How Many Types of Fraud are There? | Merchant Account Comparison

The number is probably infinity. Fraudsters will come up with new ways to defraud people until the end of time, so this is not an exhaustive list. But these are some of the types of fraud with which the industry has experience/is familiar with.

United States merchants tallied $9.47 billion in fraud losses in 2018. Fraudulent chargebacks can mean lost revenue, added fees and a higher chargeback rate — all bad for your business. A good merchant services provider can mitigate your risk and protect you from incidents of fraud. You can find out more about merchant service providers who specialize in risk mitigation and chargeback representment here.

Types of Fraud	Description
Second-Party Friendly Fraud	When the bank initiates an invalid dispute on the cardholder's behalf. The bank may contact the carduser to verify a suspicious purchase as part of their risk mitigation strategy. If the customer denies recognizing the charge without a valid reason to do so, the bank or card issuer will initiate a chargeback. Bank chargebacks rarely offer an opportunity to challenge the dispute, unlike standard chargebacks. A form of chargeback abuse.
eCommerce Fraud	A broad term characterizing any type of illegitimate commercial transaction conducted via the internet.
Friendly Fraud	When a cardholder lodges a dispute on a legitimate transaction with no valid reason to do so. A form of chargeback abuse.
Click Fraud	A form of advertising fraud whereby a third party clicks on advertising links with no intention of doing business with the advertiser. This may be used as a way of artificially inflating click-through stats, as a means to drive traffic away from competitors, or to skew pay-per-click (PPC) data. The activity is usually automated; it generates unreliable data and wastes advertising dollars.
BNPL Fraud	Buy now, pay later (BNPL) fraud occurs when a BNPL payment option is abused to conduct payment fraud. Examples include buyers who make BNPL purchases with no intent of paying for the purchase, and bad actors using BNPL to order products on another's account without their authorization — the actual account holder may not notice the fraud for weeks.
Transaction Fraud	Any type of purchase not authorized by a legitimate user. It usually involves the use of a fraud victim's credit card to make an unauthorized purchase.
New Account Fraud	A type of eCommerce fraud. When a fraudster opens a new payment card account under a false identity. Identities of real people are known as stolen identities; wholly fabricated identities not based on real users are known as synthetic identities.
Third-Party Fraud	Any payment fraud committed using false identification to pose as an authorized account user.
Refund Fraud	Abusing a merchant's policies to pursue a refund from a retailer without a valid reason to do so. A form of first-party transaction fraud. Tactics used include box swapping, bricking, empty box fraud, price switching, receipt switching, shoplifted returns, shoplisting, wardrobing and refund servicing.
Merchant Fraud	Whereby a fraudster pretends to be a merchant with the intent of committing fraud against consumers and/or financial institutions. Typically a fake store is set up, cardholders make purchases from the store assuming it's legitimate, and the fraudsters pocket the funds or use the card information to make unauthorized purchases.
Bust-Out Fraud	Whereby a fraudster acquires a payment card accoung using false information, then leverages the account to develop an extended line of credit. When the amount of available credit is high enough, the fraudster maxes out the card and walks away without paying, effectively "busting out" of the scam.
Gift Card Fraud	Scammers instruct targets to load money on a gift card as payment for some made-up obligation, debt or product. Once the target shows the scammer the gift card number and PIN, they have access to all the money on the card. Other types of gift card fraud involve a system to review potential gift card account numbers to see if they have any balances; if so, they know the card number is active and contains funds.
Clean Fraud	Whereby a fraudster illegitimately uses a credit card to make a purchase, then manipulates the transaction in order t obypass fraud detection measures. The transaction appears "clean" and usually isn't flagged or filtered. Notoriously difficult to detect and predict.
Overpayment Scams	Whereby a fraudster uses an illegitimate payment card to overpay for a purchase, then requests that the overage be returned to a different payment account or third-party source.
Triangulation Fraud	Whereby a cardholder makes a legitimate purchase on a third-party marketplace like eBay or Shopify, but the seller fraudulently purchases the product from another merchant with the cardholders account information and has it shipped to the cardholder. The fraudulent seller typically prices the products under market value to attract targets and pockets the money from the cardholder's initial transaction. Once the cardholder sees the fraudulent transaction on their card, the resulting chargeback adversely affects the merchant who shipped the product to the buyer. Not to be confused with drop shipping.
Fraud as a Service	Also referred to as FaaS. The process by which a bad actor provides tools and services to others to facilitate their commission of fraudulent activity. Common examples include creating fake social media accounts and activity, or renting botnets to criminals.
Account Takeover Fraud	A form of identity theft whereby a fraudster gains unauthorized access to a user's online accounts. Fraudsters may change account details, make purchases, withdraw funds or leverage the stolen information to gain access to other accounts.
Online Gaming Fraud	When an internet betting site is exploited for monetary gain. May take various forms, including money laundering, affiliate fraud, bonus abuse (whereby a user creates multiple accounts to collect promotional bonuses or rewards for signing up), using multiple accounts to drive up jackpots, and chip dumping (where multiple accounts join a game and deliberately lose to one specific account).
Loyalty Fraud	Also known as reward point fraud. Whereby a fraudster abuses or exploits a merchant reward program; most often carried out after an account takeover fraud or other form of identity theft in order to steal a trusted user's reward points.