Ecommerce fraud prevention guide in 2026

Introduction to ecommerce fraud prevention

Fraud prevention is the implementing a strategy to detect fraudulent transactions and preventing these actions from causing financial and reputational damage for a merchant or customer (MRC Payments and Fraud Glossary).

In practice, this means combining technology, process and people so that bad actors or fraudsters are stopped before an order is shipped, a chargeback is filed, or a customer’s account is compromised.

Fraud prevention is a necessity for any growing online business. It is not simply about stopping a fraudulent transaction; it is about protecting your revenue and reputation. High fraud rates lead to direct financial losses, expensive chargeback fees, and potential penalties from payment processors, and in some cases loss of ability to accept Visa and Mastercard payments.

In this guide, we outline the key information for any merchant looking to optimise their fraud prevention, and false declines. Whether they are a merchant selling to a single market, or multiple this resource covers the basic fundamentals.

Types of ecommerce fraud

To prevent ecommerce fraud, merchants need to understand the types of they may face so that you can build adaptable defence against these types of threats. As you will find out ecommerce fraud can occur throughout the customer journey.

Below are 7 types of common fraud methods used in ecommerce:

Payment card fraud

This is the most common type of e-commerce fraud, this is form is directly target the checkout process. There are several versions of payment fraud that can occur from:

• Card-not-present fraud: when a criminal uses stolen card details to buy something remotely, over the phone, online or by mail. It is now the largest UK card fraud category by both value and case volume, according to UK Finance’s Annual Fraud Report 2026
• Lost and stolen card fraud: when a criminal uses a lost or stolen card to make a purchase or payment, or to withdraw cash, before the genuine cardholder can report it. Typically obtained through low-tech methods such as distraction thefts or ATM entrapment devices (UK Finance).
• Account-takeover-enabled card fraud: where a fraudster adds a stolen card to a compromised customer account.

Learn more about payment card fraud

Account takeover fraud

Account takeover (ATO) fraud is when bad actors gain control of a legitimate customer’s account, giving them access to stored payment details, loyalty points, and personal data. ATO fraud doesn’t need to start with a breach of your store. It can start outside of it, from phishing email masquerading as a shipping update, a lookalike domain to mimic a trusted brand or a credential stuffing attach that capitalises on the your customers using the same password across multiple accounts.

Learn more about account takeover fraud

Friendly fraud and chargeback abuse

Chargeback abuse, or sometimes referred to as friendly fraud, is when a legitimate customer makes a purchase and receives the goods but subsequently files a dispute with their bank to regain the funds, claiming the transaction was unauthorised or the item never arrived. (MRC Glossary). Preventing this type of fraud can be extremely difficult for merchants, as knowing whether a card being used to purchase an item is being used legitimate or malicious way, is even more difficult given that it is done by a legitimate customer.

Learn more about friendly fraud and chargeback abuse, and which tools you can use to prevent it.

Promo abuse and coupon fraud

Promo and coupon abuse involves exploiting discount codes at scale, often using synthetic identities or automated sign-ups. Coupon fraud is defined as occurring whenever someone intentionally uses a coupon for a product they have not purchased, or otherwise fails to satisfy its terms and conditions, or when coupons are altered or counterfeited (Coupon Information Corporation).

Learn how to spot promo abuse and coupon fraud

Refund and return fraud

Refund and return fraud, including wardrobing (wearing and returning an item) and item-not-received claims, involves customers exploiting a retailer’s own returns process. A fraudulent return is where a customer purposefully exploits a retailer’s return process.

Learn how to spot refund and return fraud, including how much it is costing you.

Affiliate and referral fraud

Affiliate and referral fraud is where commissions are generated through fake sign-ups or self-referrals. Whereas marketplace and seller fraud is when bad actors exploit onboarding gaps to sell counterfeit goods or collect payouts for orders that are never fulfilled.

Learn how to mitigate affiliate and referral fraud without stopping legitimate loyal customers.

Marketplace and seller fraud

Marketplace and seller fraud is when bad actors exploit onboarding gaps to sell counterfeit goods or collect payouts for orders that are never fulfilled.

Learn more how to marketplace and seller fraud, and the impact it has on merchant’s reputation.

Key risk signals and red flags

To effectively prevent ecommerce fraud, merchants must monitor for anomalies that indicate potential malicious intent.

There are 3 types of common risk signals or flags, merchants should look out for when it comes to preventing fraud these are:

1. Customer identity and behaviour anomalies: such as unusual login patterns and device changes
2. Order and payment anomalies: such as mismatched billing and shipping details
3. Shipping and delivery risk indicators: such as use of freight forwarders and high-risk address

Learn the different types of risk signals merchants should use to identify fraud and abuse in their ecommerce.

