What Is Online Shoplifting and How Does It Impact E-Commerce?

Online shoplifting refers to fraudulent activities that exploit e-commerce platforms for financial gain. Unlike traditional theft, these schemes manipulate digital transactions, often leaving businesses with significant losses. As online shopping grows, so do the tactics used by fraudsters, making it a persistent challenge for retailers.

Common Methods

Fraudsters take advantage of security gaps and policy weaknesses to manipulate transactions, creating financial and administrative burdens for businesses. The most common methods include stolen payment credentials, deceptive return practices, and chargeback abuse.

Stolen Payment Data

One of the most prevalent forms of online shoplifting involves using stolen payment information to make unauthorized purchases. Cybercriminals obtain this data through phishing scams, data breaches, or dark web marketplaces. Once they have access to credit card or bank account details, they place fraudulent orders that appear legitimate, leaving merchants to absorb the losses.

Retailers typically bear the financial burden, as card networks operate under a “liability shift” model, meaning merchants must refund disputed transactions if fraud is detected. According to the Federal Trade Commission, credit card fraud accounted for over 390,000 reported cases of identity theft in 2023. Businesses that experience frequent fraudulent transactions may face higher processing fees or even account termination from payment providers.

To mitigate these risks, companies invest in fraud detection tools that analyze transaction behavior and flag suspicious purchases. These systems use machine learning to identify patterns, such as mismatched billing and shipping addresses or unusually high-value orders, helping businesses prevent unauthorized transactions.

Return Fraud

Return fraud exploits store policies to obtain refunds or replacement products without a legitimate reason. A common tactic, known as “wardrobing,” involves purchasing an item, using it briefly, and then returning it for a full refund despite visible signs of wear. More sophisticated schemes involve returning counterfeit or stolen merchandise while claiming it is the original product.

A 2023 report from the National Retail Federation estimated that fraudulent returns cost U.S. retailers approximately $101 billion annually. To combat this, businesses implement stricter return policies, such as requiring proof of purchase, limiting return windows, and tracking serial numbers for high-value goods. Some companies use artificial intelligence to analyze return patterns and flag accounts with suspicious activity.

Fake Chargebacks

Chargeback abuse occurs when a customer falsely disputes a legitimate transaction with their bank or credit card provider, claiming the purchase was unauthorized or the item never arrived. Originally designed as a consumer protection measure, chargebacks are increasingly misused by individuals seeking refunds while keeping the purchased item.

E-commerce businesses not only lose revenue from chargebacks but also face penalties from payment processors. Frequent disputes can lead to a merchant being classified as “high risk,” resulting in elevated processing fees or restrictions on accepting credit card payments. Visa and Mastercard impose chargeback thresholds, typically around 0.9% to 1.5% of total transactions. Exceeding these limits can result in fines or account suspension.

To combat this, businesses use tracking systems to confirm deliveries and require signature verification for expensive items. Some companies participate in chargeback mitigation programs, providing evidence—such as order confirmations and shipping records—to contest fraudulent disputes.

Financial Exposure for E-commerce Enterprises

Digital fraud erodes revenue and increases operational costs, forcing businesses to invest in security measures, fraud detection, and loss prevention. Beyond direct financial losses, companies must allocate resources to investigating fraudulent transactions, managing disputes, and implementing stricter verification processes. Many turn to third-party fraud prevention tools, such as AI-driven risk analysis software and multi-factor authentication systems.

Fraudulent transactions also distort stock levels, complicating supply chain planning. When fraudsters obtain goods without legitimate payment, businesses must either absorb the cost or adjust pricing strategies, potentially making products more expensive for legitimate customers.

Reputational damage further compounds financial risks. Customers who experience fraud on a platform may hesitate to return, leading to lower conversion rates and increased cart abandonment. Negative reviews and social media complaints about fraudulent activity can deter new shoppers, forcing businesses to spend more on customer acquisition.

Potential Liability with Payment Processors

E-commerce businesses must comply with strict guidelines set by payment processors, which assess merchants based on industry risk, chargeback frequency, and fraud prevention measures. Providers like Stripe, PayPal, and traditional merchant banks may impose rolling reserves—holding a percentage of sales revenue for a set period to cover potential liabilities—on businesses deemed high-risk. These reserves can range from 5% to 20% of transactions, impacting cash flow.

Contracts with payment processors include terms regarding fraud prevention and security protocols. Failing to comply with industry standards, such as the Payment Card Industry Data Security Standard (PCI DSS), can result in penalties or termination of processing services. PCI DSS requires secure handling of customer payment information, including encryption, access controls, and regular security assessments. Non-compliance can lead to fines ranging from $5,000 to $100,000 per month.

Regulatory obligations also play a role in liability, particularly under laws like the Bank Secrecy Act and anti-money laundering regulations. Payment processors expect merchants to monitor transactions for suspicious patterns, such as rapid, high-value purchases or mismatched billing and shipping details. Failure to report suspicious activity can lead to investigations by financial regulators, further complicating a business’s ability to maintain merchant account privileges.