Apparel Industry Most Vulnerable Sector for Fraud Attacks, Report Finds
A recent assessment report found that the risk of fraud is still a very real concern for online retailers today. In 2016, online attacks in the U.S. increased 8.9 percent due to fraudsters shifting over to the internet as a result of the rollout of microchip-embedded credit cards (EMV). For retailers, in particular, perhaps the most troubling finding in the report is the fact that the most notable growth in fraud attack rates took place in the apparel industry. Comparing the rate in Q4 2015 to that of Q4 2016, there's a significant increase of 69 percent.
This rise in apparel fraud is largely due to fraudsters who are moving online post-EMV and are continuing to operate in an industry in which they're comfortable, and partially because fraudsters who have been focusing on luxury goods for years, due to the high return on investment they represent, are trying a new tactic. Rather than go for low-end luxury goods, which retailers are now aware that they need to protect and scrutinize just as much as they do high-end goods, fraudsters are beginning to target apparel retailers. Essentially, they're now able to access equivalent products from apparel sites which are often less careful due to the fact that they haven't traditionally been major targets in the same ways that luxury sites have always been.
Another aspect to note in regards to the apparel industry is that the largest spike in attacks occurred in Q4 2016, just in time for the holidays. This is most likely because consumers are frequenting retailers around this time to purchase gifts, and fraudsters were counting on this trend to help cover their theft. Since other gift industries didn't experience the same level of fraud, it may also be that this spike was influenced by a group of abusers or fraud ring who found profitable vulnerability in some fashion websites during Q3, and returned to these products at a time when they could take advantage of the holiday rush.
The shift from account takeover (ATO) against retailers’ sites to ATO against online payment accounts is also an interesting development to note. This comes as a result of the speed at which fraudsters are adapting to moves made to stop their attempts. Retailers realized that ATO was a problem and started guarding against it and, in turn, fraudsters shifted. By using similar tactics against online payment accounts that are far harder for merchants to spot, fraudsters have now been given an even larger scope for theft.
In addition, the report found that domestic orders had a notable rise in fraud, becoming 79 percent riskier than they were in 2015. This has had a direct impact on the bottom-line risk, resulting in a shift from $2.70 at risk per $100 of sales in Q4 2015, to $4.98 in Q4 2016.
It’s no secret that constant change and continual technological developments characterize today’s online fraud ecosystem, and that now, more than ever, retailers in the apparel industry need to remain wary. Even though apparel has traditionally been a lower risk vertical, it was most likely this complacency on the part of retailers that led to the spike in this industry attack rate. After all, when a fraudster discovers a vulnerability, they don't hesitate to take advantage to the fullest extent.
Michael Reitblat is the CEO of Forter, a fraud prevention company.
Michael Reitblat founded e-commerce fraud prevention company Forter in 2013. Forter currently works with Fortune 100 retailers, top travel companies, and digital disruptors. In the past 12 months alone, Forter has raised $50M in funding, tripled its customer base processed more than $55 billion transactions and been recognized on the 2018 Forbes Fintech 50 list, Fast Company’s 2018 Most Innovative Companies list, and CB Insights’ Fintech 250 list.
Michael began his career in Israeli military intelligence where he was trained to prevent fraudulent, criminal activities. Following his military service, Michael played a key role in building the first company to specialize in online payment fraud, Fraud Sciences. After the business was acquired by PayPal, he helped to develop the successful fraud prevention system that the payments giant used for many years. In addition to leading Forter, Michael is currently an investor, adviser, and board member of several cutting-edge technology companies. He also works with NGOs to help establish digital payment accessibility in developing countries.