Types of Online Fraud (& How to Spot Them Before It’s Too Late)

Running an online business comes with its perks; sales while you sleep, customers from around the world, and… the occasional scammer who thinks you were born yesterday. Online fraud isn’t rare; it’s routine. But once you learn what to look for, you’ll start seeing the patterns instantly. This guide breaks down every major type of online fraud, with real examples I’ve dealt with personally (so you don’t have to).

🕒 Estimated reading time: 8 minutes

💡 Here’s What We’ll Cover

• The main types of online fraud (and how each one works)
• Real examples from real businesses (including mine)
• Actionable fraud-detection tips you can use immediately
• What to do when you suspect or confirm a fraudulent transaction
• Why understanding fraud is part of smart risk and strategic management

🕵️‍♀️ Types of Fraudulent Transactions

Fraud can strike any business; online or physical. Recognising patterns and behaviour is your first line of defence.

Friendly Fraud

This happens when a customer knowingly abuses the dispute or chargeback process. They buy your product, receive it, and weeks later raise a dispute claiming “goods not received” or “item not as described.”

Keep detailed records of all correspondence, tracking numbers, and delivery proof. When a chargeback arises, facts beat emotion every time.

Never call or confront the customer; it’s unprofessional and can escalate. Instead, reply through your bank or payment processor with a calm, factual response.
If you lose the case, move on. Focus on the next legitimate customer, not the one who cheated you.

Card Testing / Card Checking / Carding

All these names mean one thing. Fraudsters are using your website to test stolen card numbers. They’ll run small or large payments to see if a card is valid and how much credit it holds.

Two typical patterns:

Example 1: Large Purchase

• Immediately selects the first product, size, and colour available.
• Orders the maximum quantity your site allows.
• Chooses the most expensive shipping (usually Express).
• Uses fake names, emails, and phone numbers.
• The names, emails, and phone numbers are all fake, and it is more than likely that if you post these items, they will be returned to you marked “unknown person or unknown address.”

Example 2 – Small Purchase

• Tests multiple card numbers with tiny transactions (e.g., $2).
• Details are fake or incoherent.
• Purpose: validate cards for resale or future scams.

These behaviours cause high decline rates which is a red flag for banks and card networks.

💡 Tip: Work with your payment gateway to block IP addresses after 3 failed attempts.
Avoid making your site unusable with full time CAPTCHAs and instead, activate them temporarily or by region if fraud spikes.

Freight Forwarding Fraud

This one’s clever.

Most of the fraud coming through our online store was outside of Australia. This created an automatic response from our end to flag international orders and run checks on them based on basic rules (which I mentioned above). International orders were, in our view, at a higher risk of fraud than domestic orders. 

Fraudsters, however, found a way around this and started to use a freight forwarding service. Let me give you an idea of how this works:

Scammers buy products from your online store and pay for them with a stolen credit card. The address they provide is inside Australia and seems legitimate. This way, they go undetected and unsuspected that it is an international order, where they would undergo verification checks.  Every time, they also have a different address, so they won’t be blocked by companies and have their orders cancelled. They are simply re-routing the merchandise to make their order look legitimate. 

Scammers then scam the freight forwarder with payment from stolen credit cards to have the merchandise shipped overseas. The products successfully land at the scammer’s addresses, and both the merchant and freight forwarder have been left with disputes and chargebacks. The scammers work at a rate that is way too quick for authorities to catch them.

🚩 Red flag: If you are receiving many orders going to the same address under the same or a different name, make a simple search engine search of the address. If it is a freight forwarder, this should raise alarm bells.

Overpayment Fraud / Scam

This is what happened to a brick-and-mortar store that was supplying our product.

A customer in person made a purchase using a stolen credit card, and when asked to enter their PIN to complete the transaction on the EFTPOS terminal, the scammer added “0” to the amount, and from $40, the payment got to $400. The customer then blamed the store owner for overcharging them.
To resolve the situation at hand the customer told the owner to keep the credit card transaction of $400 and simply refund them in cash $360. The store owner complies because they feel terrible for the error that they supposedly made.

Rule of thumb:
Only ever refund to the original payment method.
If they say their card is cancelled or expired, politely advise them to raise a dispute through their bank; it’s cheaper to pay a $25 chargeback fee than lose hundreds in a scam.

Auction Fraud

This one will make you shake your head.

My advice above as to why you should never confront the customer or recipient comes into direct play here. This is one of the most annoying types of fraud, as there are no signs or suspicions. 

Let’s say you sell golf clubs.

Mark is a scammer. Mark creates a listing on a marketplace or an auction site selling your golf clubs.

Mark sells a set of golf clubs valued at $800 to Peter through a marketplace.

Peter pays Mark $800 and is now waiting for his merchandise.

Mark comes to your online store with a stolen credit card and places an order for Peters golf clubs. He has peters information, so he inputs that on the billing and shipping information. It all looks legitimate, and you dispatch that order.

You then receive a dispute for an unauthorised transaction, and the funds are taken away from you. But it all seems legitimate, and you don’t understand what you missed. 

Peter, the customer, legitimately ordered and received what he paid for. So, you can’t go knocking on Peters’s door! 

Mark is the scammer who has made $800 by ripping off two people. The credit card owner and You. 

• Unfortunately, you will pay for everything. 
• The credit card owner is protected by the credit card facility.
• The credit card facility will get its money from the bank.
• The bank will get its money from you and charge you an additional fee for the privilege.

General Fraud / Theft

There is nothing complicated about this sort of fraud. These are your everyday people who are just thieves. The ones that also get caught stealing in department stores. 

