Voice of the Industry

Navigating holiday shopping fraud: from friendly fraud to emerging trends

Wednesday 20 December 2023 10:59 CET | Editor: Irina Ionescu | Voice of the industry

Jordan Chavis from the MRC discusses the challenges of the on-going holiday season and how merchants need to mitigate friendly fraud and chargebacks to keep the phenomenon to a minimum and not cause extra friction to the trustworthy shoppers.

The holiday season is synonymous with joy, giving, and a significant uptick in online shopping. This festive period, while lucrative for merchants, also brings a surge in various forms of fraud that pose significant challenges for both consumers and businesses. Holiday shopping is in full swing, and understanding and preparing for these risks is crucial.

Understanding friendly fraud

Friendly fraud, a misnomer, occurs when a customer disputes a legitimate charge on their credit card, often claiming it as unauthorised. During the holidays, this trend tends to intensify. There are a few reasons why — the sheer volume of transactions can lead to genuine confusion over card statements, and impulsive holiday purchases may result in buyer's remorse, prompting some consumers to dispute charges rather than return items. This type of fraud puts merchants in a tough spot, balancing customer satisfaction with financial losses.

Emerging fraud trends in the holiday season

This season has also seen the emergence of sophisticated new fraud trends. Here are some of the fraud types merchants will currently face during the last months of 2023:

Sophisticated phishing scams. These scams have become more elaborate, with fraudsters creating convincing fake websites, SMS messages, and emails mimicking popular brands to lure unsuspecting holiday shoppers.

Rise in account takeover (ATO) incidents. With more consumers shopping online, hackers are increasingly targeting user accounts on ecommerce platforms and using stolen credentials to make fraudulent purchases.

Social media and influencer scams. The rise of influencer marketing has created new avenues for fraudsters, creating fake influencer accounts or hacking legitimate accounts to promote fraudulent products or steal personal information.

The rise of AI. 2023 was the year when OpenAI’s ChatGPT became available to the masses, and the ability to mimic human text has become second to none. Leveraging the new use cases of AI, any fraudster can now write a convincing conversation to trick a suspecting victim within a matter of seconds. Sophisticated attackers have been able to create entire AI agents to scale their schemes –  which is something to watch out for in 2024.

Impact on merchants and consumers

The impact of holiday fraud is far-reaching. Merchants not only face direct financial losses but also endure increased operational costs and potential harm to their reputation. Consumers, on the other hand, are at risk of financial loss, identity theft, and the psychological toll of dealing with fraud.

Strategies for prevention and detection

Combating these threats requires a multi-faceted approach. On the one hand, merchants need leverage technology to analyse transaction patterns that can help in early detection of fraudulent activities. At the same time, informing customers about safe shopping practices and how to recognise scams can become a powerful tool in preventing fraud. Moreover, this could prove a great brand building tool too for merchants looking to boost their online image and drive capital.

Consumers should also be vigilant about where and how they shop online, always ensuring they are on a legitimate website, using secure payment methods, and a password manager whenever possible.

Looking ahead: preparing for post-holiday fraud analysis

The end of the holiday season doesn't mean the end of fraud awareness. Post-holiday fraud analysis is crucial for businesses to understand emerging patterns, identify weaknesses in their fraud prevention strategies, and prepare for the next big shopping season. Using the right tools and strategies for this analysis can provide useful insights.

As we navigate this holiday season, staying informed and proactive is key to mitigating the risks of fraud. Both merchants and consumers have a role to play in ensuring a safe and joyful shopping experience. Let's embrace the festive spirit with a vigilant eye.

About Jordan Chavis

Jordan is a self-proclaimed payments nerd who began his career in payments at Spreedly, a payments orchestration platform. Now, he's focused on educating others and spreading awareness of MRC, a global non-profit membership association for payments and fraud prevention professionals.

About MRC

The go-to place for ecommerce payments and fraud professionals across the globe! Established in 2000, the MRC is a global non-profit membership association for payments and fraud prevention professionals. The power of MRC membership lies in staying connected, current, and empowered to influence and transform the industry.

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Keywords: chargebacks, friendly fraud, holiday fraud, ecommerce, fraud detection, online fraud, payment fraud, first-party misuse, generative AI, artificial intelligence, scam, account takeover, phishing, online shopping
Categories: Fraud & Financial Crime
Companies: MRC
Countries: World
This article is part of category

Fraud & Financial Crime


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