Jan 01, 2024
4 min read

4 Signs of Transaction Fraud to Watch Out For in 2024

If you struggle with detecting transaction fraud, this article is for you. Learn about the most common types of transaction fraud and ways to confront them.

E-commerce is usually considered the main target for transaction fraud. This is, in part, due to the implementation of remote verification in recent years, which has created new opportunities for fraudsters. But while e-commerce sees the most transaction fraud by the numbers, Other industries also suffer—including gambling, banking, and fintech. Overall, it’s expected that the total loss in 2023 from transaction fraud will exceed $48 billion

To help you, Sumsub has prepared a guide explaining the most common types of transaction fraud, its common signs, as well as the most efficient tools for prevention for each industry.

What is Transaction Fraud?

Transaction fraud is when a criminal makes an online purchase using stolen payment details—say, someone else’s bank card info. However, the term ‘transaction fraud’ goes far beyond bank cards, and can include theft of one’s digital identity

So, who loses the most to transaction fraud? Well, those whose payment details have been stolen can apply for a chargeback through their bank and eventually get refunded. This leaves companies on the hook for purchases made by fraudsters, not to mention the associated reputational damage. Therefore, it’s in the best interest of companies to minimize fraudulent transactions in the first place.

Suggested read: 4 Ways to Protect Your Business from Chargeback Claims

How Does Transaction Fraud Work?

First, criminals steal people’s payment information—for instance, through phishing, data leaks, or the darkweb. Then, the criminals use it to make online purchases in someone else’s name.

What are the 4 common types of fraud in E-Commerce?

When it comes to e-commerce, transaction fraud can be separated into several categories: 

#1. Account theft

As we’ve already established, fraudsters can get their hands on people’s personal info—including payment details and passwords—through phishing, data leaks, or the darkweb. After that, it’s just a matter of time before the fraudster breaks into the victim’s account to make purchases.

#2. Buy now, pay later

Certain websites allow customers to purchase a product first, and pay upon arrival. This way, fraudsters have an even easier time, since they don’t even need to access credit card information. 

#3. Fraudulent merchants

More advanced fraudsters can create a fake online store that looks like a legit merchant page. People then get tricked into making “purchases” and end up handing over all their payment details to fraudsters. 

#4. Gift cards

Fraudsters can steal gift cards from people as well. This sort of theft is even harder to detect than, say, credit card theft, since victims won’t notice that their gift card has been spent until they try to use it.

As technology gets more advanced, criminals are finding new ways to steal personal data and make fraudulent purchases. That’s why it’s necessary to have an up-to-date automated solution for detecting transaction fraud. 

Signs of transaction fraud in E-Commerce 

Companies need to take all the necessary measures to prevent fraudulent transactions. This includes looking out for the key signs of transaction fraud:

#1. Unusual orders

This includes:

  • Large orders 
  • Multiple orders of the same products in different variations (e.g., different sizes of the same shirt)
  • Usage of different credit cards
  • Different shipping addresses used by the same person
  • Orders from third-countries

#2. Vague or missing personal information

Companies should ensure that new customers are willing to provide all the necessary personal information. If they refuse to do so or cannot confirm certain information, suspicions should arise. 

#3. Errors on the order form

Fraudsters may have insufficient information about the payment information they’ve stolen. So if you see that someone has entered an incorrect expiration date or CVV code multiple times in a row, it’s a good idea to double-check the transaction. The same goes for data that doesn’t match the user’s profile, such as an unusual, never before used email address.

#4. Little interest in saving money

If a customer chooses the most expensive product options, doesn’t care about return policies, and adds faster shipping without any clear reason, it’s worth checking these transactions and verifying the buyer’s identity.

How can banks and financial institutions prevent transaction fraud?

Although merchants are the ones affected the most by fraudulent transactions, banks, and other financial institutions also need to work to minimize the damage coming from the criminals. Here are some tips on how to do that:

  • Explain transaction fraud to customers — this means educating their customers about fraud, how to recognize if their data was stolen, and what to do in such cases
  • Establish internal checks — this means educating employees on detecting suspicious transaction patterns and reacting in a timely manner. This also involves introducing systems of checks, such as behavior profiling, to notice suspicious profiles. 
  • Use transaction monitoring tools — this means using the same transaction monitoring systems in place for Anti-Money Laundering (AML) purposes to also spot fraudsters. 

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How can gambling websites prevent transaction fraud?

Gambling websites can also be affected by transaction frauds. TransUnion recently reported that 2022 had the highest rate of suspected digital fraud at 7.5%. Therefore, gambling websites also need to detect fraudsters at an early stage. Here’s how they can do it:

  • Analyze the origin and time of user traffic
  • Track customer behavior through affiliate marketing 
  • Employ device fingerprinting
  • Implement IP geolocation 
  • Use AML screening
  • Use transaction monitoring
  • Introduce face authentication at the withdrawal stage

Suggested read: Know Your Enemy: An Interactive Guide to Online Gambling Fraud

How can technology help prevent transaction fraud?

To prevent transaction fraud, companies need to implement an efficient monitoring solution, which allows companies to verify the source and destination of transactions and spot suspicious behavior in a timely manner. Screening can take place either in real time or near-real time, in cases that don’t raise immediate suspicion. The key takeaway is that transaction monitoring will help companies stay compliant with regulations and avoid huge financial losses.

In addition to transaction monitoring, companies can implement several tools to track suspicious customer behavior. Some of these include:

  • IP geolocation: This technology allows companies to expose the geolocation of an IP address or device based on where the purchase took place. If the transaction was made from an unusual location, suspicions should arise.
  • Device fingerprinting: This can allow you to identify a sign-in device by analyzing its unique attributes, such as its operating system, the type and version of its web browser, the browser’s language setting, and its IP address. This will make repeated fraudulent requests stand out among the legitimate entries.
  • Fraud scoring: With this technology, you’ll be able to rank transactions with a fraud score/rating reflecting their risk levels.
  • Additional checks: In cases when a company suspects fraud, it can request additional checks from the customer (e.g., biometric, face authentication).

If you use some of these technologies to scan for signs of fraud, you’ll easily spot criminals before it’s too late. 


  • How do you identify transaction fraud?

    Some of the most common identifiers include placement of unusual orders, unclear personal information, entering incorrect information, suspicious customer behavior, and little interest in saving money during the transaction.

  • What is online transaction fraud detection?

    It’s the process of spotting fraudulent transactions by scanning for suspicious behavioral or transaction patterns, usually with specific technology designed to detect such behavior (e.g., device fingerprinting, negative database, IP location).

  • How can I handle fraudulent transactions?

    Generally, try to avoid getting into such situations in the first place. This can be done by establishing internal verification and monitoring policies. As a rule of thumb, if you aren’t sure whether the customer is legitimate, it’s better to hold off or even deny the transaction. This way, you’ll avoid costly refund procedures in the future.

BankingE-commerceFinancial InstitutionsFraud PreventionKYCTransaction Monitoring