Fraud poses a threat to merchants and consumers year-round. But the holiday season is an especially attractive time for fraudsters to ramp up their schemes and tactics. The flood of holiday purchases, both online and in person, offers fraudsters increased opportunities to swindle consumers and companies alike. And the frenetic pace of gift-buying often provides a cover for cybercriminals to go undetected.
It’s always important for merchants to have a robust fraud prevention plan in place ahead of the holidays. But this year it may have heightened importance if businesses want to protect their bottom line. Merchants are facing a unique set of challenges. Perhaps this includes working with fewer resources and reduced risk teams. And includes weathering an uncertain economy, and bracing for decreased sales as inflation tightens consumer belts. As a result, many have started their holiday shopping early. And merchants plan to extend sales to entice shoppers with better deals.
Fraudsters thrive on market instability and prey on consumer vulnerabilities. These are all factors that can make merchants this holiday season particularly susceptible to fraud. As a Trust and Safety Architect at Sift, I spend my time speaking to companies in a range of industries. I am also researching the latest fraud trends and developments. Below are some of the emerging fraud threats that businesses should watch out for this holiday season.
Account Takeover (ATO) and Rising Payment Fraud in BNPL
Account takeover fraud has posed a significant and exponentially growing threat to businesses in recent years. We have already seen a worrying rise in fraud targeting the buy now, pay later (BNPL) space. It’s seen explosive growth in usage over the past couple of years, especially among younger consumers. From 2020 through 2021, payment fraud rates over Black Friday weekend increased 66% for BNPL, according to our research. More consumers bear the brunt of inflation and rising costs. And as a result, more are turning to BNPL as a means of payment when money is tight.
Automation and Fraud as a Service
Online fraud is no longer the purview of a few technologically gifted hackers. Today’s digital capabilities have made fraud accessible to increasing numbers of people around the globe. With the proliferation of Deep and Dark Web marketplaces, fraudsters can communicate, collaborate, and sell their services more easily than ever before. The accessibility of fraudulent information, combined with technological advances like automation and bots, means that scams are easy to replicate and scale. Our research team uncovered several new scams on encrypted apps like Telegram targeting industries like BNPL, crypto, travel and hospitality, and food delivery, and we’re already seeing an uptick in chatter about fraud specifically targeting the holiday season.
What Can Merchants Do to Prepare?
The confluence of multifaceted, accelerating fraud techniques and a worrying macroeconomic outlook is bound to make any business feel on edge right now. But there are steps companies can take to prepare and protect their revenue and their customers’ security. Staying aware of the latest fraud trends and methods is an important first step. Below are a few additional considerations that any business can benefit from as they prepare for this holiday season:
Time saving automation
Order volumes are expected to be the highest they’ve been in the last two years, especially for the industries that were hit the hardest by the pandemic (like travel and hospitality). Efficiently managing this increase in volume, particularly if your company has been impacted by budget cuts and/or layoffs, is key, and this is why leveraging automation via machine learning is a must.
Balancing fraud and friction
Faced with a potentially disappointing season if consumers decide to spend less, businesses may scrutinize orders more closely to make sure they’re not losing out to fraud. But a high-friction user experience runs the risk of frustrating customers and damaging trust. A better strategy is one of dynamic friction, wherein merchants adjust the transaction process based on the risk each transaction poses, which is an effective way to apply fraud protections where needed, without harming the experience of trusted customers.
Prepare for chargeback season
Merchants across industries know the beginning of the new year brings in a flood of chargebacks for both legitimate and suspicious reasons. By having clear and accessible return and cancellation policies in place, businesses can reduce chargebacks. Of course, there will almost certainly be a rush of first-party misuse (sometimes known as “friendly” fraud) from those looking to score free goods and services. Businesses can streamline chargeback responses by ensuring they keep clean records of transactions and delivery (in the case of physical goods) and by properly assessing their probability of winning a dispute.
Considering the multiple challenges facing merchants this holiday season, establishing a strong fraud prevention and customer retention strategy is more important than ever. Fortunately, companies can protect themselves and their customers by staying on top of emerging fraud trends. Ensuring that fraud prevention is an instrumental part of their operations.
