Best Practices to Detect and Prevent Fraud on Your Online Marketplace

Getting scammed wasn’t on Severine Nichols’ radar. But fate decided otherwise. 

Severine had listed her daughter’s play tent on Facebook Marketplace for $40. A buyer seemed interested and offered to e-transfer the payment and pick it up later. 

Everything seemed fine until Severine clicked the e-transfer link the buyer sent her. She was redirected to a page where she entered her bank details—and just as she hit submit, an error popped up. Moments later, she got an email confirming a $1,250 e-transfer to a complete stranger.

Sadly, scams like these are all too common in online marketplaces. While customers are at risk, marketplaces lose their reputations due to such incidents. 

In fact, online shopping scams continue to be a significant problem in both the US and Canada. Don’t worry—there are ways you can prevent this from happening in your marketplace. 

Here, we’ll share a few strategies that will help you prevent fraud and keep your transactions secure. 

How to Identify Fraud on Your Online Marketplace

Here’s how to catch fraud before it causes damage:

1. Monitor Low-Value Orders to Catch Stolen Cards Data

Fraudsters often test stolen credit card details with small purchases before moving on to bigger targets. They know these low-value transactions are less likely to trigger fraud alerts.

Two years ago, a Shopify merchant noticed a new customer making ten orders in just two days. Despite the low-risk fraud score, something seemed off: three different cards were used, and none matched the shipping address.

So, how do you spot this type of fraud? Watch out for patterns. Multiple small orders from different accounts/cards but the same IP/device is a red flag. Also, a new user suddenly placing a bunch of low-value orders in a short time could be a fraudster checking which cards go through.

2. Check for Billing and Shipping Address Mismatch

A mismatch between billing and shipping addresses can be a subtle but literal warning of danger.  

Someone ordering from New York but shipping to Russia might have legitimate reasons, like a gift or a friend abroad. But it’s also a common tactic for fraudsters who use stolen credit cards.  

The billing address is tied to the cardholder’s identity, while the shipping address can be easily manipulated. 

In the first three quarters of 2024, 842,000 cases of identity theft were reported to the Federal Trade Commission. That is why you must be cautious. 

Don’t automatically flag every mismatch, however. Check if the mismatch is combined with other red flags, like a new account or unusual purchase patterns. That will help avoid false positives and allow you to focus on truly suspicious activity.

3. Track Users Who Use Different Credit Cards for Each Purchase

Another typical fraudster move? Using a different credit card for every single order. 

Fraudsters cycle through stolen cards to avoid detection. EJINSIGHT reveals that this scam, or card cycling, poses a significant threat to businesses in Hong Kong. However, it’s not just limited to that region.  

If you notice a user constantly switching credit cards with every purchase, especially for high-value items or frequent orders, something’s up. Sure, some people genuinely use multiple cards, but a pattern of regularly changing cards is often a sign of fraudulent activity. So, keep an eye on these behaviors.

3 Strategies to Prevent Fraud on Your Online Marketplace

Here are some strategies that can help prevent fraud in your online marketplace:

1. Use an Advanced ID Verification System 

Think a simple ‘upload your ID’ is enough to stop fraudsters? Certainly not. 

Fraudsters are getting way more sophisticated, and they can fake documents or even steal real ones to pass a simple check. You need something a little stronger: an advanced ID verification system. 

These systems go beyond just looking at a picture of someone’s ID. They use real-time detection and analytics to verify that the ID is legitimate. They can also check for things like watermarks, holograms, and document authenticity to confirm the document’s legitimacy.

What’s more? AU10TIX’s blog post on Fraud-as-a-Service points out that these advanced ID verification systems also check for deepfakes, blocking AI-generated documents and tampered images. 

Fraud-as-a-Service, or FaaS, is basically a black-market business where scammers sell their hacking tools, tricks, and expertise on the dark web to help others commit fraud. 

For e-commerce, hackers having access to FaaS means more chargebacks, fake accounts, and stolen credit card transactions. It’s a nightmare for businesses, as it leads to lost revenue and trust.

This multi-layered approach ensures the person behind the ID is who they claim to be.  

2. Uplevel Human Intelligence

AI and automation are great for detecting possible risks, flagging them, and addressing issues quickly. But humans are still important. 

The CPA Journal notes that human intuition, experience, and analysis are still necessary to train these models effectively and identify potential biases and errors.

AI can’t always spot nuances or the context behind certain transactions. But real people can look at patterns over time, notice inconsistencies, and provide that extra layer of judgment that’s harder for algorithms to mimic.

How do you uplevel your team’s fraud-spotting skills? Train them like detectives. Give them access to real case studies, show them common fraud tactics, and encourage them to think like scammers. The more they know about fraud tricks, the better they can shut them down.

3. Improve the Accuracy of Your Risk-Scoring Model

What’s at the core of fighting fraud? Transaction data. 

If you want to stay ahead of the game, you’ve got to tweak your risk algorithms constantly. 

How? You need to feed your risk model with fresh insights—like information from dispute filings, reviews, and cross-checking transaction histories.  

Also, integrating third-party threat intelligence feeds can give you a broader view of the latest fraud trends, helping your model adapt faster. This constant refining won’t just sharpen fraud detection, but will also help reduce false positives.

Fraudsters adapt fast, so your marketplace security has to evolve even quicker. Layer these smart strategies, and you will stay ahead of scammers and not react to fraud after it happens. After all, a safe marketplace is a thriving marketplace.