How to Identify Potential Fraudulent Orders in E-commerce: A Step-by-Step Guide

Introduction: Why Identifying Fraudulent Orders Is Crucial for E-commerce Success

In today’s hyper-connected digital landscape, e-commerce fraud has evolved from a rare occurrence to a daily threat. Whether you're running a large-scale Shopify store or operating a lean dropshipping business, fraudulent orders can silently erode your profits, damage your reputation, and create chaos in your fulfillment systems.

According to industry research, e-commerce merchants worldwide lose over $20 billion annually to fraud-related activities. And that number keeps climbing. As online shopping becomes more mainstream, so do sophisticated scams involving stolen credit cards, chargeback abuse, and fake cash-on-delivery (COD) orders. These are no longer fringe issues—they’re central to operational risk.

Fraud Hits Harder in Dropshipping and Cross-Border E-commerce

While all e-commerce stores are at risk, dropshipping businesses and cross-border sellers are particularly vulnerable. Here’s why:

• Thin margins leave little room for loss recovery. One fraudulent order can wipe out the profits of several legitimate ones.

• Lack of inventory control (common in dropshipping) means sellers can’t intercept suspicious shipments once they’re processed by a third-party supplier.

• International logistics complexity makes return fraud or address manipulation harder to verify.

• Trust gap with foreign customers increases the need for accurate and proactive fraud detection.

Moreover, platforms like Shopify, WooCommerce, and BigCommerce offer flexibility but place the burden of fraud prevention squarely on the seller. And as TikTok Shop and social commerce platforms emerge, sellers are expanding into even less regulated environments—where fraudsters are quick to take advantage.

COD Orders: A Growing Threat

The Cash on Delivery (COD) model, still popular in many Asian, Middle Eastern, and Latin American markets, is a double-edged sword. It removes friction at checkout and boosts conversion—but also opens the door to:

• Fake addresses

• Customer refusal upon delivery

• Mass returns

• Logistics costs with zero return

If you're running COD campaigns in countries like India, Indonesia, or the Philippines, you likely already face double-digit return rates on such orders—many of them from non-serious or even malicious buyers.

A Shift in Strategy Is Needed

The old adage “sell more, worry later” no longer holds up. To build a sustainable e-commerce business, recognizing and responding to fraudulent signals before fulfillment is non-negotiable. Whether you're a solo dropshipper or a growing DTC brand, investing in fraud detection will:

• Protect your bottom line

• Increase trust with payment processors and customers

• Reduce chargebacks, disputes, and reputation damage

• Improve long-term profitability

This guide will walk you through everything you need to know to spot, analyze, and prevent fraudulent orders—backed by real-world examples and step-by-step recommendations.

Ready to make fraud detection a core part of your store's success strategy?

Let’s begin with the most common signs of fraudulent behavior.

Common Types of Fraudulent Orders in E-Commerce

Before you can stop fraudulent orders, you need to understand how they manifest. Fraud isn’t always obvious. Often, it’s hidden in plain sight—camouflaged by what appears to be a legitimate transaction. Below are the most common types of fraud that e-commerce sellers, especially dropshippers and international merchants, frequently encounter.

Stolen Credit Cards and Fake Card Generators

The most well-known type of fraud is also one of the most damaging: orders placed using stolen or fabricated credit card numbers. Fraudsters either purchase card details on the dark web or use tools to randomly generate valid card combinations.

Key warning signs include:

• Orders from new customers with no order history who place high-value orders.

• Multiple failed payment attempts before a successful one.

• Billing and shipping addresses that don’t match.

These scams often result in chargebacks, where the rightful cardholder reports the transaction as unauthorized. As a seller, not only do you lose the product, but you also get hit with chargeback fees and potential warnings from your payment processor (e.g., Stripe, PayPal, Square).

Order Farming: One Person, Many Addresses

A more subtle type of fraud is order farming—when a single person places multiple orders using different shipping addresses, names, or emails. Sometimes this is done to:

• Bypass purchase limits.

• Create artificial demand (for review manipulation).

• Receive free trial or discount offers multiple times.

In dropshipping, this tactic is often used by resellers or scam networks trying to stockpile products for resale in grey markets.

Be alert if you notice:

• Orders made in close succession (within minutes).

• Similar formatting or language across addresses.

• Repeated use of “gift” or “anonymous” options.

High-Value Orders with Suspiciously Cheap Shipping

Another red flag is when a buyer selects low-cost or untrackable shipping for an order that contains expensive items. For example:

A customer orders three $300 drones and selects untracked surface mail with 30-day delivery.

This behavior often signals:

• An attempt to resell the goods without leaving a trace.

• A plan to dispute the charge by claiming the item never arrived.

Legitimate customers buying high-value products usually prefer fast or trackable shipping for peace of mind. When this logic is broken, it’s a signal to investigate.

