The Top 3 Retail Fraud Trends for 2022
Digital fraud is growing year-over-year and, more worryingly, it’s also evolving.
Like art and fashion, fraud has trends that come and go, with an avant-garde of professional criminals perfecting new styles in their own insular dark web world before they're ready for the public, where they're disseminated through social media and word-of-mouth.
The most common types of fraud are still card-not-present fraud (i.e., in which a fraudster uses a stolen credit card and personal details to order goods) and chargeback fraud (i.e., initiating a chargeback when there's no legitimate reason to do so, also called "friendly fraud"). However, there are always new forms of fraud emerging, particularly during economic downturns.
Understandably, there has been a significant uptick in all types of fraud since the global pandemic began in early 2020 as a result of a difficult economy, more people than ever using e-commerce (including first-time users), and increasing amounts of time spent with digital devices.
Here are my top three trends that will be the most prevalent in 2022, based on how they're currently growing and how well they suit the current digital climate.
This term refers less to a specific type of fraud and more to a way in which fraud techniques, including ways to successfully commit friendly fraud, proliferate online.
It's easy to find tutorials on how to commit fraud online — you don’t need to go into dark web marketplaces or secret members-only forums because a quick search on YouTube, Reddit or TikTok will turn up dozens of ideas on how to defraud companies. Once a technique proves successful it will tend to be shared, either digitally or through word-of-mouth, and hopefully it will be detected before it can do too much damage.
This trend has existed long before e-commerce, but pent-up desire for luxury and entertainment combined with general economic malaise means that it's making a comeback. Wardrobing involves purchasing an item (often clothing, hence the name), and often the same item in different sizes/colors, using it for a short time and returning it. It's much easier to carry out online rather than in person, which is why online shoppers return anywhere from 15 percent to 40 percent of purchases, compared to 5 percent to 10 percent for in-person purchases.
Although it's not as damaging as other forms of fraud, wardrobing isn’t without costs. Very few returned items can be sold for their full price, and many must be thrown out rather than resold.
COVID-19 enabled a host of new scams, such as applying for government grants and welfare or selling bogus cures and protective equipment. It's also finding its way into the chargebacks and fraud space, where emotional appeals to companies are becoming more common. Remaining skeptical towards a chargeback or return claim when a customer talks about having relatives in the hospital isn’t easy, and although at a time like this empathy is usually the correct response, it may be adding another tool for fraudsters.
Fighting Fraud in 2022
The solution to the above trends and any others that might emerge is always going to be more information and a greater ability to analyze that information for trends that allow your organization to make informed decisions on what to do regarding anything from a single chargeback or return claim to the grand anti-fraud strategy in your company. Collecting and analyzing this data by hand is of course impossible for any large company, which is why more merchants are choosing to work with agnostic platforms that can deliver real-time fraud feedback results (aka chargeback insights). Without this valuable insight, fraudsters will continue to exploit gaps, taking advantage of innocent merchants too busy managing their core business. Having visibility into one’s own developing chargeback fraud trends couldn’t be more crucial for retailers. An estimated one out of three chargebacks could have been prevented with more real-time data.
Monica Eaton-Cardone is the chief operating officer of Chargebacks911 and Fi911, and chief innovation officer of Global Risk Technologies.
Related story: How Chargeback Solutions Can Plug the Knowledge Gap Between Merchants and FIs
Monica Eaton-Cardone is a risk management and fraud prevention expert, and co-founder and chief operating officer at Chargebacks911, a global chargeback mitigation company based in Tampa, Florida.