Triangulation Fraud: What It is and How to Prevent It in 2024

There are typically two players in online transactions: the business and the customer. When both are legitimate, transactions proceed smoothly—customers receive their purchases, and businesses generate revenue.

However, online fraud often disrupts this balance. Triangulation fraud is a prime example, where fraudsters insert themselves as middlemen into legitimate transactions between businesses and customers in the eCommerce sphere.

Studies indicate that triangulation fraud is already causing substantial financial harm to the eCommerce sector, with its consequences expected to escalate further. Analysts predict that losses from card-not-present (CNP) fraud, which encompasses triangular fraud, will surpass $10 billion in the United States by 2024, constituting 74% of total fraud occurrences.

Keep reading to learn more about triangulation scams, how they work, red flags and warning signs, and ways to protect your business from these practices.

What is Triangulation Fraud?

Triangulation fraud, a sophisticated form of card-not-present (CNP) fraud, involves a criminal inserting themselves between a genuine customer and a retailer. Unlike typical CNP fraud, which often involves stolen card details, this scheme can implicate up to four unwitting parties.

Triangulation fraud in eCommerce occurs when a fraudster manipulates legitimate channels to conduct fraudulent transactions, leaving both customers and retailers at risk of financial loss and reputational damage.

The triangle aspect involves at least three actors:

1. Fraudulent Outlet: This refers to the deceptive online store where customers unwittingly place their orders.

2. Genuine Supplier: This denotes an authentic, unsuspecting company that provides the product listed on the fraudulent outlet.

3. Unsuspecting Buyer or Customer: This refers to the individual who purchases on a fraudulent outlet, often unaware that the product is being obtained from a legitimate supplier using stolen financial data.

Read More: Ecommerce Fraud: Detection, Prevention, Red Flags, & Future Trends

How Does Triangulation Fraud Work?

The fraudster sets up a fake online store or uses a fake seller account on a third-party marketplace. When a customer makes a purchase, the fraudster intercepts the payment and potentially steals the customer's credit card information. They then use this stolen information to fulfill the order, either by purchasing the item from a legitimate retailer or directly shipping it from their own fake storefront.

The parties involved in a triangle scam can include the criminal, the customer (often unknowingly acting as a mule), the marketplace (if applicable), the legitimate retailer, and the victim whose credit card details are used.

In simple steps, here is how triangulation scams operate through a multi-step process:

1. Setting Up the Trap

The fraudster establishes a fake online store or seller account, showcasing attractive deals on popular items. These deals often seem too good to pass up and lure unsuspecting customers seeking bargains.

2. Customer Transaction

A customer, enticed by the enticing prices, makes a purchase using their payment card or an online payment service, oblivious to the fraudulent nature of the storefront. Meanwhile, the fraudster potentially steals the customer's payment card details for future misuse.

3. Illicit Purchase

Simultaneously, the fraudster proceeds to buy the item from a legitimate retailer, using previously stolen credit card information. Unaware of the fraud, the retailer fulfills the order and ships the product directly to the customer.

4. Chargeback Disputes

Upon discovering the fraudulent transaction, the legitimate cardholder requests a chargeback from their card issuer. Consequently, the retailer faces financial losses as they refund the money and may also incur penalties for high chargeback rates.

6 Characteristics Of Triangulation Fraud

Triangulation scam exhibits several distinct characteristics that set it apart from other types of online scams:

1. Deceptive Storefronts or Seller Accounts: Perpetrators typically create fake online stores or seller accounts on e-commerce platforms, presenting enticing deals on popular products. These storefronts often mimic legitimate websites, complete with stolen product images and descriptions. This is one of the characteristics of triangulation fraud in eCommerce.
2. Attractive Pricing: Triangulation fraud relies on offering products at prices that seem too good to be true, attracting unsuspecting customers seeking bargains.
3. Use of Stolen Payment Information: Fraudsters exploit customers' trust by collecting payment information during transactions on their fraudulent platforms. They may use this stolen information for future fraudulent activities.
4. Purchasing from Legitimate Retailers: After receiving payment from customers, fraudsters proceed to purchase the ordered items from legitimate retailers using stolen credit card details. This step is designed to hide the fraudulent nature of the transaction.
5. Direct Shipment to Customers: The purchased items are shipped directly from the legitimate retailer to the customers, who remain unaware of the fraudulent scheme.
6. Potential Chargebacks and Disputes: Once the fraudulent transaction is discovered, legitimate cardholders may request chargebacks from their card issuers, leading to financial losses for the retailers involved.

