E-commerce Fraud Prevention: Data, Strategies, and Solutions

In recent years, e-commerce has become a strategic pillar for the fashion industry, recording exponential growth.

The pandemic has accelerated this trend, radically transforming purchasing habits and pushing companies to invest even more in digital channels.

With physical stores closed and travel restrictions in place, millions of consumers turned to online shopping, a change that has left lasting marks even in the post-pandemic period.

This evolution has made e-commerce not only an opportunity but a necessity, leading companies to strengthen their digital infrastructures.

However, it has also highlighted significant vulnerabilities, such as transaction fraud and abusive returns.

Protecting profit margins and customer trust is therefore essential. For this reason, a leading Italian fashion retail group turned to SDG Group to improve e-commerce fraud monitoring for one of its flagship brands.

Key Challenges

Economic Impact of Fraud

Online fraud represents a significant economic loss for the sector, with estimates indicating an impact of 5% of total revenue.

For a company with a turnover of €350 million, this means a potential loss of €17.5 million. Even addressing a fraction of this figure can generate substantial savings:

• By focusing on just 30% of the losses, the value drops to around €5 million
• Preventing just 5% of this figure can lead to a recovery of €250,000 per year

Added to this are the costs in terms of time and operational resources.

Blacklist and Suspicious Customers

Since 2024, the company has begun collecting more detailed data on fraudulent activities, identifying:

• 99 blocked customers
• 156 suspicious customers
• 12 customers under investigation

The introduction of a structured monitoring system would enable fraud to be identified and intercepted more effectively, with an estimated annual saving of €250,000.

Platform Costs and Savings On Returns

Fraud analysis based on legacy systems costs €60,000 annually, with additional expenses for external data integration.

In 2023, e-commerce refunds reached €135,558,330, not including additional transportation and warehouse costs.

Even a minimal reduction of 1% in the return rate would result in annual savings of approximately €1.3 million.

According to the National Retail Federation (NRF), fraudulent returns account for approximately 13% of the total, demonstrating how crucial it is to implement anti-fraud measures to reduce losses and improve sustainability.

The Business Case: The SDG Group Solution

To respond to these challenges, we worked with the client to develop a Business Analytics project capable of:

• Monitoring and preventing fraud in real time.
• Improving the security and reliability of e-commerce.
• Optimizing processes and reporting through the development of an advanced platform.
  
  

1) Identification of Fraud Patterns

First, we analyzed the experience of different company teams, identifying the main fraud patterns and developing Key Risk Indicators (KRI) for monitoring.

Main fraud patterns detected:

• Order management
  • Coupon abuse: Repeated use of promotions and exchange of coupons for cash
  • Affiliate fraud: Manipulation of affiliate links to obtain unauthorized discounts
    
    
• Payment
  • Cash on delivery fraud: Failure to pay on delivery followed by early refund requests
    
    
• Returns, refunds, and chargebacks
  • Wardrobing: Purchasing, using, and returning items after use
  • Return of different items: Returning counterfeit or damaged items instead of those purchased
  • Partial returns: Requesting refunds for more items than were actually returned
    
    
• Third parties
  • Courier theft: Theft of goods during returns
  • Warehouse theft: Appropriation or replacement of goods in warehouses managed by third parties

For each type of fraud, we have established control thresholds and dedicated reports, allowing managers to identify suspicious behavior and take prompt action.

2) Defining the Scope of the Project

We defined the scope of the project by focusing on:

• Monitoring fraud in the e-commerce channel
• Identifying fraudulent patterns
• Developing specific KRIs for prevention

Each KRI was constructed using a clear calculation formula, which is essential to ensure accuracy and consistency in the results. We also defined the data sources needed to collect reliable information and identified the source systems, i.e., the IT platforms that update the KRIs for constant risk monitoring.

3) Implementation of the Technical Solution

After defining the risk indicators, we implemented the solution with the following key actions:

🔹 Integration of Data Sources

Connection between payment systems, e-commerce platforms, CRM, and logistics databases for structured and consistent data collection

🔹 Expansion of the Data Warehouse

Creation of a new database dedicated to the analysis and monitoring of various fraud patterns, integrated with the company's data warehouse for cross-sectional analysis of information

🔹 Development of Dashboards and Reports

Interactive data visualization tools for the anti-fraud monitoring team, enabling real-time monitoring and detection of suspicious behavior

🔹 Automation of Controls

Automatic alerts based on predefined thresholds to reduce manual work and improve effectiveness

🔹 Data Discovery Capabilities

Ability for the team to perform ad hoc analyses independently to identify new fraud patterns

The Benefits Achieved

The implementation of the solution has brought several tangible benefits:

• Reduction in manual workload: The team can focus on more complex cases, leaving first-level analysis to automation
• Faster reporting: Dashboards and alerts allow for immediate action
• Better data quality: Reduction of errors and inconsistencies in datasets
• More informed decisions: Detailed and in-depth reports enable more effective strategies to be adopted

Thanks to this advanced data infrastructure, the company has improved fraud prevention, strengthening e-commerce security and protecting profitability.

Do you want to protect your e-commerce business from fraud and optimize risk management? Discover how our data-driven approach can help you reduce losses and improve the security of your online transactions. Let's talk about it!