They generally have a stolen credit card available and purchase products that they genuinely want. They have them posted express to an address, track them, await the delivery, and take receipt of them. So as not to be traced, they may generally place a fake name on the parcel and instruct the postal service that it may be “left without a signature” or “in a safe place”, and that way, they can retrieve the parcel without raising suspicion. Sometimes, they may target a vacant property, have the parcel sent there, and collect it while no one is around. They find creative ways of retrieving their packages.

🔍Tips on Detecting Fraud

If for any reason a transaction doesn’t look right, these tips will assist in determining if they are legitimate or not. Fraud detection isn’t about paranoia; it’s about patterns.
Here’s how to spot trouble before it costs you.

💳 Tip 1 – Check the Credit Card Details

• Check the country of issue. 

If you are based in Australia, and someone places an order through your online store using a credit card from a different country that does not match the shipping or billing address, this is a sign that something could be suspicious. Action 1 is needed here.

• Multiple Attempts with different credit cards

Fraudsters will often use different credit cards to purchase if one after the other fails to go through. If you see an order trying to go through and someone has attempted five times with five different credit cards, this is a sign that the transaction is fraudulent. Action 3 is needed here.

• Multiple Attempts with SAME credit card

This does not necessarily suggest fraud. It may simply be a case of someone not having sufficient funds in their account, and they keep trying because they are “certain” they have enough money to cover the transaction. Action 2 is needed here – a simple phone call to get a feel of what’s happened. In most cases where this happened to me, the transaction was legitimate.

🧾 Tip 2 – Verify Order Information

• Check the name. Does it make sense? Or is it some mumbo jumbo names put together?
• Check the email address. You will generally find issues with the free email addresses, such as Hotmail and Gmail accounts. Often fraudsters may use complete made-up email addresses that bounce. Check your logs to see if this is the case.
• Check the phone number. Call it and see if anyone picks up or if it’s a dead end. If someone does answer, be spontaneous and immediately say, “good morning, this is Jane from XYZ company; who am I speaking to?” In most cases, you will find that a legit person will respond with “Hi Jane, this is Peter”. Fraudsters will generally either hang up or um, and err, trying to think of what name they gave because you are probably not the only one they are ripping off. You can generally get a feeling once you talk to someone if they are legitimate or not.
• Shipping Method. I can confidently tell you that ALL our fraudulent transactions used express as their shipping method. This was mind-blowing. Then again, why wouldn’t they? Someone else is paying for it! However, this does not mean that all online orders that select express as their shipping method is fraud. It just means that if the name doesn’t make sense, and the email doesn’t make sense, and the phone number is a dead-end, AND they have chosen express – then it’s most likely going to be fraud.
• Shipping Address. Google Maps is a great tool to gain information on shipping addresses – or even a google search can be beneficial. Look for things that simply dont make sense, such as vacant land, or storage facilities, etc. Freight forwarding companies are a major red flag. I cancelled all orders going to freight forwarding companies. I had cancelled $15,000 worth of orders in one week alone, and I was right. They were fraud. 
• Products. Look at the products ordered and see if they make sense. Did they pick the first product on your site and order ten pieces of it? Did they go to your most expensive product only? See if you can see a pattern here or get into the mindset of what they are trying to achieve. 

Why Not Just Check Every Order?

Because:
a) It’s time consuming.
b) It can delay legitimate shipments.
c) You risk annoying good customers.
d) Fraud exists, but it shouldn’t become your full time job.

Focus only on suspicious orders that trigger multiple red flags.

Actions to Take When Detecting Fraud

🟢 Action 1– Mini Refund Verification

Refund a tiny, specific amount (e.g., $0.17 or $0.23) and email the buyer asking what amount appears on their statement.
If they can answer correctly, they have account access; not just stolen card details.
✅ This method never failed me.

🟡 Action 2 – Verify Manually

📞 Call the phone number and get a feel of the person on the other end. Be friendly and polite, and ensure they don’t feel you are checking upon them. Use reasons, such as dispatch delays or out of stock products and see how they react. Get a feel of how legitimate they are.

☑️ Check their name against social media. See if their name comes up, and have a look at their location. See if it matches their address. If they have ordered products in different sizes and colours, and their social media shows they are a family with children, this could be a sign of legitimacy.  

📧 Check their email address. If they have provided an email address that may look like a company, look it up and see if they work there.

See if their information makes sense and if things add up. Use your gut and instinct. If you are still unsure, then move to Action 1.

🔴 Action 3 – Cancel and Refund Immediately

Cancel the order and immediately refund the transaction. When you have no doubt the transaction is a fraud, refund it and keep a record so you can show your bank once the dispute has come through. This will show your bank you are serious about fraud and on top of things.

There will be times that the customer will attempt to contact you to ask where their order is. You can either choose to ignore them or politely respond that your financial provider could not process their transaction. Just remember, you don’t know who is on the other side. You are dealing with a criminal, and it’s always wise to steer clear.

Final Words

Fraud is part of doing business online. Frustrating, yes, but manageable.
You can’t stop every case, but you can minimise risk through awareness, smart systems, and a calm, factual response every time.

If you handle disputes properly and document everything, financial institutions will recognise you as a low risk merchant. That reputation alone can save your business.

The key is to stay proactive, not reactive; and to always focus your energy where it counts: growing your business, not chasing thieves.

📅 Updated October 2025

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📚 Related Reading

• Having an Online Presence
• Selecting and Registering a Domain Name
• Hosting Companies
• Website Builders & Building a Website
• Constructing Your Website Pages
• Online Payment Methods
• Pricing Standards & Advertising Online
• Disputes and Chargebacks
• 🔹 You’re here: Types of Online Fraud
• SEO (Search Engine Optimisation)
• Paid Advertising – Google Ads

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