The rise in online shopping fraud poses a significant reputational risk to e-commerce businesses of all sizes unless proactive measures are taken to protect consumers. Last year, Australian online shoppers lost more money than ever before to scams involving a variety of “Trojan horse” methods that imitated e-commerce retailers. Last year, the most lucrative months for fraudsters were May and June, when many retailers promoted their End of Financial Year (EOFY) sales, but the number of resellers declined.
The number of reports to Scamwatch was not significantly higher than at other times this year. Australians have lost more than $1.2 million to online shopping fraud so far this year, and more than $92 million to fraud overall, according to Scamwatch. A problem of trust Fraudsters are employing new technologies such as artificial intelligence and more elaborate ways to steal from online shoppers, making copycat sites and adverts harder to distinguish from the real thing. “It's easier than ever to launch a website,” e-commerce consultant Lou Simpson told Inside Retail. “Now you can launch a large multi-page site, and fake websites are ranking in search engine results pages (SERPs),” she added. As more consumers fall victim to fraud, this could lead to a decline in trust in genuine retailers, brands and marketplaces. Independent research organisation Choice found that 61% of online fraud victims interviewed for their new report, Passing the Buck, have lost confidence in transacting financially online. Mal Cheah, managing director of Ecom Nation, told Inside Retail: “The recent wave of online fraud often involves highly sophisticated techniques that blur the line between real and fraudulent,” Chia added. “Recent surveys have found that consumers trust traditional e-commerce platforms less than they do in 2022,” he said. By default, “this leads to increased customer service costs as businesses have to deal with more security measures, customer complaints and refund requests, ultimately impacting revenue,” he said. The integrity of online transactions forms the basis of e-commerce, which is why companies invest heavily in cybersecurity measures and reporting fakes, Chia said. Additionally, online retailers need to educate customers on safe shopping habits and work with financial institutions and cybersecurity companies to stay one step ahead of fraudsters. Fake Websites There is a growing number of fraudulent websites that impersonate well-known retailers or create fake brands to trick online shopping customers. These are known as “Trojan horses.” “Many of these websites offer luxury items such as popular branded clothing, jewellery and electronics at very low prices. You may find that the product you paid for is fake, or you may not receive anything at all,” an Australian Competition and Consumer Commission (ACCC) spokesperson told Inside Retail. Information obtained from fake sites and other identity phishing can be used for “brushing,” where consumers receive unsolicited goods from online sellers, who then write fake reviews from the recipient to boost the retailer's profile. “Another common scam is the subscription trap, where consumers sign up believing it's a one-time purchase or free trial, but are locked into recurring payments that are difficult to cancel,” Chia said. Social media offers scammers an easy way to reach consumers by promoting fake websites and e-commerce businesses alongside genuine ones, giving consumers a false sense of trust. “Social media targeting with fake ads is an increasingly popular tactic, with fraudsters spamming ads across multiple platforms to make them appear to be from a genuine brand,” Simpson said. The ACCC has seen a trend of scammers using social media platforms to set up fake online stores that open for a short period of time to sell counterfeit branded clothing and jewellery, then disappear after a few sales. In 2023, Scamwatch received 21,352 reports of online shopping-related fraud, resulting in losses of $7.17 million. “The anonymity afforded by the internet makes it a game changer for scammers, and harder to track and punish,” Chia said. Who pays the cost? While some experts believe online shopping fraud is a significant concern and one that e-commerce companies need to monitor, others say it's a bigger problem in media newsrooms than in corporate offices. “I talk to a lot of retailers, and honestly, it's not on a lot of people's radar compared to how big an issue it is in the news cycle,” Nathan Bush, an e-commerce expert and Add To Cart podcast director, told Inside Retail. “I don't know if that's a good or bad thing. Most retailers I talk to are more worried about getting scammed by big companies, marketplaces, and even supermarkets, than they are by scammers,” he added. This is especially true for brands that have developed innovative and unique products and experiences. “They spend so much effort, time, and money trying to get attention and build an audience, and then as soon as it proves itself, it's the same old story: Someone else is going to do it for half the price because they have the scale power,” Bush said. Invest, Differentiate, and Listen One way e-commerce companies can make it harder for scammers to copy them is by investing in the details of their website and customer service channels. “If you're investing in your brand, content, and design, it makes it easier to spot fraud,” Bush said. He also emphasized the importance of “the environment you're in as an e-commerce brand and the tempo of your messaging.” To stay ahead of fraudsters, e-commerce companies can leverage social media conversations to build social proof. “As an e-commerce company, it's up to you to know what people are saying, and they're more likely to vent their frustrations on social media than you are,” Bush said. Another way legitimate companies can differentiate themselves from scam sites is through payment options. Bush noted that having security standards and up-to-date payment methods is important, as many shady merchants are credit card-only and don't offer secure payment options like PayPal, Apple, or Google Pay. “I work on a custom-built platform, and it's 10 years old, which makes it perfect for scammers to copy. Whereas, working with a trusted platform like Shopify Pay or PayPal Pay makes it much harder to copy,” Bush said.
