Triangulation fraud is a common type of online fraud that can cause significant financial losses for both buyers and sellers involved. It not only affects individuals but also impacts eCommerce platforms and their reputation.

This deceit involves three primary stakeholders: the fraudster impersonating as the seller, an unwitting buyer, and an innocent merchant. The fraudulent seller convinces the buyer to purchase a product from the legitimate merchant, but instead of delivering the item, he uses stolen credit card information or other deceitful methods to pay for it. In this way, the fraudster receives the money while directing all blame towards the innocent merchant.

How Does Triangulation Fraud Work?

The fraudster typically begins by listing popular or in-demand items for sale at attractive prices on online marketplaces. Posing as a legitimate seller, the fraudster accepts orders without keeping an inventory.

When a buyer places an order, the fraudster uses stolen payment information to purchase the item from a legitimate retailer and has it shipped directly to the buyer. The buyer receives the product and believes the transaction is genuine.

The problem arises when the cardholder discovers the fraud. They seek a chargeback, resulting in a complex scam that is challenging to trace back to the fraudster.

The Consequence of Triangulation Fraud

Triangulation fraud inflicts severe financial harm on merchants. They not only incur losses due to revenue and inventory depletion when chargebacks are claimed but are also exposed to the risk of recurrent frauds.

The domino effect of these events creates a cycle of revenue loss, price inflation, and legal entanglements. The estimated cost of triangulation fraud to eCommerce merchants is a staggering $1 billion per month.

Identifying & Stopping Triangulation Fraud

The answer to tackling triangulation fraud lies in merchants recognizing the telltale signs of suspicious activity. Regular transactions involving identical items originating from one mode of payment could signal a warning. Other signs may include:

• Unusually high volume of orders from a single customer or location.

• Frequent use of multiple shipping addresses for a single payment method.

• Orders placed with stolen or fake payment information.

• Discrepancies between billing and shipping addresses.

• Customers reporting receiving goods they did not order.

• High rates of chargebacks associated with specific accounts or transactions.

While detecting triangulation fraud is essential, prevention is paramount. Merchants should adopt a comprehensive fraud management strategy incorporating 3-D Secure 2.0 technology, address verification, CVV validation, geolocation, proxy piercing, blacklisting, and velocity checks.

The utilization of these anti-fraud tools significantly decreases the merchant’s susceptibility to deceit.

The escalating menace of triangulation fraud requires attention from merchants in the finance and payments industry. By gaining a thorough understanding of this fraudulent scheme, recognizing its indicators, and deploying robust preventive measures, businesses can safeguard themselves against financial loss and ensure sustainable operations.