E-Commerce Fraud Reaches an Alarming New Normal
With Amazon Prime Day concluded and the holiday shopping season on the horizon, online merchants are searching for ways to generate additional traffic and sales. The potential benefits are limitless — as long as e-commerce companies can distinguish between genuine customers and thieves trying to hide out among the masses.
While attack rates typically increase whenever there’s a spike in online transaction volume (like during the holiday season), new research from Forter and the Merchant Risk Council revealed a 13 percent surge in fraud attempts overall since the beginning of 2017. In fact, all six of the industries analyzed demonstrated this trend to varying degrees, including food and beverage (up 60 percent), electronics (up 66 percent) and digital goods like gift cards (up 167 percent, or nearly 13 times higher than average).
Amid data breaches, phishing attacks, expansive dark web marketplaces and the growth of online transactions, fraudsters nowadays have more direct access than ever before to the technology and information they need to commit online fraud. However, there are some ways that e-commerce merchants can protect themselves and their customers, and avoid falling victim to this alarming new reality.
Eliminate Manual Reviews
Many players in the fraud prevention space still rely on antiquated manual reviews and rule-based systems, which create friction for consumers. This method delays transactions during busy periods and also makes decisions susceptible to individual bias. Furthermore, using static rules to program a fraud prevention system is similar to applying a one-size-fits-all approach that ignores thousands of variables associated with each and every online purchase.
The introduction of artificial intelligence into the fraud prevention ecosystem makes it possible to approve or deny transactions in milliseconds, and renders manual review systems unnecessary. Automated technology constantly learns new fraudster tricks, informed by ongoing research conducted by human analysts. The result is exceptional accuracy, increased approvals for online retailers, a smoother checkout experience for consumers, and very few false positives (i.e., when a legitimate customer is mistakenly rejected as a fraud threat). This means more sales and happier customers, at a much lower cost.
Creative criminals are constantly leveraging new forms of fraud, so merchants must track the latest trends and evaluate their personal vulnerabilities. It's imperative that retailers have a deep understanding of what customers are doing at every step in the consumer lifecycle, from the first time they visit a website to the moment of checkout and beyond.
According to Forter’s recent research, popular attack methods retailers should look out for include the following:
- Account Takeover (ATO): When a fraudster passes as a return customer by hacking into an online account using stolen personal information like a password or email address. The 2017 Equifax breach likely contributed to a 53 percent increase in ATO attempts in last year's third quarter.
- Return Abuse: When shoppers return goods after using them. This attack method has increased 119 percent since the beginning of 2017.
- Policy Abuse: When individuals cheat merchants through inappropriate use of coupons, discount codes, multiple account creation or reward programs. Coupon abuse in particular surged 217 percent between Q4 2017 and Q1 2018.
Consider Different Payment Methods
Given the fluidity of the online payment ecosystem, e-commerce merchants must ensure that they’re able to prevent fraud regardless of what device or payment method a consumer is using.
Mobile commerce, for example, must be treated differently. E-commerce fraud protection relies on certain data like a static IP address that isn’t available via mobile. Conversely, some mobile information that’s nonexistent on computers can be extremely valuable in catching fraudsters. If retailers assume that users shop on their phones exactly as they would on a laptop, they run the risk of delivering a sub-par mobile experience, damaging customer loyalty and losing money to fraud.
The convergence of a variety of factors makes committing online scams easier than ever before. As e-commerce continues to flourish, internet merchants must put personalized systems in place to guard against fraud, ensuring they can compete with retail giants.
Michael Reitblat is the CEO and co-founder of Forter, an end-to-end identity-based fraud protection solution for e-commerce merchants.
Related story: Following the Money: Online Fraud Attacks in 2017
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.