Understanding Fraudulent Transactions   15 comments

There are many ways a seller can be scammed online and online fraud for merchants is just as big a problem as the various forms of online fraud that plague consumers. The most obvious effect is that you have paid out money for a transaction that is not legitimate. In addition, some credit card processors charge penalties to merchants that are the victim of credit card fraud per fraudulent transaction.

Type of Online Fraud: There are, unfortunately, several different ways that dishonest users can scam you online. Here are a few of the possible situations that an online merchant might encounter:

The buyer claims not to receive an item. A customer purchases an item from you. You ship it to the customer. The customer then claims that he never received the item and asks for a refund. If you refund the money, you’re out the cost of the item plus the purchase price—and the scammer has a brand new item obtained at no cost.

The buyer claims an item is not as described. This is a similar scam to the “item not received” scam. The customer purchases an item from you, you ship the item, and then the customer claims that the item isn’t what was described. It’s used instead of new, the wrong size, doesn’t have the features promised, or otherwise not what she ordered. To pacify the customer you issue a full or partial refund, which puts you out the cost of the original item plus the cost of the refund. The scammer, of course, has a nice new product at no cost or at a reduced price.

The buyer claims an item was damaged in shipment. This is a variation of the “not as described” scam. You ship to the customer the item purchased, and then the customer claims that the item was damaged in transit. Rather than dealing with the shipping service, you issue a full or partial refund. (Or maybe you issue a refund in advance, anticipating
settlement from the shipping service.) The scammer gets an undamaged item at a substantial discount.

The buyer pays with a stolen credit card or a hijacked bank account. The previous scams are all pretty much one-time affairs.  A much more damaging form of fraud comes from professional identity theft, where a criminal steals a customer’s credit card or debit card, or somehow hijacks the customer’s bank account. The criminal then uses the stolen data or information to make one or more purchases, typically large ones, from you (and presumably other merchants). It looks like a standard transaction from your end and you ship the merchandise—typically to a fake address (known as a freight forwarder) set up just for the purpose of receiving illegally obtained merchandise. (The merchandise is then typically fenced or resold by other criminal rings.) When the original consumer—the one who was ripped off—notices the fraudulent account activity and makes a formal complaint, the consumer’s credit card company or bank initiates a chargeback against you to recover the consumer’s funds. This activity typically results in you being out the cost of the fraudulently obtained merchandise, and having the sales price for said items deducted from your credit account.

Identity theft. Identity (ID) theft isn’t just for individuals. Many businesses find that criminals somehow obtain usernames, passwords, and other information that lets them either hack into their accounts or systems or make purchases while pretending to be someone authorized by your business. In the best-case scenario (and it’s not so good),
the thieves order various items and you pay for them. In the worst-case scenario, the criminals hack into your internal systems and wreak havoc, up to and including stealing your customers’ personal data and shutting down your systems and servers. It’s not something you want to happen.


15 responses to “Understanding Fraudulent Transactions

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