Misspelled Names or Addresses That Don’t Make Sense

Fraudsters often enter deliberately misspelled names or vague addresses to confuse fulfillment systems or hide their identity. Watch for:

• Addresses that contain random characters or typos.

• Names like "test," "asdf," or symbols.

• Shipping to known freight forwarding warehouses or virtual mailboxes.

You can cross-check addresses with Google Maps or postal databases to verify authenticity. Tools like FraudLabs Pro and NoFraud also flag address inconsistencies.

VPNs, Proxy Servers, and IP Spoofing

Many fraudulent orders come from users hiding their true location. This could involve:

• VPNs or proxies masking IP addresses.

• IP geolocation that doesn’t match the shipping country.

• Suspicious patterns like multiple users from one IP or bots using rotating IPs.

Advanced fraud tools can detect IP mismatches and alert you when an order from “New York” originates from an IP address in Nigeria or Russia.

Why These Patterns Matter

Individually, these signs might seem benign. But in combination, they reveal a pattern of abuse. Your job as a seller is not to assume the worst about every order—but to flag inconsistencies early, especially when multiple red flags appear in one transaction.

Step-by-Step Fraud Detection: How to Identify Suspicious Orders

While it’s impossible to eliminate all e-commerce fraud, having a structured fraud detection process can significantly reduce your exposure. Whether you're running a small Shopify store or a high-volume dropshipping operation, this step-by-step guide can help you spot red flags early—before you ship.

Check 1: Is the Billing Address the Same as the Shipping Address?

One of the first and most important checks is to compare the billing and shipping addresses.

• If they match, the risk is generally lower.

• If they differ—especially across countries—it may indicate a stolen credit card being used to ship elsewhere.

That doesn’t mean all mismatches are fraudulent (e.g., gifts), but it should trigger closer inspection.

Pro tip: Look for patterns—if multiple orders use the same billing address but different names and shipping addresses, you may be looking at order farming or triangulation fraud.

Check 2: Does the IP Address Match the Shipping Country?

Modern fraud detection tools can geolocate the IP address of the customer. If the order claims to be from California but the IP is based in Russia, that’s a huge red flag.

High-risk indicators:

• IP country ≠ shipping country

• IP belongs to a known VPN or proxy service

• Suspiciously low ping/latency (suggesting bot activity)

You can use apps like MaxMind, FraudLabs Pro, or Shopify Fraud Insights to flag IP inconsistencies automatically.

Check 3: Are There Multiple Orders in a Short Timeframe?

Fraudsters often act quickly to avoid detection. Look for:

• Multiple high-value orders from the same customer/email within minutes or hours.

• Different names or addresses, but same IP or email pattern.

• Repetitive item selections (e.g., always choosing the same expensive variant).

This behavior could be linked to resale attempts, credit card testing, or coupon abuse.

Check 4: Is the Email Domain Suspicious?

Fraudsters rarely use mainstream or business-associated emails. Instead, they opt for:

• Temporary email services (like mailinator.com, yopmail.com)

• Domains with random strings (e.g., abc123@zzvvx.com)

• No previous order history

A good practice is to flag all free or disposable email domains, especially if the order is unusually large or urgent.

Check 5: Is There Evidence of Proxy or VPN Usage?

Advanced fraud tools can detect:

• Anonymized IPs

• Proxy servers or tor-based access

• Sudden changes in browser fingerprinting

A VPN alone isn’t proof of fraud (many users use them for privacy), but combined with suspicious behavior, it strongly supports the case for manual review or delay in shipping.

Check 6: Does the Order Match Previous Customer Behavior?

For returning customers, compare the new order with their purchase history:

• Is the order value abnormally high?

• Are they ordering from a new country or device?

• Has their return/refund pattern changed?

If you're using tools like Shopify Plus, Klaviyo, or Segment, you can tag high-risk behavioral changes and send alerts for further manual inspection.

What to Do When a Suspicious Order Is Flagged

Don’t cancel immediately. Instead:

1. Send a verification email requesting confirmation or ID proof.

2. Delay shipment and monitor for chargeback activity.

3. If using a platform like Shopify, mark the order as high risk and review payment details carefully.

4. Contact your payment processor if in doubt—they often have more data behind the scenes.

Using Tools to Detect Fraud: Automating Your Defense

As your business scales, manually reviewing every order becomes impossible. That’s where fraud detection tools come in. These platforms use a mix of machine learning, real-time data, and risk scoring to help you flag and prevent fraudulent orders—before they cost you money.

Let’s look at some of the most effective tools and platforms dropshipping merchants can integrate today.

Shopify Fraud Analysis: Built-In and Easy to Start

If you’re on Shopify, you already have access to a basic but useful feature: Shopify Fraud Analysis.

