The biggest threats and strategies to protect your business from fraud in 2021.
The digital tsunami of 2020 has forced many companies and consumers to change how they work, make purchases and even socialize – unfortunately fraudsters are successfully taking advantage. Here are five fraud trends you need to implement to better protect your business in 2021.
#1 Omnichannel Fraud will Continue to Grow in 2021
Omnichannel unites in-store, online and mobile experiences by creating a unified user experience across marketing, shopping and purchasing for a single brand or company. Omnichannel fraud exploits this integrated approach. As companies push for seamless experiences for their customers, they often overlook gaps in fraud and security across these disparate systems.
For example, buying online and picking up in-store (BOPIS) has seen a 55% increase1 in fraud attacks. Other vulnerabilities include returns and refunds abuse where fraudsters purchase online and file a return while holding onto the merchandise, keeping both the item and the refund. When this happens at scale it can do real damage. Unused reward points have also seen an increase in fraud as fraudsters monetize points and promotions by breaking into accounts.
Simply warning consumers about requiring proof of identity upon pickups or returns is one simple way to decrease BOPIS fraud. Closely monitoring your chargebacks is critical – look for trends such as multiple chargebacks for a single high value product, purchase velocities, and mismatched addresses. Understanding all of your chargeback reason codes is also important, many chargebacks are legitimate purchases but the consumer doesn’t recognize the transaction descriptor – this is especially true as sales move from in-store to online.
#2 Marketplace Fraud
Though there are hundreds of marketplaces around the world, the top 100 marketplaces account for 95% of all marketplace sales, and more than half of all online retail sales took place on a marketplace2.
Marketplaces have their own unique fraud ecosystem, from onboarding new sellers to ensuring quality products and easy returns, marketplaces have struggled to keep up with the many ways fraudsters are gaming these platforms.
For example, fake reviews are rampant, buying good reviews (or bad reviews that are designed to sabotage competition) has become a big enough issue that companies are fighting back. Selling counterfeit products is more than inconvenient for buyers, it can also be dangerous. As more consumers get scammed, identifying fraudulent sellers – which is often at the root of the problem – has become a top priority. Amazon alone welcomed 1.2 million new sellers3 to their platform, and are now screening them through video calls4 to more accurately verify their seller identities.
The demand for faster, smarter and safer marketplace experiences has forced these platforms to take a hard look at their vulnerabilities – and there are many. Otherwise, if the fraud situation doesn’t improve, some of these marketplaces may fall as quickly as they rose.
Key areas marketplaces should focus on:
- Invest in identity verification management for sellers and buyers
- Perform regular audits with sellers, products and reviewers
- Expand fraud teams and arm them with better tools to make informed decisions
#3 Identity Management Will Be Your Biggest Fraud Challenge in 2021
Identity is at the heart of online commerce, it helps reinforce security and provides the backbone for a more personalized experience. In 2019, 8.5 billion5 records were compromised, four times the 2018 totals. These breaches help make stolen data even more accessible and bolster fraudster’s efforts. This year’s digital acceleration has contributed to a further rise in identity theft, which will only continue into 2021. As millions of new consumers moved online for basic purchases like groceries and household goods, merchants are inundated with new identities that need to be correctly verified and securely stored.
One of the most attacked touch points is website logins, with stolen credentials fraudsters can manually enter the site or write scripts to automate the process, this is also called credential stuffing. Once successful, fraudsters can drain accounts, apply for loans or credit cards, or simply make fraudulent purchases from within the account. This year, account takeovers have increased by 282%6.
Risk thresholds vary from business to business. Some enterprises simply consider fraud losses as the cost of doing business, where others may not have the same margins and must rely on stricter fraud controls to decrease their exposure. And this is where it can get tricky, understanding the balance between decreasing fraud and/or providing a smooth customer experience is challenging, and gets even more complicated when it is across different regions.
Minor improvements can help reduce identity theft, account takeovers and decrease fraud costs.
Merchants can integrate new identity verification methods like:
- Device authentication
- Email address verification
- Checking IP addresses
Customer education can also help, simply recommending unique/strong passwords or communicating the security benefits for additional validation steps goes a long way.
#4 Decreasing Transaction Friction Increases Conversion Rates
Behind the scenes payment systems are an intricate system of exchanges between businesses, networks, banks and processors, and when you add additional countries to the mix the complexity skyrockets.
For businesses that want to limit fraud risk within their complicated commerce infrastructure, it can be challenging to know where to add additional fraud controls into their payment system. Fraud rules are helpful, however, as more rules are added it is very common to see an increase with false declines – which is very bad for business.
Cart abandonment is another result of tough fraud controls, when consumers feel like they have to provide too much information or jump through too many hoops to complete their purchase, they will likely abandon their shopping cart – 65% of abandoned carts are due to checkout friction7.
In the US, nearly $164B7 in card-not-present purchases are declined each year with more than half of these being non fraudulent. Cardnotpresent.com claims that 33% of consumers will never return to an online retailer once they have been falsely declined and this number jumps to 56% for millennials8.
Investing in secure on-boarding and checkout experiences is vital for maximizing conversions. Optimizing shopping carts by requiring less fields, minimizing visual distractions and providing the option to save card details for future repeat purchases helps. But even more important is to integrate an intelligent, fraud management system that works in real-time, is easy to use and is based on accurate risk profiles and signals.
#5 Smarter Fraud Management Is The Key To Beating the Frausters in 2021
Fraud protection must get easier for merchants of all sizes. In the US, eCommerce retail sales saw a 44.5% year-over-year increase in 2Q and 37% in Q39. As more businesses expand their online presence and fine tune personalized shopping experiences they need better solutions to protect themselves from fraud risk yet enjoy the benefits of growth and country expansion.
The very best fraud solution with machine learning, sophisticated algorithms and fraud models is worthless if it’s too complicated for the average business owner to use. Using fraud controls, writing rules, and understanding the entire fraud picture must be intuitive and accessible to enterprises of all sizes. Plus, as payment preferences change across borders, it is essential that fraud solutions cover a variety of payment method types – this is critical in today’s borderless economy.
- Paypers, Fraud prevention in ecommerce report 2020/2021