Core principles of fraud prevention in ecommerce

Effective fraud prevention rests on a small number of principles rather than any single tool. Merchants need to balance fraud prevention with customer experience, since overly aggressive rules has potential to block genuine customers (this is called a false positive) as readily as they stop bad actors.

Risk-based authentication and authorisation, applying stronger checks only where risk is genuinely elevated, helps strike that balance.

Layered security, sometimes called defence in depth, combines gateway-level checks, decisioning models and manual review so that no single control has to catch everything.

Finally, fraud strategies must be data-driven and adaptive, because fraud tactics change faster than any static rule set.

Learn how to spot if you are having too many false positives

Essential fraud prevention tools and technologies

Modern e-commerce requires a comprehensive technology stack to accurately separate genuine buyers from fraudsters.

Payment gateway and processor-level protections

• CVV, AVS, and 3D Secure: Basic checks like Card Verification Value (CVV) and Address Verification Service (AVS) are foundational. 3D Secure helps satisfy European SCA requirements but must be routed intelligently to avoid friction.

Learn how to intelligently route payments for European payments with this SCA exemption guide

• Velocity checks and transaction limits: Blocking users who attempt an unusually high number of purchases within a short timeframe.

Fraud decisioning and risk scoring

• Rule-based decision engines: These allow merchants to set specific parameters (e.g., “block all orders over £1,000 from this region”). While useful, they can quickly become outdated.
• Machine learning and behavioural analytics: Machine learning models process thousands of data points in milliseconds, identifying complex fraud patterns that human analysts or rigid rules would miss.

Learn more about fraud decisioning, and what tools you need depending on the size and scale of your business

Identity verification and authentication tools

• Email, phone, and address verification: Validating the legitimacy and history of the contact details provided.
• Device fingerprinting and IP intelligence: Analysing the hardware, software, and location of the device making the purchase.
• Multi-factor authentication: Requiring a secondary form of verification (like an SMS code) when a login or purchase attempt looks suspicious.

Chargeback management solutions

• Chargeback alerts and representment services: Tools that notify merchants of impending chargebacks and automate the process of submitting evidence (representment) to fight friendly fraud.
• Dispute documentation and workflows: Organising order histories, tracking numbers, and communication logs to build strong cases against disputes.

Learn how to know which chargeback management solution is the right one for you.

Best practices for preventing ecommerce fraud

Implementing the right processes is just as important as having the right technology. Here are industry best practices for securing your operations.

Designing a risk-based checkout process

• Setting smart order limits and thresholds: Define acceptable buying parameters based on your average order value and historical data.
• Triggering manual reviews for high-risk orders: While automation is key, borderline cases may require human intuition. However, reliance on manual reviews should be minimised as it struggles to scale during peak seasons.

Building effective order review procedures

• What to check in suspicious orders: Look for mismatched IP locations, anonymous proxy usage, and irregular email addresses (e.g., random alphanumeric strings).
• Contacting customers to validate orders: A quick phone call or email to confirm order details can easily verify a legitimate customer and deter a bad actor.

Strengthening account security for customers

• Secure account creation and password policies: Enforce strong passwords to protect against credential cracking.
• Login alerts and suspicious activity notifications: Notify customers if their account is accessed from a new device.
• Account recovery and reset safeguards: Ensure the password reset process cannot be easily hijacked by social engineering.

Protecting promotions, loyalty, and returns

• Limiting coupon and promo code abuse: Tie promotions to specific user accounts or household addresses rather than generic codes.
• Detecting loyalty points fraud: Monitor for sudden, massive redemptions of points, which often follow an account takeover.
• Structuring fair but secure return policies: Require proof of purchase and track return velocity by customer to identify serial return abusers.

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Using data and analytics in fraud prevention

Fraud prevention improves as the underlying data improves. The more accurately you can interpret data, the better you can recognise fraud patterns and risks early.

Collecting and normalising relevant data

Ensure your systems are capturing high-quality data across the entire user journey, from the moment they land on your site to the final checkout click.

In the UK and Europe, merchants need to manage data protection and privacy requirements under the UK and EU GDPR regimes when collecting data. Read more under Compliance, legal and regulatory considerations.

Building and tuning fraud rules

Regularly audit your manual rules. If a rule meant to stop fraud is resulting in an 80% false decline rate, it needs to be adjusted or retired.

Leveraging machine learning models

Machine learning models add the ability to detect patterns across large volumes of transactions that manual rules cannot practically cover

Read more to understand how combining manual rules with AI-driven models can improve fraud prevention

Monitoring key fraud and chargeback metrics

Keep a close eye on your chargeback-to-transaction ratio, false decline rate, and manual review queue times to ensure your strategy is effective.

Learn more about the fraud and chargeback metrics you should be measuring.

Continuous testing and optimisation

A fraud strategy is never “set and forget.” Continuously A/B testing tools and adjust thresholds to optimise the balance between security and conversion.

Working with payment providers and banks

Your relationship with financial institutions plays a critical role in your overall success and compliance.