This tool gives each order a fraud risk level (low, medium, or high) based on internal data and risk factors such as:

• Mismatched billing and shipping addresses

• Multiple failed payment attempts

• IP-country mismatches

• Use of anonymous proxies or VPNs

Each flagged risk is listed in the order timeline. It’s free and automated, but it’s best used as a starting point, not your only line of defense.

Top Anti-Fraud Apps for Shopify Stores

For more comprehensive protection, many store owners turn to dedicated anti-fraud plugins. Some of the most trusted options include:

1. Signifyd

• AI-driven fraud scoring

• Offers 100% chargeback protection for approved orders

• Integrates seamlessly with Shopify and BigCommerce

• Best suited for medium to high-volume stores

Signifyd will not only flag risky orders—it will cover the cost of fraud if they approve and get it wrong. That’s a powerful guarantee.

2. NoFraud

• Real-time order screening

• Offers manual review support

• Covers chargebacks in eligible cases

• Great for both domestic and international sellers

Its lightweight integration makes it a favorite for dropshippers with complex supply chains.

3. FraudLabs Pro

• Offers a free tier, perfect for small businesses

• Features include geolocation validation, email domain reputation, and device fingerprinting

• Can auto-cancel or flag orders based on customizable rules

This tool is ideal for stores that want customizable fraud rules without a large price tag.

Enhancing Detection with Google Analytics

While not designed for fraud detection, Google Analytics can provide valuable behavioral signals:

• Bounce rate spikes on checkout pages

• Sessions with abnormally fast navigation from landing to payment

• Customers returning multiple times from different devices/IPs

Pairing this data with Shopify reports gives you contextual insight beyond what automated fraud systems can detect.

IP Quality and Blacklist Check Tools

Fraudulent activity often originates from bad IP blocks or blacklisted proxies. Here are some tools to help:

• IPQualityScore (IPQS): Scores IPs based on reputation, bot activity, and fraud history.

• MaxMind: Offers IP geolocation + fraud detection database.

• Scamalytics: Useful for analyzing VPN, bot, or fake traffic risks.

You can integrate these APIs into your backend or use them in tandem with email capture forms and checkout pages.

Best Practices for Using These Tools

1. Layer your defense: Use Shopify’s native fraud analysis plus one advanced app (e.g., NoFraud).

2. Avoid false positives: Don’t auto-cancel everything marked risky—use manual review queues.

3. Set rules and thresholds: Tailor fraud filters to your product type, pricing tier, and geography.

4. Review analytics trends: A sudden spike in high-risk orders could indicate a bot attack or testing run.

With the right tools in place, you can detect, prevent, and even recover from fraudulent activity—without slowing down your operations or losing good customers.

Strategies for Handling Potential Fraudulent Orders

Even with automated tools in place, your team will occasionally face suspicious transactions that slip through the cracks. Knowing how to respond when you detect a red flag can mean the difference between stopping a costly chargeback or losing money—and possibly your payment processor account.

Here are proven, low-risk strategies to handle potentially fraudulent orders in a way that protects your store without damaging customer experience.

1. Manually Cancel Orders Before Shipment

If you spot signs of fraud—like mismatched addresses, VPN use, or email anomalies—your safest first move is to manually cancel the order before it’s processed.

• Use polite, professional language like:
  “We were unable to verify your payment details. Your order has been canceled and fully refunded.”

• Never ship an order if any part of it feels suspicious, especially if it involves high-value items or international shipping.

• Document all communications in case of future disputes.

This proactive step helps avoid product loss, shipping costs, and chargeback penalties.

2. Launch a Manual Verification Process

For medium-risk orders—where you're unsure if it's fraud or just an unusual customer—consider a manual verification process.

Common steps include:

• Phone call verification: Politely call the buyer to confirm the order.

• Email confirmation: Ask the customer to respond from their original email or verify shipping details.

• ID verification (for high-value orders): Some stores request a photo of the buyer holding their ID or credit card with numbers blurred except last four digits.

Warning: Only use ID checks for very high-risk, high-value transactions and ensure you're following privacy and data protection laws (e.g., GDPR, CCPA).

3. Set Order Value Thresholds

Set automated alerts or review rules based on:

• Order value (e.g., anything over $200 flags for review)

• Number of items

• Unusual shipping destinations

• Express shipping paired with risky behavior

Many e-commerce platforms and plugins allow this logic to be built into your checkout or fulfillment system.

By defining a “needs review” threshold, you avoid blocking normal customers while protecting yourself from loss on outlier transactions.

4. Add Verification to the Checkout Process

To deter fraud from the beginning, consider implementing light anti-fraud verification steps in your checkout flow:

• CAPTCHA fields to block bots and card testers

• Require matching billing and shipping addresses for first-time buyers

• ZIP code validation and IP geolocation checks

• Real-time card validation or 3D Secure (3DS) for credit card transactions

These steps can filter out automated attacks or careless fraudsters without hurting genuine customers too much.

