You have to give fraudsters some credit (no pun intended) – they understand the need to constantly change their tactics and strategies to evade fraud prevention specialists, and can bypass the strategies and solutions used to stop abuse and reduce risk. Fraudsters continually improve their methodologies to exploit new trends and circumvent safeguards that have failed to keep pace with the rapidly-changing ecommerce landscape.
Take credit card fraud, for example. Machine learning and global data networks have made it increasingly difficult for bad actors to use stolen payment information to commit fraud, but fraudsters are resourceful. Cryptocurrency, gift cards, in-app credits—all of these, as well as other alternative forms of payment, are increasingly being used to make purchases, and cybercriminals are now leveraging them as vectors of attack. Worse, they’re succeeding, because many companies are simply not prepared to handle the threat.
Sift, the leader in Digital Trust & Safety, recently partnered with Merchant Fraud Journal to survey fraud prevention leaders at some of the world’s leading brands to understand how they currently conceptualize the risk of this changing payments landscape. And the findings are a wake-up call for merchants that are either currently accepting alternative forms of payment or plan to in the future
The evolving payments landscape
The rise of cryptocurrencies has been well documented in recent years and, especially, recent months. In fact, the value of the entire cryptocurrency market now stands above USD 2 trillion. Unfortunately, fraudsters have taken notice. In 2020 alone, USD 1.9 billion was lost due to cryptocurrency crime.
But the risk associated with alternative payments like crypto isn’t dissuading people from adopting them. New research indicates that 42% of millennials and 35% of Gen Z feel confident using at least one form of alternate payment method. And Mastercard recently published a cryptocurrency survey that found 40% of consumers across the Americas, Asia, Middle East, and Africa plan to use crypto to purchase something within the next 12 months.
To be clear, credit card usage isn’t going anywhere and is still the dominant form of payment online and in-store for much of the world. But there’s no denying alternative payment sources are becoming widely adopted by consumers and businesses. So why are so many merchants ill-prepared for the risk that is associated with them?
Ready for alternative payments, not ready for the risk
To get a feel for merchant preparedness when it comes to alternative payment sources, we asked fraud leaders about their current plans for accepting crypto, site credits, and the like. Of fraud prevention leaders surveyed, 25% said they plan to expand the number of payment sources they accept over the next two years. Incredibly, just 6.6% of leaders said they would definitely not allow additional payment sources to be used at their businesses.
It’s probable that at least some of the fraud leaders who said they were unsure whether they would accept alternative payment sources will eventually allow them – so we asked a follow-up question: ‘How effective are you at preventing ecommerce fraud from sources other than credit cards?’
Underprepared for what’s to come
In examining the survey data, some startling trends emerge. There’s a general lack of readiness which is compounded by inadequate investment in appropriate fraud prevention strategies and solutions to address the risk associated with accepting alternative payment sources. Only 26% of leaders who responded said they were ‘very effective’ at preventing fraud from sources other than credit cards. And just 60% of fraud leaders said they were ‘mostly effective’ in preventing alternative payment fraud. ‘Mostly’ doesn’t cut it when the stakes are this high. With a significant percentage of fraud leaders saying they’d accept alternative payment sources within the next two years, it’s hard to believe they’d accept ‘mostly effective.’
Eyes on the past when the future is already here
Despite the increasing, combined risk of accepting alternative payments and unpreparedness to handle it effectively, when asked which type of ecommerce fraud leaders invest the most in preventing, 86% said credit card fraud.
The conclusion is clear: fraud leaders continue to under-invest in preventing fraud from the alternative payment sources that are being increasingly adopted by younger generations. These sources will only continue to grow in the future, and will account for a growing number of fraud attacks professionals will need to defend against.
Adapt to new trends in real time
The payments landscape will continue to evolve – and fraudsters will match pace – so it’s important for fraud teams to adapt to emerging trends as quickly as possible. That often requires automation and the adoption of new fraud prevention strategies and tactics. To learn more about how Sift can help you optimize and scale your fraud prevention operations, visit Sift.com.
About Kevin Lee
Kevin Lee is a Trust and Safety Architect at Sift who helps customers implement strategies that cross-functionally align risk and revenue programs. Prior to Sift, he has spent the last 14+ years leading various risk, chargeback, spam/scams, and trust and safety organizations at Facebook, Square and Google.
About Sift
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 35 billion events per month, and a commitment to long-term customer partnerships.
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