Every business is dealing with the immediate repercussions of COVID-19 in one form for another. Some are navigating the transition to a virtual workforce, and others have growing concerns over scattered customers. For online merchants, a key challenge remains: battling fraud.
While companies figure out what “right now’s normal” looks like, fraudsters are discovering more opportunities than ever to hide behind unexpected customer behavior and exploit community unrest — from coupon scams to credential stuffing to setting up fake charities.
Focusing on fraud trends is even more important for those businesses that accept mobile payments. According to Sift’s recently-published Digital Trust & Safety Index, just over half of payment fraud was attempted via mobile devices in 2019 — meaning bad actors were going on to e-commerce sites on their phones and buying goods with stolen payment info or credentials. Additionally, only 52% of merchants report tracking fraud on mobile channels, according to an MRC Global Fraud Survey.
As businesses strive to keep consumers safe from fraud, it’s important to understand the risks associated with this pandemic, what they can do to adapt, and what leaders should consider as they look toward the future.
Three emerging risks and how to combat them:
Order volumes and use of alternative payment methods
According to Sift’s Digital Trust & Safety Index, fraudulent purchases are usually about three times higher in value than a typical, legitimate order. In the wake of COVID-19, however, some consumers are “panic shopping” and making bulk purchases of things like toilet paper and pasta. In response, fraudsters are pushing boundaries even further to take advantage of these atypical purchasing climates.
Not only are fraudsters continuing to make large purchases, they are varying their payment methods, too, with gift cards and digital wallets (e.g., PayPal, Apple Pay, Google Pay, and Samsung Pay), both of which are more likely to be used fraudulently than regular credit card payments.These payment methods will likely be the most at risk for fraud as consumers turn to online or mobile shopping experiences during mandatory quarantines.
Merchants that don’t currently have an advanced fraud protection platform in place can, of course, still manually review high-value transactions—but beware of decision fatigue in analysts, and redistribute work when possible to keep people from getting overwhelmed. And if a merchant suspects a purchase looks suspicious, they can reach out to the buyer directly to verify both the buyer’s account and order details.
BOPIS could be bogus
In accordance with social distancing, and as customers are favoring shopping options that limit human contact, many businesses are foregoing IDs and signatures. Because an increasing number of consumers are now taking advantage of “buy online, pickup in store” (BOPIS), for example, fraudsters may attempt to exploit the influx— particularly if they’re facing fewer security hurdles. While consumers are likely to take advantage of this, businesses should make sure they verify identities at the point of pickup.
Additionally, we may see a surge in account takeover (ATO) as credentials and credit cards are hijacked to place orders for in-store pickup, with fraudsters adding their own email addresses or names to account information to bolster the appearance of legitimacy.
On the bright side, businesses can look at this growing demand for BOPIS as an opportunity. They should be asking themselves: How can we improve the mobile buying experience? What processes could we put in place to drive efficiency from warehouse to pickup, or reduce friction for customers shopping online? It all boils down to the user experience – from reduced friction for trusted users, improving app UX, ensuring inventory numbers are reflected quickly and accurately, and doing what businesses can to improve load speeds and related coupons/promos. A tangible way to do this is by implementing contactless payment options or a digital wallet app — by limiting the use of cash or the need to exchange cash for an item in person will encourage social distancing and protect customers.
Chargebacks, fluctuating user activity, and false positives
Some industries — particularly vendors selling food and household products — will see more new customers and greater diversity in buyers than ever before, as consumers who previously shopped in-store switch to online storefronts. Unfortunately, many businesses will experience an increase in chargebacks and false positives throughout the course of this crisis.
Additionally, false positives are likely to go up, since this new climate leaves fraud analysts (and fraud prevention platforms) without historical data to inform whether or not transactions are legitimate. Users that are typically trustworthy might look like fraudsters, as they may be making higher-volume purchases or running cards repeatedly even after they’ve been declined. Businesses need to consider how rapid changes in consumer behavior in the wake of this pandemic might throw off expectations about what is and isn’t fraud.
Even merchants with more flexible refund policies will soon see an uptick in chargebacks, as consumers and businesses alike face sudden, unexpected financial restrictions.
When in doubt, businesses should look at previous seasonality and year-over-year patterns for clues and cues, but bear in mind that they’re going to be disrupted for the duration of the pandemic — and long after things have settled down, too. If you see something, say something — patterns and trends may not be apparent until disparate teams share and analyze their separate observations.
Fighting fraud now and in the future
Keeping an eye on fraudsters is no easy feat — and even harder when merchants are suddenly forced to rethink the way they conduct business. As cybercriminals increasingly turn to mobile devices to steal, analyzing mobile signals, such as IP addresses, phone numbers, and other forms of passive information collected by apps has become more important than ever to defend against fraud and abuse.
Some fraud teams use a solution that requires manual rules to keep a cap on order volumes and values, while others take a more sophisticated approach with real-time machine learning and vast data networks and order to snuff out bad actors. By leveraging machine learning to distinguish the common behaviors of trusted consumers from those of fraudsters, businesses can implement large-scale fraud prevention and mitigation strategies.
However, when an event with global impact disrupts that steadfast predictability, fraud prevention teams need to shift focus away from normal expectations and consider what’s happening in the world around them.
The ever-present question on everyone’s mind is how long this pandemic is going to last? And, once it does end, will life fully go back to normal? The good news is that by paying attention to trends, understanding what signals to look out for, and using the right technologies, businesses can mitigate fraud risk and continue to enable legitimate purchases.