As online shopping continues to flourish, it is not just consumers who are at risk of falling prey to scams. Sellers, ranging from established businesses to students running summer side hustles, are increasingly targeted by fraudsters.
With the potential for significant financial losses, it’s crucial for anyone selling goods online to understand how to identify and mitigate the risk of online payment scams.
A recent report from Business Wire revealed a staggering 71 percent increase in payment fraud attempts on U.S. businesses in 2023, underscoring the urgent need for vigilance among online sellers. To address this growing concern, Dennis Pederson, CEO of PayFasto, has outlined five common payment scams and strategies to combat them.
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Phishing Scams
Phishing scams involve criminals posing as legitimate entities to trick individuals into disclosing sensitive information like credit card details and passwords. These scams often manifest through fake emails or texts directing recipients to fraudulent websites. While often associated with consumers, businesses are also frequent targets, risking the loss of customer data and trust.
To defend against phishing, sellers should educate themselves and their employees on recognising phishing attempts. Red flags include unsolicited requests for personal information, grammatical errors, suspicious senders, and messages creating a false sense of urgency. Businesses should employ advanced email filters, restrict access to sensitive data, and maintain updated security systems.
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Chargeback Fraud
Also known as friendly fraud, chargeback fraud occurs when a customer disputes a legitimate purchase to receive a refund, claiming they did not receive the item or the transaction was unauthorised. This form of fraud can be particularly damaging, as businesses often bear the financial brunt of these disputes.
To prevent chargeback fraud, clear communication is key. Businesses should ensure their merchant names and transaction details are easily identifiable in banking apps and send timely email confirmations. Implementing package tracking, providing delivery updates, and using two-factor authentication for payments can also help safeguard against fraudulent claims.
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Return Fraud
Return fraud happens when customers exploit a business’s return policies to obtain refunds illegitimately, often returning different items or falsely claiming defects. This can include using a product temporarily before returning it for a full refund.
To combat return fraud, businesses should establish and strictly enforce clear return policies. Items not returned in their original condition or without tags should not be eligible for refunds. Utilising delivery tracking and monitoring for unusual customer behaviour can further help mitigate risks.
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Merchant Fraud
Merchant fraud involves scammers setting up fake businesses to trick customers into making purchases, often at enticingly low prices. These fake merchants may deliver counterfeit products or nothing at all, causing financial losses and damaging the reputation of legitimate businesses.
To protect against merchant fraud, businesses should ensure their names, logos, and transaction details are clearly displayed on bank statements. Secure payment methods, multi-factor authentication, and clear terms and conditions also help reassure customers of a company’s legitimacy.
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Wire Transfer Fraud
Wire transfer fraud involves scammers convincing businesses to send money via bank transfer, often by impersonating trusted contacts like suppliers or executives. These scams can be particularly convincing, leading victims to transfer funds quickly.
To prevent wire transfer fraud, businesses should require multiple approvals for unexpected transactions and never send money based on unverified invoices. Strengthening cybersecurity measures, using strong passwords, and guarding sensitive information are essential steps. Employees should also be trained to question unexpected financial requests and verify their authenticity.
As online transactions continue to rise, it is vital for businesses and individual sellers to remain vigilant. By recognising these common scams and implementing robust preventive measures, they can protect themselves from significant financial and reputational damage.
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.
