Ecommerce is the story of evolution, and with that comes evolving fraud. As ecommerce sales channels continue to expand, so do the channels for potential fraud. Many large organisations are seeing increased costs of fraud, with merchants surveyed in a global study claiming to lose an average of USD 3.7 million annually on fraudulent online transactions alone. Techniques are evolving to lower the barrier to entry for scammers, as tech companies and even consumers become unwitting participants. Merchants arguably have the most to lose, as they too often have to choose whether to minimise friction and maximise sales or get a handle on chargeback rates.
Against this backdrop, merchants need to take ownership of their digital storefront, which includes making difficult decisions and trade-offs to drive down fraud. If a merchant takes a more proactive approach to managing fraud, they may increase bottom-line profits even while increasing the steps for order placement, such as requiring additional fields of information, or requiring consumer registration.
Fraud is going mainstream. Whereas once activity was confined to the sewers of the dark web, today, nefarious activity is happening in plain sight. Cybercriminals realised that to make a large volume of stolen money they could advertise on the clear web via anonymous social handles and assorted activity on other legitimate sites.
For budding fraudsters, there is a large and sophisticated supply chain that can help lower the barrier to entry. Chatbots can deliver stolen card numbers over social media apps. Reviews are posted by existing fraudsters. Discord chat windows deliver real time customer service and support. Fraudsters can access not only stolen card data but also how-to guides and videos to walk them through fraud techniques.
At the same time, typical consumers are helping make a bad problem worse by turning a blind eye. These consumers are less inclined to apply the moral filter they may once have had, for a couple of reasons. First, the cost-of-living crisis is putting pressure on everyone to do more with less. This means snapping up bargains online even if they may come from dubious sources.
Secondly, because consumers are one step removed from the actual fraud, they don’t feel like, or choose not to feel like, they are willing participants. They are not buying stolen card data, they are just buying a product previously purchased with that data, at a substantial discount. A quick search onto any web search aggregator, you may see dozens of listings to buy accounts which are effectively stolen from marketplaces, delivery services, or streaming providers, or other online accounts. The seller may even give instructions on how to use the account, such as getting deliveries sent to a neighbour’s address or short-term rental, perpetuating what is called Fraud-as-a-Service.
In addition to consumers becoming desensitised to fraud, tech companies who guard our personal data are unwittingly making things easier for the bad guys. EU’s GDPR and similar legislation like CCPA in California emphasised on data protection and personal privacy. Yet, the unintended consequence of that could be now fraudsters have the required tools to obfuscate their identity. At the click of a button, one can activate features to prevented masking their IP address or email and, while this protects the privacy of legitimate customers, it could also make it harder for merchants to discern the scammers.
There has always been a trade-off between friction and fraud. Reduce the former too far in the payment process, in order to increase authorisation rates, and the latter might surge. But taking more effective fraud prevention measures may lead to increased friction, and this is where advanced solutions help to minimise this rise.
Many merchants don’t want to acknowledge this. They refrain from requesting data such as email addresses and phone numbers or requiring users to go through 3D-Secure checks to increase their profits. Unfortunately, the tactical nightmare scenario for these merchants is not a concern for high chargeback rates, but potentially losing lucrative customers to a competitor, never to return because there was too much payment friction.
If merchants experience continued high volume of chargebacks or fraud, they may experience global card issuers such as Mastercard and Visa putting them on a watch list which may eventually result in monthly fines. Now, the nightmare scenario becomes the risk of restricted from offering credit cards as a payment option. Online fraud is a problem that can’t be ignored.
Fraudsters are continuously innovating to circumvent existing protections. Emerging AI-powered technologies like voice cloning and deepfake videos threaten to undermine existing biometric authentication solutions. As fraudsters continue to find weak points in our payments process, solution providers must continue to evolve and leverage AI. It would help if the industry came together to share more of its expertise to work out the most effective techniques for combatting fraud, such as encryption.
To best address fraud means that businesses should be thinking long-term and strategically rather than short-term and tactically. They need to understand long term business goals to best define their risk tolerance. They should care about fraud risk in their storefront to better reduce the risk of card issuer penalties and revenue lose.
Taking ownership of your checkout process means making the best-informed decision for your brand. It could mean deploying 3D Secure, which is an additional security layer for online credit and debit card transactions, registering new customers properly during their first purchase, or using a built-in solution like the business solutions PayPal offers—which leverage a huge breadth and volume of data from its two-sided network and apply intelligent algorithms to spot sophisticated fraud patterns. Simply by working out how transaction data is tied to a particular PayPal account, and whether that account is in good standing, we have been able to prevent an incredible amount of fraud. It’s time to get to work.
At PayPal we're not just observing the way fraud is evolving – we're at the forefront of adapting to mitigate evolving fraud. By continuously innovating to support and drive new unified commerce experiences that cater to modern customer preferences, we’re ensuring businesses remain agile and responsive to changing fraud tactics.
To learn more about how PayPal is adapting to evolving payments challenges, download PayPal’s Evolving Payments ebook.
This editorial is part of The Paypers' Fraud Prevention in Ecommerce Report 2023-2024, the ultimate source of knowledge that delves into the world of fraud prevention, revealing the most effective security methods for companies to stay one step away from bad actors and secure their businesses.
Glenn leads the Solution Engineering Risk as a Service team at PayPal. With over 20 years of experience dedicated to providing fraud prevention, data protection, and information technology expertise to all verticals, Glenn lends his expertise to helping global merchants make the best decisions when it comes to safeguarding their businesses against evolving fraud. When he is not fighting fraud, Glenn likes to do carpentry and fly as a private pilot.
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