Pro Tip: Segment Your Risk Response

Rather than using a blanket “cancel or block” policy, it’s more effective to segment orders by risk level:

This system ensures you don’t lose potential customers by overreacting, but also don’t become a victim of increasingly sophisticated scams.

Prevention First: How to Build a Safer Checkout and Payment Environment

Fraud prevention shouldn’t begin after the order is placed—it starts with a secure and well-configured checkout process. By setting smarter payment and order rules upfront, you drastically reduce the risk of dealing with high-risk transactions in the first place.

Here’s how to create a checkout and payment setup that catches fraud before it costs you.

1. Block Orders With Mismatched Billing and Shipping Addresses

One of the most common red flags in e-commerce fraud is when the billing address and shipping address don’t match. This mismatch often suggests:

• Use of a stolen credit card

• Drop-off locations or reshipping services

• A fraudster attempting to avoid traceability

Best practices:

• For first-time customers, require the billing and shipping addresses to match.

• Allow exceptions only for verified repeat customers or after manual approval.

• Use Shopify or third-party apps to automatically flag mismatched address orders for manual review.

This alone can prevent a large share of chargebacks and fake orders.

2. Restrict Orders From High-Risk Countries or Regions

Certain countries have consistently high fraud rates, especially when it comes to digital goods, luxury products, or dropshipped items.

Here’s what you can do:

• Disable shipping to high-risk regions unless you have a trusted fulfillment method.

• Use IP-based geolocation tools to block or flag users whose IP doesn’t match their country of delivery.

• Inform legitimate customers from restricted regions to contact support for manual verification.

Tip: Shopify and most major payment providers allow country-based restrictions, and many anti-fraud plugins come with pre-built risk region filters.

3. Implement Real-Time Risk Screening Systems

Don’t rely solely on Shopify’s basic fraud score. Instead, integrate dedicated risk monitoring systems that can analyze:

• Velocity behavior (e.g. number of failed payments within minutes)

• Proxy/VPN usage

• Device fingerprinting

• Abnormal purchasing patterns

Popular tools include:

• Signifyd

• NoFraud

• SEON

• FraudLabs Pro

These platforms provide dynamic fraud scoring, meaning each transaction is given a risk score before payment is fully processed, giving you a chance to act.

4. Partner With Payment Processors for Better Fraud Protection

Your payment gateway is your first line of defense—and choosing the right one matters.

Make sure your provider offers:

• 3D Secure (3DS) authentication for credit cards

• Chargeback protection programs

• Built-in fraud screening tools

• Transparent case handling in the event of disputes

For example:

• Stripe Radar automatically flags suspicious payments and blocks known card testers.

• PayPal Seller Protection covers eligible items shipped with tracking and proof of delivery.

• Shopify Payments includes chargeback insights and some risk scoring, but you may need more advanced tools for scaling.

Building a good working relationship with your provider also helps in resolving fraud disputes faster and improving payout security.

Bonus: Automate Preventive Flags

Here’s a sample logic you can automate via Shopify Flow or 3rd-party plugins:

This kind of automated pre-check helps scale securely, especially as your order volume grows.

Conclusion: Don’t Let Fraudulent Orders Destroy Your Profits

E-commerce fraud is an unfortunate but unavoidable reality—especially in dropshipping and cross-border businesses. However, while you may never eliminate it entirely, you can significantly reduce your exposure with the right mindset and systems in place.

Fraud Isn’t Random—It Follows Patterns

Most fraudulent orders display clear warning signs—whether it’s mismatched addresses, anonymous IP usage, or unusual buying behavior. With vigilance, even small teams can spot and stop many bad actors before they cause damage.

Automation + Human Oversight = Strong Defense

Relying solely on automation or solely on manual checking is risky. The most resilient stores use a hybrid fraud prevention strategy, combining:

• Automated risk scoring tools (like Shopify’s Fraud Analysis or FraudLabs Pro)

• Custom rule sets that reflect your niche and buyer behavior

• Manual review of flagged transactions, especially for high-value or suspicious orders

This dual approach allows you to maintain order flow without compromising on safety.

Budget for Risk—Don’t React in Panic

Just like shipping fees or customer support tools, fraud management should be a regular line item in your operational budget. That includes:

• Premium fraud detection apps

• Dedicated team members or virtual assistants for manual reviews

• Dispute management training or external chargeback services

Thinking ahead turns fraud from a profit killer into a manageable risk.

In summary, protecting your store from fraudulent orders isn’t just a technical job—it’s a strategic responsibility. The earlier you invest in robust systems, the more confidently you can scale without fear of being blindsided by theft, chargebacks, or loss of trust.

Stay sharp. Stay protected. And don’t let fraudsters define your store’s future.