As ecommerce grows year over year, so does the risk of fraud. With a greater number of transactions taking place online every day across markets around the world, bad actors have more points of entry than ever to defraud businesses, their payment systems, financial institutions, and consumers. According to a 2021 report from Juniper Research, the global cost of online payment fraud is expected to reach $206 billion by 2025. Another 2022 Juniper report predicted that businesses stand to lose more than $343 billion to online payment fraud globally between 2023 and 2027, a number that represents “over 350% of Apple’s reported net income in the 2021 fiscal year.”

These figures underscore the need for businesses to take immediate action to protect themselves against online fraud.

Below, we’ll take a closer look at a selection of ecommerce fraud statistics as well as a rundown of the most common types of fraud, the industries that are most at risk, and the steps that businesses can take to safeguard their customers’ data and protect themselves.

What’s in this article?

• Types of online and ecommerce fraud
  
• Online and ecommerce fraud statistics
  
• Takeaways for ecommerce businesses
  

Types of online and ecommerce fraud

Online and ecommerce fraud refers to activities that take place on the internet or through electronic commerce platforms in which the fraudulent actor uses the anonymity and reach of the internet to deceive buyers and steal their personal or financial information. Online and ecommerce fraud is a threat that is constantly evolving, with fraudulent actors developing new tactics and strategies to evade detection and circumvent security measures. This makes it challenging for businesses and regulators to stay ahead of the latest threats and safeguard against online fraud.

Here are some common types of online and ecommerce fraud:

• Phishing
  Phishing is when scammers send emails or messages that appear to come from a legitimate company or organization, such as a bank or an online retailer, to trick the consumer into handing over sensitive information like passwords or credit card numbers.

• Identity theft
  Identity theft is when a fraudulent actor steals someone’s personal information, such as their name, date of birth, Social Security number, or driver’s license number, in order to impersonate them and access their financial accounts or make fraudulent purchases.

• Credit card fraud
  Credit card fraud is when criminals use stolen or counterfeit credit card information to make unauthorized purchases online.

• Account takeover fraud
  Account takeover fraud occurs when a fraudulent actor gains access to someone’s online account, such as a bank account or email account, by stealing their log-in credentials through phishing or other methods.

• Chargeback fraud
  Chargeback fraud occurs when someone makes a purchase using a credit card, receives the product or service, and then disputes the charge with the credit card company—claiming that they never received the product or service or that it was defective—in order to get their money back. Unlike friendly fraud, defined below, chargeback fraud involves an intentional act of fraud.

• Friendly fraud
  Friendly fraud takes place when a customer makes a legitimate purchase but then disputes the charge with their credit card company, claiming that the purchase was fraudulent. Sometimes this is done to avoid paying for the item or to avoid the process of returning the item or requesting a refund.

• Auction fraud
  Auction fraud is when a seller posts an item for sale on an online auction site, receives payment from the buyer, and then fails to deliver the item or delivers a different item.

Any business that handles sensitive personal or financial information online can be at risk for online and ecommerce fraud. For example, phishing scams can target any type of business or organization, while credit card fraud may be more prevalent in businesses that rely on online transactions, such as ecommerce websites or online marketplaces. Small businesses can also be subject to fraud, as they may have fewer resources and less sophisticated security systems in place compared to larger corporations. Additionally, businesses that deal with high-value goods or services, such as luxury items or travel reservations, may be particularly at risk of experiencing fraud.

Online and ecommerce fraud statistics

The following statistics cited in the Juniper Research report on online payment fraud from November 2022 illustrate the scale of online payment fraud and highlight the need for businesses to take proactive steps to protect themselves. Here are some of the key figures from that report:

The global cost of online payment fraud is expected to reach $206 billion by 2025, up from $130 billion in 2020
The shift toward ecommerce and mobile commerce has created new opportunities for bad actors to carry out fraudulent activities. With more people shopping online and using digital payment methods, fraudulent actors have more potential targets and more ways to obtain sensitive information.

The COVID-19 pandemic accelerated the move toward ecommerce and online transactions, as more people chose to shop online to avoid in-person interactions. This has resulted in new opportunities for fraudulent actors, who are taking advantage of the increase in ecommerce to carry out more sophisticated attacks and scams.

The COVID-19 pandemic accelerated the shift to ecommerce, leading to a 20% increase in online transaction values
With lockdowns and social distancing protocols in place in 2020, a significant number of brick-and-mortar stores were forced to close. This led to a surge in ecommerce activity as consumers turned to online shopping as a safer and more convenient alternative. As a result, ecommerce exploded during the pandemic, with a 20% increase in online transaction values.

While ecommerce has provided a lifeline for some businesses that may have been forced to close, it has resulted in new challenges and risks as businesses navigate the expanding threat of online payment fraud and other security threats.

Synthetic identity fraud is becoming increasingly common, with losses expected to reach $14 billion by 2025
In synthetic identity fraud, a fraudulent actor creates a fake identity using a combination of real and fictitious information. They may use a real Social Security number, for example, but pair it with a fake name and address. They may use this identity to apply for credit cards, open bank accounts, or make purchases, all while avoiding detection by credit agencies and other authorities.

The increase in synthetic identity fraud is the result of two key elements: first, the widespread availability of personal information online, combined with advances in technology, has made it easier for criminals to create convincing fake identities. Second, consumers’ reliance on digital channels for financial transactions and other activities has created new opportunities for fraudulent actors to exploit weaknesses in the system.

