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.
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.
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.
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.
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.
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.
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.
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