The Fraud Hiding in Email Signups

"Chargebacks The primary risk to ecommerce shops comes from chargebacks. When a cardholder disputes a fraudulent transaction, the store loses the sale, the product, shipping costs, and often incurs additional fees from processors. Repeated disputes may even jeopardize the business's relationship with its payment processor. A seller can feel helpless, since the processor authorized the transaction in the first place, but holds shops responsible for accepting stolen card numbers."

"Fraudsters use fake but valid email addresses to create accounts at scale to extract promotional value. Automated scripts submit thousands of signups, collect welcome discounts, and then abandon the accounts once the incentive is redeemed. The losses from coupon abuse are massive, as much as $89 billion per year, depending on the source, and likely impacting most ecommerce businesses that offer promotional discounts."

Organized fraudsters create large numbers of accounts using valid-looking but fake email addresses to perform low-value card testing that verifies stolen payment details before larger purchases. Such testing leads to fraudulent charges and chargebacks that cost merchants the sale, the product, shipping, processor fees, and can threaten payment processor relationships. Fraudsters also use mass-created accounts to extract and resell promotional discounts by claiming welcome coupons and abandoning accounts after redemption. Coupon abuse generates massive losses — estimates reach as high as $89 billion per year — and likely affects most ecommerce businesses that offer promotions. Fake accounts are difficult to detect at scale.

Read at Practical Ecommerce