How to Avoid Online Payment Scams

Five common frauds to watch for

By Dennis Pederson, PayFasto

When it comes to online shopping, customers aren’t the only ones who can fall victim to scams.

Many scams target businesses and sellers instead; therefore, anyone selling goods online must know how to avoid being impacted and what to do if their business is affected. 

In fact, according to Business Wire, there was a 71% increase in payment fraud attempts on U.S. businesses last year. This statistic highlights how important it is for online sellers to remain wary of practices that could undermine their services and cause financial damage.

Related: How to Know When You’re Being Scammed

With that in mind, we have compiled a list of five common payment scams that online sellers should be aware of, and ways to protect your company from falling prey to them.  

Phishing Scams 

Phishing scams are where criminals try to trick people into sharing their sensitive information, such as credit card details and passwords. They typically do this by sending fake texts or emails which direct to a third-party website that resembles a legitimate business. After clicking on the link, users are encouraged to enter their personal information. 

Phishing doesn’t just hurt customers; businesses are often targeted, which can compromise the privacy and security of consumers and stakeholders. They can cause financial and data losses and cause the public to lose trust in the company, leading to a damaged reputation and further monetary loss. 

To spot phishing scams, it’s important that sellers educate themselves on phishing red flags and regularly train their employees to spot them. These can include unexpected requests for personal information; spelling and grammar errors; unknown or suspicious senders; and a sense of threat or urgency in the correspondence. Recipients should avoid clicking any unfamiliar websites and downloading attachments they don’t trust. 

There are other measures that businesses and sellers can implement to reduce the risk of being hit by phishing scams, such as advanced e-mail filtering tools and thorough assessment of third-party communication. It’s also a good idea to limit access to any sensitive data through multi-factor authentication and to always keep digital systems and software up to date. 

Chargeback Fraud 

Also known as “friendly fraud,” chargeback fraud is when a seemingly well-intended customer makes a purchase with their credit card and then disputes the legitimate charge with their bank. These people request a chargeback after receiving their order, typically claiming that they did not receive the item or that the payment was unauthorized in an attempt to receive a refund. 

This is different from true fraud, where a third-party bad actor makes a transaction using stolen personal information and the genuine cardholder files a chargeback for an unauthorized purchase. Those who commit friendly fraud seem otherwise trustworthy. These scams can be destructive to internet vendors, who must pay much of the losses when a bank accepts the dispute.  

Good communication is key to preventing friendly fraud. It’s important that online businesses put merchant names and transaction details in banking apps to avoid customer confusion and that e-mail confirmations are sent promptly after purchases are made.  

Sellers should enable package tracking and delivery updates to ensure that consumers receive their goods. Internet vendors should provide good customer service and inform recipients of delays. In addition, enacting two-factor authentication for payments is highly recommended, and be sure to verify any suspicious-looking purchases (e.g., large orders) before shipping. 

Return Fraud 

Return fraud is similar to chargeback fraud and occurs when a customer attempts to get a refund by manipulating the seller’s returns process. This might involve returning a different item, claiming the product arrived defective or otherwise exploiting the terms of the returns policy. They ask for a refund despite not being legally entitled to one. 

These scammers might use the items for a one-off event, such as a high-end camera to bring on vacation or a big-screen TV for Super Bowl. They might return these items claiming they are unused, thereby flouting the terms and conditions of the returns policy by requesting a refund. 

To lower the chance of experiencing return fraud, sellers should develop and share clear, non-negotiable return policies and always follow them while processing returns. For example, items not returned in their original condition, or without attached labels or that appear to be used should not be refunded.  

Strict checks should be implemented to ensure that customers receive and return the correct item in perfect condition, and measures such as delivery tracking should be employed to confirm that orders are not lost. Also, monitor transactions for unusual activity and suspicious customer patterns. 

Merchant Fraud 

Merchant fraud is defined as scammers posing as real businesses to deceive their customers and make illegal profits. They might create fake online stores that let consumers unwittingly make purchases, often at temptingly low prices. They may then send a counterfeit or low-quality product, or no product at all.

While this directly targets consumers, businesses can be hurt as well:  If rates of merchant fraud in a particular industry are high, businesses can be impacted by higher payment processing fees due to the elevated risk. 

Wire Transfer Fraud 

Wire transfer fraud involves a fraudster deceiving someone into sending money through a bank transfer. They may impersonate trusted individuals and organizations, such as suppliers or the CEO of the business. They create fake invoices urging the victim to send money, often playing on their emotions and exploiting the pressure they may be under. These scenarios can be very realistic and convincing, and the victims often send the funds in a rush to remedy the situation. 

This money is sent over instantly and it’s very hard for businesses to recover it. Sellers impacted will want to contact their bank as soon as possible to stop the transaction from completing. Naturally, it’s best to prevent this from happening altogether. As a rule, sellers should never send money in an unplanned, unexpected manner, and transactions should always be approved by multiple people.  

Businesses and employees should avoid sharing any private company information with third parties. Improving cybersecurity protocols, in general, is a good way to prevent wire transfer fraud. Use strong passwords, guard company banking details and enforce multi-factor authentication when logging into your company’s network.  

Ultimately, sellers and employees must constantly remind themselves to ignore any unexpected invoices. If in doubt, always get another opinion and confirm the validity of the request before fulfilling it.