Ecommerce Fraud Peaked During Holiday Season

As businesses get started with the first quarter of the new year, fraud reports from the holidays are starting to come in. According to ACI Worldwide’s report of the top global merchants, fraud increased substantially during the 2015 holiday season. Ecommerce transactions increased 21 percent over the holiday season (between Thanksgiving and December 31, 2015), compared to the previous year. The surge in online shopping brought a corresponding increase in fraud, which grew 8 percent. Overall, 1 in every 67 transactions was attempted fraud, compared to 1 in every 72 the previous year.

The trend is clear. As shoppers become comfortable making purchases online, fraudsters are also adapting their methods to this space, leading to challenges for many retailers.

The EMV impact

Another reason for this year’s surge in ecommerce fraud could be the recent transition to EMV. As of October, brick-and-mortar merchants needed EMV-compliant equipment to avoid taking on losses from fraud on their machinery. With this process, merchants can expect that more fraud will move online. EMV may effectively reduce fraud at brick-and-mortar locations, but it’s still relatively easy for fraudsters to take advantage of card-not-present environments where they can enter card numbers obtained in any number of nefarious ways.

New shopping methods bring unique types of fraud. As merchants continue to embrace new approaches, they will have to stay ahead of fraudsters who will adapt to changing circumstances. Here are a few varieties of fraud business owners should keep an eye on:

Gift cards

The report found fraud rates were the highest on Christmas Eve, Thanksgiving and Black Friday. The most likely reason? Last-minute gift card purchases. Electronic gift cards have the highest instance of fraud across all products, the ACI report noted. According to Payments Source, the primary reason for this is that once obtained, thieves can quickly spend gift card funds or resell the cards on exchange websites. Thieves can also hack into loyalty cards with balances that automatically refill.

In-store pickup

As customers become more accustomed to omnichannel shopping, many brands have introduced a local in-store pickup option for customers who order online. While it adds convenience for many shoppers, this method is also highly susceptive to fraud. ACI’s report found fraud related to this method increased 47 percent over the previous year. While many merchants use systems to check shipping addresses against billing addresses, fraudsters can often get around these verifications by opting to pick up their items in a store, as National Retail Federation pointed out.

Fraud prevention

The upward trend in ecommerce fraud speaks to what merchants can expect in the coming months. It’s important for businesses to invest in fraud prevention solutions to counteract theft. Fraudsters can quickly learn new ways to get around existing barriers. This means retailers need to invest in more sophisticated solutions to avoid being targeted. Machine-learning algorithms are an effective way to continue to combat ecommerce fraud. If fraudsters are always learning, your security measures need to keep up.  

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For the latest trends in ecommerce fraud prevention, download the Paypers 2016 Web Fraud Prevention, Online Authentication & Digital Identity Market Guide.

Ken Bui
Ken Bui

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