How to Avoid Payment Frauds for Your Online Store?

payment fraud

As digital sales grow and digital transactions increase so does the risk of online fraud. There have been an increasing number of cases in recent times where personal data and information have been leaked and stolen.

The total cost of e-commerce fraud to merchants is likely to exceed $48 billion globally in 2023, from just over $41 billion in 2022.

If you are running an e-commerce business, it is extremely crucial to be well-equipped to evade any potential risk that can affect the business and brand reputation. This article lists the common frauds that online businesses are vulnerable to and ways to prevent them.’

What is an e-commerce payment fraud?

E-commerce fraud refers to a deception during an online transaction leading to the loss of money and personal information. Fraudsters use several ways to target both online merchants as well as customers by accessing loopholes and vulnerabilities in the system.

What are the commonly observed e-commerce payment frauds?

Here’s a look at some of the most common frauds that happen while transacting on the internet.

1. Credit card 

Credit card fraud in e-commerce primarily takes place when fraudsters are able to access the information on a customer’s credit card and use it to make transactions online.

Criminals usually visit a website on the dark web to buy card data and then use it on an e-commerce website to purchase products. Alternatively, they may also trick users into sharing the details directly through scam calls.

2. Affiliate fraud

Affiliate marketing is the process where online websites pay a specific commission to affiliates based on the sales that occur through them. The sales are tracked using a unique web link through which shoppers visit the e-commerce website. An affiliate typically earns each time there is a purchase.

A fraud here usually occurs when criminals try to falsely pose as legitimate affiliate owners and generate traffic through a bot on the merchant website and earn commissions. They may also use stolen cards to conduct fake transactions using the affiliate marketing program.

3. Chargeback fraud

There are instances when a customer places a successful order but fails to receive the product or it arrives in a damaged condition. As a result, they file a chargeback with the credit card provider to initiate a refund. It’s the merchant’s responsibility to refund the amount in case the chargeback is approved.

A fraud here happens when a scammer purchases it and claims to have never collected it or is an unauthorized purchase, faulty demanding a full refund on the order. The intention is to receive the order as well as a full refund. 

4. Triangulation fraud

This involves multiple steps where scammers first collect the buyer’s payment information through a fake website and then use it to buy products. 

They build an online store that closely resembles the original one and list products at a higher price than usual. Once a buyer purchases something here the fraudsters buy it from a legitimate store and ship it to the customer while retaining the balance amount.

Scammers are also able to steal the buyers’ payment information and the customers may never realize that they have been cheated considering the product is shipped to them.

5. Account takeover fraud

In an account takeover fraud, the buyer’s online account is accessed by a scammer and the information is used for unauthorized transactions. One of the most common ways of account takeover is when a fraudster impersonates an e-commerce company and asks for personal information either through a phone call or messages. 

Another method is where they send links through emails that open to a fake page that collects the customer information.

How can you prevent fraud in your online store?

1. Check for suspicious activities: Keep an eye on the transactions, activities, orders or attempts that may seem fishy or unusual. Monitoring through anti-fraud software can automatically disallow suspicious transactions. Here’s a look at a few instances that might be signs of danger.

  • An unusually high order volume for a specific product 
  • Multiple minimum cart value orders in a short interval (stolen cards and information being tested)
  • Too many purchases in a short period and at regular intervals (bot activity)
  • Back-to-back orders from one account but multiple cards 
  • A sudden surge in orders from unusual or international locations
  • A different shipping and billing address
  • Several failed transactions on a purchase attempt

All the above-listed activities may not necessarily indicate fraud but are certainly useful in filtering suspicious accounts/transactions.

2. Mandate strong passwords: When it comes to e-commerce websites buyers are likely to use easy-to-remember passwords making it even easier for scammers to employ bots and guess them.

59% use their name or birthdate in their password. It is therefore advisable to have your users generate strong passwords with a specified length, uppercase, special characters and so on, making it difficult for scammers to breach through.

3. Ensure security compliances: Security best practices are mandatory for every e-commerce business. PCI-DSS compliance, especially, is a must for all merchants accepting credit card payments. It ensures that all the stored card information and data are secure and protected. 

Similarly, Secure Sockets Layer (SSL) protection is yet another feature for e-commerce that prevents data from being accessed and used by hackers. Additionally, if your website is not SSL encrypted, the browsers warn the users before they access it indicating an insecure network. 

If you have partnered with a reliable payment solution such as Paytm Payment Gateway, the PCI-DSS compliance is already taken care of so that the personal information of consumers is secure from online threats. Additionally, a dedicated team of 200 cyber security experts ensure that every payment is safely processed.

4. Ask for CVV during purchases: Most stores ensure that customers enter their 3 or 4 digit CVV number while proceeding with online payment at the store. This to an extent also confirms that the card is used by its owner. 

Usually, when scammers steal card information online they are able to access the number and other details but not the CVV.

5. Collect only essential customer data: Make sure the customer data that you ask for is restricted to what is absolutely necessary so that incase of any attack, the loss or damage is limited. For example, while email addresses and numbers may be necessary, other personal information related to the users should be excluded. 

6. Frequently audit your website: Auditing your website for security vulnerabilities is highly recommended to check for any loopholes that might make it easy for scammers. Audits can be conducted internally by the team or through third-party security companies.

7. Register a proof of delivery: Ensure that your logistics partner takes an image of the product at the time of delivery to avoid scams related to non-delivery or damaged articles. This is especially important for high order value products. Another common way is to ask for an OTP during delivery to ensure it has reached the buyer.


With so much data and information on the internet, online frauds are an unavoidable consequence. It is the responsibility of the merchants as well as customers to take all necessary steps that keep scammers at bay. For a company, even a minor breach can lead to the loss of reputation and eventually the business.

Apart from the aforementioned points, support and proactiveness from a robust payment gateway can help initiate secure transactions and assist you with the necessary safety measures. Check the benefits that Paytm Payment Gateway has to offer and secure your e-commerce store against online fraud.


Switch To Paytm Payment Gateway

You May Also Like
A Complete Guide to MSME Registration in India
Read More

A Complete Guide to MSME Registration in India

MSME registration provides several benefits to the companies in terms of taxation, credit facilities to scale the business up. Let us dig deeper to find out more about MSME registration in India.