E-Commerce Fraud Prevention: How Fake Accounts Are Poisoning Your Business

If you’re an e-commerce business owner, you’d likely be well acquainted with fraud. Payment fraud, identity theft, and promo fraud are some of the more commonly seen e-commerce fraud types. And they have one thing in common—they can all be carried out using fake accounts. 

Though fake accounts are usually overshadowed by their more infamous counterpart—account takeovers—they can cause some serious damage. Fake account fraud is becoming more commonplace; in 2019 it grew 27% and is showing no signs of slowing down. 

Fake accounts: nuisance or a threat?

Fake accounts exist in almost every industry, and most online businesses have encountered them previously. While the occasional fake account might not be enough to set off fraud alarms, they can become a real problem when thousands are created by a single individual. And that’s exactly what fraudsters do. They use tools like bots and emulators to run automated scripts, creating thousands of accounts at the same time. This means that fraudsters would be able to continue carrying out attacks even if a few of their accounts are blocked. 

Why are fake accounts so harmful to e-commerce businesses?

In the e-commerce industry, fake accounts are often used as a launchpad to carry out other fraudulent activities. Within the e-commerce ecosystem, referral schemes and promotions tend to be fraudsters’ favourites. Suppose you run a new user acquisition campaign that offers existing users $10 for every successful referral they make. Fraudsters could take advantage of this by creating thousands of fake accounts to refer themselves over and over again. They could also use fake accounts to exploit signup bonuses and discount codes intended for one-time use. Without adequate fraud prevention measures in place, fraudsters will succeed in draining your campaign budgets.

But that’s not the only way fake accounts can damage your bottom line. If thousands of fake accounts are used to cash in on discounts, what seems like a promising campaign performance might just turn out to be inflated numbers, which will skew your analytics. When left unaddressed, your teams could be misled into investing in seemingly successful campaigns only to get a less than favourable ROI.

Other than financial losses and skewed analytics, fake accounts can also erode customer trust and damage brand reputation. It’s fair to say that e-commerce marketplaces rely heavily on trust—users decide whether to purchase an item based on the credibility of a seller, often assessed by ratings and reviews. Fraudsters can easily damage this trust. They use fake accounts to improve ratings and dupe users into purchasing low quality goods or ones that never arrive. And hell hath no fury like a user scorned. Customers tend to be extremely vocal about poor digital experiences, which could end up reducing the overall trustworthiness of your app and putting potential users off from joining your platform.

The challenge of detecting and preventing fake accounts 

Fraudsters use fake accounts to play the long game. They create thousands of fake accounts over a prolonged period of time, letting them lie dormant until the opportunity to use them arises. This makes it challenging for businesses to detect and block all these fake accounts at once. 

Moreover, new account sign ups are usually seen as positive for e-commerce platforms, which means they wouldn’t necessarily see a spike in account creation as suspicious. Fraudsters have also been known to wait for traffic to peak before mass creating accounts. During busy sale periods, e-commerce businesses might simply attribute the increase in new users as a result of successful promotional campaigns. 

To make things trickier, e-commerce businesses also have to look for methods to strengthen fake account prevention without hurting the user experience. While implementing additional account verification steps, email validation, or CAPTCHAs could help fend off fake accounts, they could also end up adding more friction to the user journey. 

The battle against fake accounts 

There are many ways fake accounts can be used to conduct e-commerce fraud, and trying to fend them off may seem like playing whack-a-mole—block one attack and another pops up. To protect your users and your revenue, your e-commerce business needs to be able to nip fake accounts in the bud—before they’re used to commit fraud. 

Learn how SHIELD’s fraud prevention solution can help your e-commerce business eliminate fake accounts and boost growth.