common financial fraud and, while you might be able to detect it and act fast, it very often works for scammers.

In this case, fraudsters use stolen credit cards to buy something on your website. THey proceed by contacting your online business and requesting reimbursement, usually due to “an accidental overpayment”. 

In this case, the customer will request a refund of the excess amount, but require that you send the money via a different banking method since their credit card is no longer active.

So, you’ll be refunding the criminal instead of the actual owner of the card, and might have to refund the latter once again.

Interception fraud

When the criminal buys from your online business by using another person’s credit card, as well as their address for billing and shipping, this is an interception fraud. Such criminals intercept the package before it gets to the card owner, and take the goods. 

There are different ways to intercept a package. For example, they can ask your support to change the address for some legit reason such as, for example, renovation or getting a new home. The actual payment is made by the victim of this fraud, but the criminal is receiving the goods. 

Some even go as far as to contact the shippers and couriers and ask them to reroute the package. Finally, they might even go to the person’s location and wait outside for the physical delivery of the package.

Triangulation fraud

Last but not the least, triangulation fraud includes 3 sides: the criminal, your business, and an actual customer of your business. The fraudsters in this case set up a storefront that sells goods in high demand at very good rates. 

When people see these low rates, they want to take advantage, so the storefront attracts tons of people. As soon as they place orders on the false website, the criminal uses their credit card numbers to buy legitimate items from your site and sends them to their customers.

As soon as the customer realizes this, they’ll have paid two online businesses – the one by the criminal and yours, and the latter purchase is not made by them. 

Triangulation fraud

What can you do to avoid this?

Just imagine the problems that can occur if such fraud happens to your online business. More established, bigger and richer businesses fail entirely because they are victims of such frauds. For new businesses, it’s almost impossible to survive when such a thing happens. 

That being said, you need to pay special attention to the purchases made on your site, as well as use a variety of tools to detect and prevent such fraud. It is your responsibility and the only way to succeed in the online market.

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