This year, we are expecting merchants to experience a longer holiday shopping season. Unfortunately, that will likely come with elevated fraud rates too. Consumers reportedly started making seasonal purchases earlier than usual this year, taking advantage of annual sales and discounts. With inflation rapidly impacting every market, shoppers are aggressively hunting for the best possible prices to deal with rising costs, while still obtaining specific gift items. Because of this increased economic tension among shoppers, they’re going to flock to merchants with the most competitive prices.
Despite ongoing supply chain issues and inconsistent inventory, consumers are willing to wait in order to maximise their spend, and will often reduce non-gift spend for the sake of having a better holiday experience.
In this disrupted environment, fraudsters rush to take advantage of consumers’ need for deals to deploy scams designed to collect fraudulent sales or PII – often both.
The focus for fraud teams this season – and during every holiday shopping period – should be gift card fraud, in addition to account takeover (ATO). Gift card scams are popular because they’re a common purchase during this time and lack proper security features. Additionally, consumers often don’t spend the funds right away, giving fraudsters more time to attack.
Account takeover attacks have steadily grown in scale and sophistication over the past few years. Sift found an alarming 131% rise in ATO attacks in the first half of 2022, a trend set to accelerate over the holidays. Even a single account breach can have long-term impact on a brand – 43% of consumers said they would stop using a site or app if their associated accounts were compromised by ATO.
Despite spending projections being lower this year, merchants will still deal with higher order volumes than they do during the rest of the year and may have fewer employees to handle the oversight. That’s especially problematic if the organisation recently experienced layoffs, had to put a cap on budget, or saw unusually high customer churn as macroeconomic conditions changed. Because holiday shopping typically takes place on known, individual days and during specific shopping hours, fraudsters know they’ll have an easier time staying undetected if they target seasonal transactions.
Retail will remain in the crosshairs, especially as companies look to shed inventory. Travel and hospitality are also expected to have their best year in recent memory thanks to easing pandemic concerns. So, while rising fraud in retail would always be predictable given the time of year, the reason for fraudster’s interest in specific verticals, and the way they exploit those verticals, will change based on how the economic and geopolitical landscapes continue to shift.
Less typical holiday targets – like fintech and on-demand services – have recently seen upticks in account takeover fraud, too, and are expected to feel ongoing strain due to market conditions. ATO rates rose by 71% and 39% YoY in those verticals respectively, with a 79% spike in crypto alone.
Firstly, merchants need to maximise what they already have. If existing policies and procedures haven’t been scrutinised recently, now is a fantastic time to review them. Strip away the extraneous and focus your fraud efforts on where you know you can get the most ROI.
Automation is also key here. In lieu of human power to fight fraud, leveraging technologies like machine learning is critical to managing holiday volumes, especially considering the longer holiday season we’re expecting this year.
Simply put – by learning in real time. If we are operating in a fluid and changing macro-environment, we need technology that adapts in kind. Having the most up-to-date understanding of what is truly fraudulent or legitimate allows us to precisely deploy experiences to the right people. Customers get a more pleasant experience, while fraudsters get the opposite.
Sift also drives significant revenue by securing the accounts customers have with businesses. Most merchants provide customised offers and rewards in their apps, often paired with stored payment credentials to expedite checkout. This is especially important at this time of the year for consumers to get their hands on limited releases and take advantage of flash sales – which are attractive to buyers on a budget. By ensuring access to the accounts that are authorised and trusted, merchants can confidently secure and serve their customers with every engagement.
It feels early, but we should all be preparing for the PSD3 legislative draft coming early next year. While it won’t be as monumental a task as adopting PSD2 was in the first place, the expected clarifications and updates will affect how we manage payments and customer authentication moving forward. For that reason, optimising your fraud operations with a focused digital trust and safety strategy, and adding automation to your tech stack, will prove extremely helpful as businesses adapt to PSD3.
This editorial is part of The Paypers' Fraud Prevention in Ecommerce Report 2022-2023, 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.
Jane Lee is a Trust and Safety Architect at Sift who specialises in malicious websites, spam, misinformation, account fraud, content abuse, chargebacks, and payments risk. Prior to joining Sift, she was at Facebook and Square, and also spent some time as a private investigator. She is passionate about designing and operationalising systems for detection and enforcement of fraud at scale.
Sift is the leader in Digital Trust & Safety, empowering digital disruptors to Fortune 500 companies to unlock new revenue without risk. Sift dynamically prevents fraud and abuse through industry-leading technology and expertise, an unrivaled global data network of 70 billion events per month, and a commitment to long-term customer partnerships. Global brands such as DoorDash, Kickstarter, Wayfair, and Blockchain.com rely on Sift to gain a competitive advantage in their markets.Visit us at sift.com and follow us on LinkedIn.
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