E-commerce is fast-paced, competitive, and constantly changing. Digital tools such as mobile apps and wallets, cryptocurrencies, and fintech are contributing to the evolving fraud landscape.
During the COVID-19 pandemic, e-commerce fraud increased significantly around the world. Midsize and large general merchandise retailers clashed 70% more fraud attempts per month during the close of 2020 than before that. The types of ecommerce fraud that have seen an increase during the covid and post-covid landscape are account takeover (ATO), bot attacks, and unauthorized reselling.
In 2022, most of these fraud methods continue to cause merchants losses. However, as criminals become even more sophisticated, their fraud tactics are also evolving.
These are three of the most common eCommerce fraud challenges we’re seeing in 2022, according to Signifyd.ecommerce data report.
Account Takeover (ATO) is one of the most popular types of eCommerce fraud that retailers and consumers alike have been fighting for years. Essentially, it is an identity theft attack where criminals attempt to illegally access accounts through stolen credentials.
During the pandemic, ATO attacks had the largest increase (282%) and were taken advantage of by the evolving sophistication of criminals. While the total amount of all fraud losses was £43 billion in 2020, account takeover scams accounted for £34 billion of that cost, according to a study by Javelin Strategy and Research.
Fraudsters were not relying solely on stolen credentials in data breaches. “Identity fraud has evolved and now reflects the steps criminals will take to directly target consumers in order to steal their personally identifiable information,” said John Buzzard, principal analyst, fraud and security, with Javelin Strategy & Research. .
Automation and the increased use of bots expand the reach of ATO fraud, as fraud networks can quickly attempt to breach thousands of accounts. Not only that, but they are also finding their way into loyalty schemes. During the pandemic, increased loyalty fraud, as fraudsters easily targeted unattended loyalty program accounts. Loyalty points are just as good as cash and much less secure, providing fraudsters with the basis to steal, make purchases and sell the products or exchange them for gift cards.
The best way to protect your business from ATO fraud is to strengthen account access security through multi-factor authentication. A fraud protection solution that uses machine learning and automation will also help you prevent fraud.
The evolution of fraud methods does not end here. Fraud rings moved down the payment chain to more vulnerable links, and that’s how synthetic identity fraud or new account fraud (NAF) emerged.
Criminals create new and nonexistent identities by combining stolen and self-generated personally identifiable information. They enter a name and billing address, apply for a credit card, and then make fraudulent purchases. Criminals have even found a way to bypass biometric verification by using technologies that combine facial features to create these new identities.
What they are taking advantage of is the fact that the early stages of the checkout process, like creating accounts and adding payment methods, are less scrutinized. Differentiation of synthetic identities is a main verification challengebased on 58% of medium and large retailers that sell digital goods.
FIS, a leader in financial technology and a strategic partner of Signifyd, commented: “In our recent Global Payments and Risk Mitigation Survey, the majority of merchants surveyed reported increases in account takeover and synthetic fraud over the previous year. As these and other new fraud trends emerge, protecting a merchant’s revenue requires intelligent and dynamic fraud protection throughout the payment lifecycle.”
Chargeback fraud is not a new thing, but it has definitely gained momentum due to the covid 19 pandemic as Strong Customer Authentication (SCA) reduces fraud within the payment layer. It’s been affecting both brick-and-mortar stores and e-commerce, but while in-store returns run in single-digit percentages, online returns can range from 25% to 40%, depending on the vertical. According to the National Retail Federation, in collaboration with Appriss Retail, 7.5% of online returns are fraudulent.
The types of chargeback fraud are becoming notoriously innovative. The most “innocent” type is the locker room. That’s when consumers buy high-end clothing and accessories, wear them, and then return them with the tags still on. Friendly fraud is when customers receive their items but then report them as an item not received (INR) and the merchant must pay the bill for a replacement while the customer receives an additional product. Recently, the shipment of a counterfeit copy of the product or an old or damaged version is gaining momentum.
During the pandemic, many retailers tried to provide a seamless customer experience and offered to issue a refund as soon as the return package was handed over to the courier and scanned. However, the scammers would fill the packages with items of the same weight to return them. For example, Maplin, a leading UK electronics specialist, has received beer cans instead of electronics. In another case, a potato replaced an iPhone, or old toys and candy stood for high-end electronics.
Return scams can cost retailers millions of euros each year. One way to mitigate this is to set limits on returns, clarify return policies, and issue a refund only once the item has been received. Investing in a chargeback abuse prevention tool that uses automation is the future of fraud prevention.
As scammers become increasingly sophisticated and innovative in their methods in 2022, it’s important to stay ahead of the curve to avoid losses. The key to this is making sure your fraud prevention strategy is strong.