In this blog post, Pramit Bhattacharya, Student, Damodaram Sanjivayya National Law University, Visakhapatnam, writes about the frauds that are taking place in the e-commerce sector and what measure can be taken to prevent them.


With the advent of the internet in almost all walks of life, many things have become semi-automated or fully automated. Carrying on a business transaction or shopping online is no different. You can buy a pen for 10 bucks or buy a mobile phone for 10,000 bucks with just a click. The ease and simplicity of e-commerce attract more people towards it. But there is a negative side to this. The most notable of that being e-frauds. Any person, who is intensively carrying on transactions over the internet and is not careful enough, is susceptible enough to get defrauded.

Remember the fear you always had that your credit cards will be stolen through the online purchase procedure?

It is fascinating to observe that most frauds over the internet are done through simple procedures.

 And talking about the portrayal of the fraudster, the extremely intelligent, 18-25-year-old hacker. Let us see, what kinds of fraudulent activities are faced by both the seller and the buyer.

Types of E-Commerce Fraud as Against the Consumers

  • One of the most basic and simple forms of e-commerce fraud is overcharging by the seller. The seller will markup the price of his product by 75% and then provide a discount of 50%, leading the customer to think that he is getting the product at a bargain. But this is not true. What the consumer is paying is 50% more than the MRP. Some companies or sellers also charge multiple payments or a one-time payment without the consent of the consumer. Others add various additional charges over and beyond the MRP between the fine lines of the checkout statement.
  • Phishing is also a very common form of internet fraud. Phishing is a fraud which is related to trusted sites. Many a time, a site looks like it is completely secure. It may also look like the site belongs to a well-known and reputed company. But click on the URL and you are gone. A lot of phishing websites are designed in such a way that they look shopping website and these sites later use the data fed by the customer for later use.
  • With phishing comes theft of identity. Phishing is the process by which fraudsters try to gain sensitive information of the user like credit card/debit card number, email id, passwords, etc. often for malicious purposes. The information fed by a customer on an unknown site is not always secure. The fraudster uses this information to open up a new account or taking a loan in the name of the customer, stealing the consumer’s identity.
  • Apart from the technological aspects, there is the physical aspect also. In the case of online shopping, a consumer cannot actually check the product himself. This leaves him vulnerable to fraud with regards to quantity and quantity of the product. For example, X buys a cup set from a shopping site. The site says that X will get a set of 6 glasses. But when the product arrives it has only 4 glasses. This was the quantitative aspect of the products. Coming to the qualitative aspect, it can be more damaging to the customer as many a time they may receive inferior or even fake or bootleg products. Suppose X orders a Nike T-shirt, whose actual cost is Rs 1,500. The actual product he receives is a copy of the actual product costing only Rs 200. This problem occurs when a third-party platform allows any seller to sell their products, which creates a market for fake products.
  • One more thing related to e-commerce is the return and refund policy of the seller. Sometimes, a site may not have a return or refund policy and even if a consumer receives a damaged or a defective product, his money is not refunded. Therefore, it is very necessary for a customer to ensure that anything which he buys is backed by the site as well as the seller so that the buyer do not lose his money if the product turns out to be damaged or defective.
  • Credit card theft is also one of the major frauds that have taken the IT industry by a storm. The most common aspect of this is when the swindler uses the stolen credit card’s identity to purchase things for his own use.

But there are schemes in which the fraudster is not the actual recipient of the product and wants to sell an expensive item. Then the problem becomes more complex. A very simple example of this can be given. Suppose a fraudster posts an advertisement on a site that he wants to sell his brand new computer (actual cost Rs 50,000) for only Rs 20,000 because he is in need of urgent money. A thrilled buyer is attracted towards the offer and replies to the advertisement. The conman tells the buyer that he’ll ship the computer to the buyer’s house and if the buyer likes the product he can send him the money. Here, the conman is very careful. He asks the buyer to send the money through a channel in which no money is required. The conman will then used the stolen credit card identity to buy a new computer and ship it to the buyer’s house and be gone with the buyer’s money. Eventually, when the fraud comes to light, the credit card owner disputes that the purchase was ever made by him, and the buyer of the product is left to deal with legal hassles.

