What Are Fraudulent Orders? A Summary of Fraud in E-Commerce Sites, Its Causes, and How to Prevent It

On E-Commerce sites and web commerce, “fraudulent orders” pose a serious threat to merchants.

This article explains the causes and methods behind fraudulent orders in online shopping, and elaborates practical steps that businesses can take to guard against them. 

1. Fraudulent Orders in E-Commerce Are Often Third-Party “Impersonation”

Fraudulent orders can occur via various payment methods—credit cards, cash on delivery, deferred payment, etc. Among these, credit‐card fraudulent orders (i.e., unauthorized transactions made with a cardholder’s information) are particularly prominent. In 2018, the amount of damage from unauthorized credit‐card use reached ¥23.5 billion, and approximately 80 % of that was due to fraudulent orders in online commerce (E-Commerce) involving card number theft.
In credit‐card fraudulent orders, the typical flow is: the card information is leaked → the fraudster uses it on an E-Commerce site → the goods are ordered/received. 

2. Reasons and Methods Behind Credit-Card Fraudulent Orders

Credit‐card fraudulent orders generally stem from the leakage of card information which is then used on an E-Commerce site.
Some examples of how card information is leaked include:

• Phishing: Pretending to be a public agency, financial institution, or legitimate E-Commerce site to trick users into entering card information.
• Skimming / Card cloning: Using a scanner to read magnetic stripe data, copying it onto a fake card, or even simply photographing the card face for later misuse.

It’s important to note that the risk is not only from the physical card being stolen, but also from the card information being leaked.
For merchants this means that you may become:

• A victim of fraudulent orders; or
• A perpetrator (i.e., your system becomes the source of information leakage)
  Being aware of both possibilities is key.

3. The Varied Tactics That Fraudsters Employ for Fraudulent Orders

Fraudsters are becoming more sophisticated and use a variety of tactics when placing fraudulent orders. Some of these include:

• Leasing vacant units in apartments or offices as delivery addresses.
• Using forwarding services (sometimes overseas) to receive goods and redirect them.
• Recruiting “parcel forwarding agents” or part-time workers to receive goods on their behalf.
• Slightly altering registration or order information to avoid being flagged on blacklists.
• Timing their orders to coincide with high-volume sale periods or busy times when checks may be lax.

Given the diverse risk vectors, even merchants who have yet to see fraudulent orders should proactively implement counter-measures. 

4. Types of Products Particularly Susceptible to Fraudulent Orders

Products that tend to be targeted for fraudulent orders are those with high resale value. Typical categories include:

• Brand name goods
• Home electronics
• AV equipment / PCs & peripherals
• Tickets / game consoles
  
  Additionally, in recent years, even lower-priced goods such as health supplements and cosmetics have become targets—largely because C2C platforms and online marketplaces have made resale easier.

5. Countermeasures That E-Commerce Merchants Can Immediately Take

Here are key measures that online merchants can implement:

1. Implement 3D Secure (card issuer authentication)
   This adds a password (or other factor) on top of card number and expiry date, reducing risk from simple theft/leakage.
   Note: While very effective, it may lead to increased cart abandonment and not all issuers support it—so monitor balance of security vs customer experience.
2. Use behaviour/attribute analysis (fraud-detection systems)
   A system that analyses transaction attributes can detect suspicious orders and automate review or rejection. Such systems reduce fraudulent orders and manual workload without impacting genuine customers.
3. Use card‐face verification (security code) as an additional step
   Verifying the 3- or 4-digit security code (CVV) adds another layer of authentication. Although alone it’s not fool-proof, it increases the hurdle for fraud.
4. Accumulate and use shipping/delivery address data
   By tracking delivery addresses used across multiple orders, you can detect patterns of fraud (e.g., same address receiving many orders). Some services provide aggregated delivery-address data across merchants which improves detection.

Summary

In this article we have covered: what fraudulent orders are in E-Commerce, how they happen, why they are a major risk, and what merchants can do to protect themselves.
For merchants, paying attention not only to the act of fraud but also the leakage of card information is vital. Implementing the four basic measures above is a key starting point.
Moreover, as a provider of fraud-detection services, Cacco offers advanced tools and systems to assist in prevention. If your business is considering adopting fraud detection or needs to review its countermeasures, we encourage you to reach out.