How to Detect and Prevent Fraudulent Online Orders

E-commerce fraud costs merchants billions annually — and unlike in-person fraud, the liability often falls squarely on the merchant. Understanding the types of fraud and how to detect them is the first step to protecting your revenue.

What Is E-Commerce Fraud?

E-commerce fraud occurs when someone uses the internet to illegally obtain money or goods. The perpetrators range from organized fraud rings using stolen card databases to individual customers making false claims. Both cost merchants real money — through chargebacks, goods lost, and elevated processing fees.

Types of Fraudulent Online Orders

Chargeback Fraud

A customer receives their order, then claims they never received it or that the charge was unauthorized — triggering a chargeback. Detecting it: check order history for repeat patterns with the same customer, look for mismatches between billing and shipping addresses, and watch for unusually large orders from first-time customers.

Friendly Fraud

Similar to chargeback fraud, but the customer explicitly purchases an item, receives it, then requests a cancellation or refund through their bank rather than through you. Monitor your cancellation rate relative to your average order value — an unusual ratio signals a pattern.

Identity Theft Fraud

Someone uses another person's payment information to make purchases. Watch for sudden account activity changes, orders shipping to addresses that differ from the billing address, or multiple orders in a short window to different shipping addresses using the same card.

Prevention Strategies

1. Use SSL Encryption and Velocity Checks

SSL encryption protects card data in transit. Combine it with velocity checks (flagging multiple transactions from the same IP in a short period) and IP blocking for known fraud sources. A PCI-compliant payment gateway handles most of this automatically.

2. Deploy a PCI-Compliant Payment Gateway

A proper gateway includes built-in fraud screening — AVS (Address Verification Service), CVV verification, and real-time fraud scoring on every transaction. Without these tools, you're accepting transactions blind. GoPayhawk's gateway integrations include fraud protection as standard.

3. Educate Your Customers

Customers who understand basic security practices are less likely to have their accounts compromised. Display security badges at checkout, communicate your data protection policies, and remind customers to look for HTTPS in their browser bar before entering payment details.

4. Train Your Staff

Your team handles order fulfillment, customer communication, and dispute responses. Training them to recognize fraud patterns — and to escalate unusual orders before shipping — can catch fraud before it becomes a chargeback.