The lay of the fraud land: Q&A Session with merchants - Series II

How has the pandemic influenced the level of fraud?

Cristián Barros, Head of Fraud Prevention at Cornershop by Uber

The pandemic forced many first-time buyers to shop online, and this influenced greatly how we manage fraud. Machine learning models were stressed to the limit due to an enormous volume of first-time buyers (with limited information available). But the quantity of fraud was not the only issue: merchants also started to notice faster changes in fraudsters’ behaviour. For instance, at the beginning of the pandemic, fraudsters were focused on placing fast orders with new accounts, hoping to get lost in between those good customers. As companies understand these behaviours, we could see new and more sophisticated modus operandi, with ’dormant account’ fraud and coordinated ATOs as frequent examples. The main challenge that any merchant is facing right now is identifying and preventing these fraudsters from buying while still offering the best customer experience for the first time to genuine buyers.

Pamela Cronin, Senior Payment and Fraud Manager at Insparx

In the online dating industry recurring subscriptions are part of our business. Since the pandemic started, we have begun to see an increase in friendly fraud. Customers began to chargeback transactions either because they had not cancelled their subscription or because they were in need of more funds. As people were suddenly unemployed or did not have their usual amount of disposable income, the volume of friendly fraud surged. As the months progress, we see a decrease in this trend because people are getting back to work.

Stephan Spijkers, Co-Founder at PIMVendors

Though in absolute terms the level of fraud has increased slightly, on a relative level, it has significantly decreased. We see a ‘hard-core’ group of fraudsters that try to abuse our platform but this group stays relatively stable: we see the same 5-10 fraudsters trying with different tactics, new fraudulent credit cards or delivery addresses. Our growth, spurred by the pandemic, has increased the influx of new customers by up to 500%. With more customers comes more fraud, but from a percentage level it has always been below 2-3%.

Ravi Purohit, Associate Director, Products at Rakuten

Ecommerce has seen unprecedented growth in the last couple of years. Due to the pandemic, many businesses have gone digital, riding on much trust shown by the new online customers. Once that shift has been made for both merchants and customers, it will stay here for the future by increasing the overall size of the pie forever.

All this attention has made ecommerce the sweet target for fraudsters too. The overall rise across the fraud categories is proof of that.

With more than a third of the workforce going remote with new technologies in response to the pandemic, a new category of compromise business email (BEC) fraud has been discovered. In this one, the fraudster sends an email from a source that appears to be familiar, i.e. vendor, bank, merchant, or high-level employee, requesting an urgent money transfer or information sharing. This involves fraudsters’ social engineering techniques to pry their way into business payment systems.

Juan Pablo Ortega, Co-Founder at Rappi

While the pandemic has accelerated the adoption of mobile and online payments, this has also created an opportunity for fraudsters to commit more fraud. As a result, companies have been forced to implement more security features like two-factor authentication.

Elena Chen Michaeli, Fraud Fighter at Shutterstock and MRC Education Committee Member at Merchant Risk Council

Inevitably, the pandemic caused drastic changes in the economy and recession. Inflation is also undeniable, but I would like to point out another concern that I believe is being underestimated financially – as a result of the lockdown, the basic need of the population for social contact has caused social media interaction to rise tremendously, in all age groups. Fraudsters took advantage of this increase in audiences by using emotions and abusing the information shared on these social media applications.

This information allows diligent and very perceptive fraudsters to hack, steal identity information (including payment details) so much easier than five years ago. The information gathered can be used for that purpose towards individuals and businesses in ecommerce, health, finance, and other sectors, such as government agencies. Fraudsters may do it for sheer enjoyment, and then sell the information (e.g. payment card numbers, log-in details for bank accounts, merchant accounts, and so on) on the dark web.

Yassamine Taghilou, Anti-Fraud Manager at Vestiaire Collective

Unemployment and economic difficulties motivate people to turn to crime and with online fraud, they usually don’t feel like a criminal. Users commit fraud by opening unreal disputes to get any advantages such as refund and compensation vouchers or they try to find a way to abuse promo for first orders under multiple accounts.

Many carriers have suspended signature requirements because of the COVID-19 pandemic, so fraudsters can take advantage of delivery and return events without signature. Moreover, friendly fraudsters can open a claim because nobody signed for their package and get it for free by asking for reimbursement.

Elena Emelyanova, Senior Payments and Fraud Manager at Wargaming.net

The level of fraud obviously surged, however it was softened by the increased volumes in general. Once the pandemic started, the enormous sales volumes could be compared to seasonal peak times. When it comes to fraud protection, the only mistake a merchant could do was to relax the risk rules, which opened the door to fraud. The key was to keep the balance and adapt, which is, of course, achievable, but requires time. 

In general, any new environment is usually followed by a fraud wave with a more sophisticated logic or higher focus on a specific industry. I doubt that anybody was surprised to see increasing numbers of fraud levels starting from mid-2020. The pandemic seems to have created a new environment for the whole ecommerce ecosystem and all industries within, which impacted selectively the growth and degradation of both businesses and fraud.

Omer Shatzky, Head of Billing & Payments at Wix

Merchants were adopting online payments without fully understanding the challenges and risks of payments processing. For example, on Wix Payments, we saw an increase in delicatessens moving to online ordering services, event organisers hosting virtual events, and yoga teachers providing classes on-demand.

In many cases, this new generation of merchants moving their businesses online was not aware of such instances of, let’s say, a chargeback and how to handle a dispute. Because of that, we saw a rise in chargebacks against legitimate merchants who were not accustomed to providing online services and were lacking the right approach of how to handle them properly.

These merchants are not scammers, but because they lacked sufficient services, they experienced increased customer dissatisfaction. 

At Wix Payments, we know that the payments world can be challenging to navigate so we are proactively reaching out to our merchants to educate them on how to properly handle and prevent instances like chargeback to begin with, by using best practices, our online knowledge base, and workshops.

This editorial is part of the The Fraud Prevention in Ecommerce Report 2021/2022, the ultimate source of knowledge that delves into the evolutionary trail of the payments fraud ecosystem, revealing the most effective security methods for businesses to win the battle against bad actors.