10 Warning Signs Of Triangulation Fraud

What sets triangulation fraud apart from other types of fraud is that customers receive the ordered items without realizing they're involved in a triangle scam. To pull off this scheme, fraudsters need an efficient process to promptly order and deliver products to customers.

It's important for customers not to suspect anything wrong, so the online listings must be convincing and the shipping process seamless. Here are 10 triangulation fraud red flags:

1. Unrealistically Low Prices

Offers that seem too good to be true may indicate a scam, especially if they're significantly lower than market prices.

2. Suspicious Seller Accounts

Be cautious of sellers with limited or no reviews or those using generic usernames, as they could be fronts for fraudulent activity.

3. Unusual Payment Requests

Requests for payment through unconventional methods or third-party platforms not typically used by reputable sellers should raise suspicions.

4. Lack of Contact Information

Legitimate sellers usually provide clear contact information. If a seller lacks this or provides only an email address, it could be a red flag.

5. Rushed Transactions

Triangulation scammers may pressure buyers to complete transactions quickly, preventing them from conducting thorough research or due diligence.

6. Inconsistent Product Descriptions

Discrepancies between product descriptions, images, and specifications may indicate that the seller uses stolen content from elsewhere.

7. Shady Shipping Practices

Be wary of sellers who insist on shipping products to addresses different from the billing address, as this could be an attempt to conceal fraudulent activity.

8. Limited Purchase Options

Fraudsters may restrict payment options or only accept methods that are difficult to trace, such as wire transfers or cryptocurrency.

9. Lack of Customer Service

Legitimate sellers usually offer customer support channels for inquiries or issues. A lack of responsive customer service could signal a fraudulent operation.

10. Poor Website Security

Avoid websites with unsecured connections or suspicious URLs, as they may be phishing sites designed to steal personal or financial information.

Read More: Fraud Detection with Machine Learning & Artificial Intelligence in 2024

How To Detect And Prevent Triangulation Fraud?

To identify potential instances of triangular fraud, firms can:

1. Implement Data Enrichment

Utilize data enrichment tools to verify the validity of customer information, such as email addresses and IP addresses, to identify suspicious patterns, such as recently created accounts or conflicting billing and shipping addresses.

2. Employ Behavioral Analysis

Analyze customer behavior and transaction patterns to detect anomalies, such as multiple accounts associated with similar patterns or unusual purchasing behavior.

3. Utilize Device Fingerprinting

Device fingerprinting enables the monitoring of how users connect to the business website, including factors like VPN usage or unusual hardware setups, to identify potential fraudster patterns.

4. Consider Social Media Lookup

Verify the legitimacy of customer identities by cross-referencing information with social media and online platform profiles, identifying inconsistencies that may indicate fraudulent activity.

5. Enable Fraud Prevention Solutions

Deploy advanced fraud detection software like FOCAL Fraud Prevention solution that can adapt and evolve to detect new fraud schemes and patterns in real time, minimizing false positives and friction for legitimate customers.

Read More: Best Fraud Detection Software: 6 Companies Compared in 2024

Conclusion

Triangulation fraud poses a substantial risk in the modern digital realm, taking advantage of weaknesses in online transactions. It is imperative to comprehend its methods, identify its indicators, and establish effective strategies for detection and prevention to protect both businesses and consumers. It is worth noting that the utilization of artificial intelligence presents a promising approach to bolstering fraud detection capabilities, offering proactive defenses against emerging fraudulent schemes.