The use of biometric authentication methods is expected to grow by 47% over the next five years, providing a more secure way to verify identities online
Biometric authentication methods are becoming a popular way to verify identities online, particularly with mobile devices and mobile payments. Biometric authentication involves the use of unique biological characteristics, including fingerprints, facial recognition, or iris scans, to verify a user’s identity and grant access to a device or online account.

The ubiquity of mobile devices and mobile payments has facilitated the adoption of biometric authentication, since these devices often contain built-in biometric sensors for authentication. Many consider biometric authentication to be a more secure alternative to traditional password-based authentication, which can easily be compromised by hackers and fraudulent actors. While biometric authentication has been implemented and embraced widely by businesses and consumers because of its perceived high level of security, some fraudulent actors have found ways to work around it.

North America and Europe are the regions most affected by online payment fraud, with losses expected to reach $50 billion and $35 billion, respectively, by 2025
North America and Europe are most affected by online payment fraud, due in part to the widespread adoption of digital payment methods in these regions as well as the advanced technology infrastructure and high levels of online connectivity.

In North America, the prevalence of online payment fraud has been impacted by multiple factors, including the extensive use of credit and debit cards, and the swelling popularity of mobile payments and ecommerce. North America is home to many large financial institutions and technology companies, which are attractive targets for cybercriminals.

In Europe, online payment fraud has been impacted by many of the same elements, as well as high levels of consumer spending and the presence of large ecommerce platforms and marketplaces.

The Asia-Pacific region is the largest market for online payment fraud, with losses expected to reach $54 billion by 2025
The Asia-Pacific region is particularly susceptible to online payment fraud due in part to the region’s rapidly growing adoption of digital payment methods and the large and diverse population that is increasingly connected to the internet.

In many countries in the Asia-Pacific region, the growth of ecommerce and mobile payments has been driven by rising incomes, increasing internet and smartphone penetration, and an expanding middle class. This has resulted in new opportunities for fraudulent actors, particularly in countries where regulations and security standards may be less stringent than in more developed markets.

The impact of online payment fraud in the Asia-Pacific region is significant and can lead to major financial losses for businesses and consumers, as well as damage to reputation and customer trust. The prevalence of online payment fraud can undermine confidence in digital payment methods and hinder the growth of ecommerce and mobile commerce, which are seen as key drivers of economic growth in the region.

Machine learning and artificial intelligence are increasingly being used to combat online fraud, with spending on these technologies expected to reach $11.3 billion by 2025
Machine learning and artificial intelligence (AI) are key tools in combating online fraud thanks to their ability to analyze large amounts of data and detect patterns and anomalies that traditional fraud detection methods might miss. Machine learning and AI can be used to identify suspicious transactions, detect anomalies in user behavior, and analyze data from multiple sources to detect fraudulent activity in real time.

The use of machine learning and AI in fraud prevention has been driven by the growing frequency of online fraud and the need for more advanced fraud detection methods. Technological advances have made it easier and more affordable to implement machine learning and AI systems, even for smaller businesses.

Machine learning and AI can provide a more effective and efficient way to detect and prevent fraud, reducing the risk of financial losses for businesses and their customers. Machine learning and AI can also help to reduce the number of false positives and false negatives. A false positive is when a legitimate transaction is flagged as fraudulent. This can happen when a fraud detection system identifies a pattern or behavior that it deems suspicious, but the transaction is actually legitimate. A false negative, on the other hand, occurs when a fraudulent transaction is not flagged by the fraud detection system and is allowed to go through. Reducing the occurrence of false positives and negatives can help minimize the overall damage from fraud.

The digital goods and money transfer industries are the most vulnerable to online fraud, with combined losses expected to reach $60 billion by 2025
Businesses that sell digital goods or are involved in money movement are among the most vulnerable to online fraud, since they often involve the exchange of intangible goods and services that can be difficult to verify and authenticate. In addition, these industries typically rely on online channels and digital payment methods, which can be more exposed to fraud than traditional payment methods.

In the case of digital goods, fraudulent actors may use stolen credit card information to make purchases such as software licenses, music, and e-books. They may then illegally resell these goods or use them for their own personal use. In the case of money transfer, fraudulent actors may use a variety of techniques to trick users into sending money to fake accounts or to give up personal information that can be used for further fraud.

Takeaways for ecommerce businesses

Businesses need to stay aware of the elevated threat of online and ecommerce fraud, which is expected to increase significantly in the coming years. Not only can security breaches and fraud erode customer confidence and dissolve brand loyalty, combating fraud can also be overly draining on businesses’ internal resources. The goal should be to have comprehensive protection on every channel that supports every payment method and to use systems and tools that are implemented, maintained, and managed as efficiently as possible.

To fight online and ecommerce fraud, businesses should adopt a multilayered approach to security that includes the use of advanced authentication technologies, fraud detection and prevention solutions like Stripe Radar, and best practices for data security and privacy. This may involve implementing two-factor authentication, using machine learning and AI to detect fraudulent activity, and ensuring that all customer data is encrypted and stored securely. Again, all of these layers of protection are built into Stripe’s payment solutions.

To augment these efforts, businesses should work closely with financial institutions and other partners to share information about emerging threats and collaborate on strategies to combat fraud. They should also educate their employees and customers about the risks of online fraud and provide training on how to detect and prevent fraudulent activity. By taking these steps, businesses can help protect themselves and their customers from the growing threat of online and ecommerce fraud.