While card-not-present transactions still pose the biggest threat of fraud to merchants, especially in the online space, fraud is not exclusive to payments made with stolen credit card information.

Criminals are becoming more sophisticated in their use of malware to command online banking logins via phones, tablets and computers, using stolen bank account details to make fraudulent payments, according to B2B technologist, Information Age. Additionally, “alternative” payment methods are also attracting criminals.

So what exactly are the more common forms of fraud currently plaguing the marketplace and what are some of the emerging trends in the world of fraud?

Identity Theft

As a recent study by Worldpay indicated, the most common type of fraud causing concern among merchants is identity theft (71%). In this particular case, credit cards are, in fact, the most popular target, as fraudsters don’t need much to carry out a card-not-present transaction. In traditional identity theft, the goal of the criminal is to carry out transactions using a different identity. Instead of having to come up with a completely new identity, they simply take over an existing one. This enables them, for example, to order items online under a false name and pay using someone else’s credit card information or by debiting another person’s account.

Chargebacks/Friendly Fraud

The name is quite misleading as there’s really nothing “friendly” about this type of fraud. Friendly fraud and chargebacks occur when customers order goods or services and pay for them – preferably using a credit or debit card. However, they deliberately initiate a chargeback, claiming that their credit card or account details were stolen. The customer is then reimbursed, but they keep the goods or services. “Re-shipping” is a similar practice where criminals who use stolen payment data to pay for their purchases don’t want to have them sent to their home addresses. Instead, they use middlemen whose details are used to make the purchases and who then forward the goods (Information Age).

Merchant Fraud

Merchant fraud is another method that is surprisingly common, especially with smaller merchants and fly-by-night merchants. How it works: goods are offered at cheap prices, but are never shipped to the customer. However, the payments are kept. This method of fraud also exists in the wholesale marketplace. While not specific to any particular payment method, merchant fraud occurs more commonly where no-chargeback payment methods (“push” payments mostly like cash payments or bank transfers) are used.

Triangulation Fraud

As the name suggests, there are three individuals that each play an important role in this type of fraud (although one of the three is an unsuspecting customer). First, an unsuspecting customer purchases an item (or several items) from a store that is actually a fake online storefront.

The fake storefront usually offers high-demand goods at extremely low prices and shipping rates to entice customers (i.e., the goods will only be shipped immediately if they are paid for using a credit card). The falsified shop then collects address and credit card data – which is typically its only purpose. The second corner of the fraud triangle involves using other stolen credit card data and the name collected to order goods from a real store and ship them to the original customer. The third point in the fraud triangle involves using the stolen credit card data to make additional purchases. The order data and credit card numbers become almost impossible to connect, so the fraud usually remains undiscovered for a longer period of time, resulting in further damages.

No matter the brand or specific type, fraud is still fraud and fraudsters are always looking at ways to game the system and dupe unsuspecting customers. Customers need to be wary of how and where they use their credit cards as well as other payment information. Likewise, merchants should always look for ways to combat fraud wherever possible. Learning the basics of what fraud is and how to protect a business from fraud are integral parts of a merchant’s business plan and overall strategy.


National Merchants Association helps merchants combat fraud and we work with industry experts to help educate merchants on the best ways to protect their business from future instances of fraud. Feel free to contact us at any time for more information or to apply for membership. We look forward to hearing from you!