Think Like a Fraudster: 3 Retail Fraud Trends You Need to Know Now
2016 was a banner year for e-commerce growth and 2017 followed the same upward trend. However, with that growth also came an uptick in online fraud, requiring retailers to act fast to save their bottom lines and protect customers. Radial’s 2017 Fraud Index Report identifies emerging trends retailers should be aware of as they work to manage fraud in a digital-first world. Let's dig deeper into three of these trends.
Card-Not-Present (CNP) Fraud Continues to Rise
As online sales increase, so too do fraud incidences, with CNP fraud chief among them. In 2016, CNP fraud impacted 3.4 percent of consumers — an increase of 40 percent from the 2.4 percent of consumers impacted in 2015. This rise in CNP fraud can be attributed to widespread EMV adoption. More than half of consumer credit cards have been issued with smart chips (85 percent according to CPI Card Group), and about 60 percent of debit cards are EMV-ready, forcing a percentage of CNP fraud as criminals shift to the safer online haven. EMV adoption and CNP attacks are not the only factors driving growth in online fraud, however.
Data Breaches Are Igniting Fraud Attacks
Today’s fraud attacks are done with tomorrow’s reported data breaches. Because breaches are often not discovered or reported until months after they occurred, and sometimes not at all, criminals have the time and tools to amplify the damage long before businesses and consumers take action. For example, the Equifax breach, which impacted 145.5 million U.S. consumers, led to a startling correlation in increased e-commerce fraud in the summer of 2017. For retailers that manage fraud on their own and rely solely on machine learning, breaches present a serious threat — one they can’t react to quickly — making them an easy target for fraudsters.
Digital Gift Cards: Christmas for Cyber Criminals
Digital gift cards remain a popular target for fraudsters as they take advantage of the surge in order volumes during the holiday season to mask their criminal intent. Attack rates are on the rise year-over-year, with the combined 2016 and 2017 holiday seasons showing a 4x increase over 2015. The cost of these attacks are also on the rise, with the average fraud attack rate by dollar volume increasing nearly 75 percent during the period between Thanksgiving through Christmas 2017, as compared to 2015. As a result, retailers have found themselves at a crossroads, questioning whether to offer gift cards despite an increased risk for fraud, or to eliminate them entirely, cutting off a popular attack channel, but closing a valuable revenue channel as well.
For retailers, one thing is certain: the surge in e-commerce sales and, ultimately, fraud will continue to rise, forcing companies to rethink their fraud management strategies. While prevalent, CNP attacks, data breaches and gift card fraud aren't the only threats retailers face today. Radial highlights additional trends in its 2017 Fraud Index Report, further underscoring the impetus for retailers to assess their fraud management capabilities and practices. Companies must understand that staying ahead of fraud is a full-time job. Any retailer working to manage this massive and extremely complex problem alone is risking the viability of their business. Thinking like a fraudster takes people, processes and technologies that go far beyond what today’s tools alone can deliver.
KC Fox is the senior vice president of technology services at Radial, an omnichannel technology solutions provider.
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