Types of E-commerce Frauds as Against the Seller

  • Gift Card Fraud- This type of frauds are committed by making free e-mail account with wrong information. Since the purchase of a gift card online requests only an email address in order to receive a confirmation code, this allows the fraudster to purchase many gift certificates on one [stolen] credit or debit card and send the gift card credits to multiple email addresses. Many sites also offer some discount to consumers when they register themselves for the first time on the site. Many people create multiple accounts to avail these discounts provided by the sites. This may not sound like a fraud, but legally it is.
  • Denial of Receiving the Product/Chargeback- in this scheme of fraud, the cheat denies ever receiving the product. The modus operandi of this type of fraud is to deny, deny and just deny that you ever received the product. This method can be defined as the technological parallel of physically shoplifting a product.
  • Bogus Returns- Just like customers receiving inferior or fake products, the sellers also face a very similar kind of problem many times. The buyer will buy a product online. After receiving the product, the seller will file a complaint with the buyer that the product he received is damaged or defective. The customer will ask for a refund, and while returning the product to the seller, the buyer will replace the actual product with something else. Sometimes a product may come with several components or items. The customer will send back only one item back to the seller, and the product is rendered useless for the seller to resell.
  • Steps Buyers/ Consumers Can Take to Detect and Prevent Fraud
  • Use Good Sense- This point goes without saying. The internet can be a wonderful place, but when dealing with strangers, the buyer should use common sense. If something seems too good to be true, then probably IT IS too good to be true. The buyer should start with buying small items, and get accustomed to how online transactions work.
  • Check Different Sites- agreed that most of the sites are similar in nature, but a buyer should always check multiple sites before going through with a transaction. The buyer should compare prices, return and refund policies on different sites.
  • Review Seller Feedback- many sellers, to improve their own business activities, provide an opportunity to buyers to review the seller and his products. A buyer should always go through a few of the reviews to know the views of other buyers and decide whether the transaction is worth taking the risk or not.
  • Insist on a Safe Payment Method- As discussed above, one of the most common form of internet fraud that conmen use is to ask for money through wired transfer services where no identity is required. Once the money is wired, it is gone. They buyer should not enter into a transaction with any seller or service provider who insists on wired transfer system. The best option is to use the mode of payment, which is traceable so that even in the case of a fraud, a certain line of inquiry remains.
  • Insist on a Traceable Delivery Method- The buyer should go for an established shipping and delivery method which is traceable, can be tracked online and require a signature when the product is delivered. If a shipment method is used which can’t be traced, the opposite party can always claim that the shipment was never received. Also, the buyer should preferably purchase those items which are backed and verified by the seller.
  • Keep Records– The buyer should always keep the records of the transaction intact. Not only the tangible bills and receipts, but also the acknowledgement emails, order confirmation mail, and shipment mail sent by the seller.

Steps Retailers/ Sellers Can Take To Detect And Prevent Fraud

  • Retailers Can Provide For Mandatory Data Fields- The retailer can make some fields compulsory like contact number of the buyer, his email address, his address, pin code, etc. which can be verified by the seller. For example, the seller can cross check the contact number code or pin to ensure that they are concurrent with the city and state address of the cardholder’s address.
  • Verify Cardholder’s Information- using the email address and name of the cardholder, verify the information provided by him through a reliable data source using electronic identity verification services (eIDV) to ensure the highest confidence in the data provided by the buyer.
  • Send Confirmation Mail- the seller should always send a confirmation mail, acknowledging the order. This will ensure that the email id is valid. If the confirmation mail bounce, it may indicate that it is a fraud account.
  • Implement Transaction Controls- To manage the risk of frauds, an e-commerce business can implement a transaction control system in their setup. For new customers, the amount of transaction should be set to lower quantity of products and lower amount of money. As the customer builds a history with the business and becomes more reliable and established, the review amount of the truncations can be loosened.
  • Creating an Internal Negative File Database- By creating a negative file database, retailers can prevent fraud. The file should contain vital information like email addresses, contact numbers, passwords, names, credit card numbers, etc. earlier used to commit any fraud.

Fraud is one of the biggest problems in the e-commerce industry. Fraudsters are getting better at conning people with better techniques and technology. To protect themselves, both the sellers and the buyers should use all the technology at their disposal. It is important to note that fraud cannot be totally eliminated. But they can be restricted to a certain level by using a layered security approach which is difficult for the fraudsters to penetrate.


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