Retail fraud is a problem that's costing businesses billions of dollars every year - and it's only getting worse. According to a recent report, online fraud is expected to increase by 21% in the next five years. So, what can you do to protect your business? The answer lies in understanding the latest fraud trends and taking steps to prevent them. Here are seven eCommerce fraud trends to be aware of in 2023.
1. Scams will continue to increase
Purchase, investment, romance, impersonation, CEO, and maybe some new scams we haven’t seen yet will continue to increase as bad actors find new and more devious ways to cheat consumers and organizations out of their money. As quickly as merchants find ways to detect scams, fraudsters find ways around those measures. Recession fears and rising cost of living spur fraud networks and even regular consumers to double down on scams that can provide fast money.
2. Buy Now Pay Later (BNPL) will be a key target
There are a few factors that have contributed to the rise of BNPL fraud in recent years. First, the popularity of BNPL services has exploded, giving criminals more opportunities to commit fraud. Second, BNPL schemes often have lax approval requirements, making it easy for criminals to obtain credit. Finally, many BNPL providers don’t require shoppers to provide full payment information upfront, making it difficult for merchants to verify identities and prevent fraud.
3. Account Takeover (ATO) will grow
The rise of e-commerce has made it easier for fraudsters to commit fraud, presenting more opportunities and the ability to execute scams anonymously from anywhere in the world. The increase in data breaches has also resulted in more stolen credentials being available on the black market. As more and more businesses move away from traditional forms of authentication (like passwords), and increase digital purchase and account options, fraudsters find new and creative ways to gain access to existing accounts. BNPL also contributes to the rise in ATO fraud as those accounts are often less vigorously monitored and therefore easier to commandeer without detection.
4. Payment fraud will adapt
As fraudsters get increasingly clever, and consumer spending shifts more to online, payment fraud like card-not-present (CNP) will climb right alongside it. CNP fraud is notoriously difficult to prevent because there's no way to verify the cardholder's identity. However, merchants can reduce risk by requiring additional verification for large purchases and monitoring unusual spending patterns. Understanding the full customer history, including behavioral biometrics, provides a better ability to identify and verify legitimate consumers.
5. Friendly fraud will escalate
A recent report states that merchants are expected to pay over $100 billion in chargebacks in 2023. Unfortunately, as the economy tightens and a global recession looms, fraudulent chargebacks and friendly fraud will also rise. In addition to the usual fraudsters, otherwise virtuous consumers and employees may see an opportunity to improve their situation, often thinking large corporations won’t miss a few dollars here and there. In other cases, unwieldy refund processes can increase the rate of chargebacks as frustrated customers look for other ways to get their money back.
6. Black box fraud solutions won’t be able to keep up
Black box solutions focus on assessing and comparing the collective audience behaviors of each individual process i.e., a money transfer, a loan or credit card application, account opening, etc. They assess a single point in time but can’t compile or analyze a complete history of individuals in real-time, or over time. For fraudsters this means a set of predetermined and common methods of fraud detection. It’s like getting a cheat sheet for the exam – they know what merchants are looking for, which makes it easier to get around.
are also limited in fighting fraud and scams because they typically provide a plus or minus risk score, not the underlying data or basis for the scores derived. This not only makes it impossible to improve machine learning and fraud detection algorithms, it often results in significant false positives which harm the customer experience.
7. Merchants must implement a platform fraud approach that includes anomaly detection
Fraud prevention is the only way to combat rising fraud - detection is no longer enough. By moving from fraud investigation to real-time prevention, merchants shift to a proactive approach to fraud mitigation.
This requires a platform approach which consolidates and maps all data from all sources, within a protected first-party environment. With full detail owned in-house, merchants can identify and prevent fraud in real-time. By combining data and analytics across the different fraud types, merchants get a much better picture of their customers’ identities and can spot bad actors faster. This comprehensive approach also makes it harder for fraudsters to avoid detection, as there are multiple fraud detection processes to evade simultaneously – such as identity verification, anomaly detection, account tracing, and behavioral biometrics.
Merchants’ fraud prevention tools and systems must be equipped to detect real-time anomalies driven by one or many subtle changes in behavior. In the case of application fraud or payment fraud these anomalies can trigger a flag in the system suggesting the individual’s activities require further investigation. In the case of scams, BNPL, or account takeover, anomaly detection can trigger immediate intervention with effective customer warnings or session termination.
Scams, Buy Now Pay Later (BNPL), Account takeover (ATO), and payment fraud will continue to occupy 2023. Traditional transaction monitoring and rule-based decisions won’t be able to keep up with sophisticated scammers and fraudsters who are evolving at a frightening pace. The only way to reduce fraud is to prevent it in real-time using a comprehensive platform fraud solution.