Understanding liability shifts and regulations

In the European region, PSD2 regulations mean that the liability for fraud can shift between the merchant and the issuing bank depending on whether SCA was applied. Understanding these nuances is vital for financial planning.

Learn more about liability shift, and how central it is to deciding where to invest fraud prevention spend.

Optimising authorisation rates while reducing fraud

As merchants, you and your payment providers share an incentive to approve as many genuine orders as possible while declining fraudulent ones, since every false decline is lost revenue. Getting this balance right increasingly depends on how fraud protection is priced and structured.

Compliance, legal, and regulatory considerations

Operating an e-commerce platform requires adherence to strict global and regional guidelines.

Data protection and privacy requirements

Regulations like the GDPR in Europe dictate how you can collect, store, and process customer data for fraud prevention purposes. Transparency and data minimisation are key.

Know your customer (KYC) and Anti-money laundering (AML) Aspects

Certain high-value retail sectors or marketplaces must comply with strict KYC and AML laws to ensure their platforms are not being used for illicit financial activities.

Card network and payment scheme rules

Visa, Mastercard, and other networks have strict thresholds for acceptable fraud and chargeback rates. Exceeding these limits can result in heavy fines or the loss of processing privileges.

Learn more about network thresholds, and chargeback monitoring programs

Record-Keeping and Audit Readiness

Maintain comprehensive logs of transactions, chargeback disputes, and customer interactions to ensure you are prepared for acquirer audits.

Building a fraud prevention program and team

Technology alone cannot solve the problem; you need a structured internal programme.

Defining Ownership and Roles

Clearly define who is responsible for managing fraud risk. This often sits within a dedicated Risk team, but overlaps heavily with Operations and Finance.

Establishing Policies and Playbooks

Document your procedures for handling high-risk orders, fighting chargebacks, and communicating with customers whose orders have been delayed for review.

Training Customer Support and Operations Teams

Your frontline staff should be trained to spot social engineering attempts and understand how to assist legitimate customers who have been falsely declined.

Collaborating with Security and Compliance Functions

Ensure your fraud prevention efforts align with your broader cybersecurity initiatives to protect against data breaches and ATOs.

Case studies and industry benchmarks

Understanding how your peers are performing provides valuable context for your own operations.

Fraud patterns by vertical and business model

Fraud patterns differ significantly by vertical and business model, and account takeover in particular concentrates in a small number of sectors.

Lessons from common fraud attack scenarios

Reviewing past attacks—whether on your own store or industry-wide case studies—helps identify vulnerabilities in your checkout flow and rule sets.

Measuring success against benchmarks

Benchmarking fraud rate, chargeback ratio and false decline rate against comparable merchants is the most reliable way to judge whether a fraud prevention programme is actually working, rather than relying on raw loss figures alone.

Signifyd’s pulse tracker provides fraud pressures by each industry and region. Discover the fraud pressure trends for your industry today.

Future trends in ecommerce fraud and prevention

Fraud tactics continue to evolve alongside the technology used to stop them. Staying ahead requires looking to the future.

Emerging fraud tactics and technologies

As physical goods become harder to steal due to better logistics tracking, fraudsters are increasingly targeting digital wallets, loyalty programmes, and buy-now-pay-later (BNPL) services.

The role of artificial intelligence in fraud detection

AI is not just a buzzword; it is the foundation of modern security. Generative AI is now being used by fraudsters to create highly convincing phishing emails, meaning merchants must rely on even more advanced machine learning models to detect subtle behavioural anomalies.

Identity-centric approaches and digital identity networks

The future of ecommerce fraud prevention lies in verifying identity rather than just payment credentials. Consortium networks that share identity intelligence across thousands of merchants allow businesses to instantly recognise good customers, even if they are shopping on that specific site for the very first time.

Learn more about the future trends in fraud by reading our annual State of Fraud Report

Conclusion and actionable next steps

Securing your online business is an ongoing journey. For merchants looking to completely eliminate the financial liability of chargebacks, implementing a guaranteed fraud protection model can be transformative.

Prioritising quick wins for new or growing stores

Start by ensuring your payment gateway’s basic tools (AVS/CVV) are configured correctly. Next, identify the specific types of fraud causing the most financial damage and target those vulnerabilities first.

Building a long-term fraud prevention roadmap

Invest in scalable technologies like machine learning that will grow with your business and adapt to new threats automatically, reducing your reliance on easily overwhelmed manual reviews.

Periodic review and continuous improvement

Commit to auditing your fraud strategy quarterly. As your product lines, target markets, and customer behaviours evolve, your commerce protection strategy must evolve alongside them.

Ready to stop bad actors and approve more legitimate customers?

Fraud prevention

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Stop fraud without sacrificing conversion. Signifyd uses AI and network intelligence to approve more good orders, reduce false declines and protect revenue at scale.

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