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Fraudsters Launching Fewer Attacks, But Aim At Bigger Targets

The steady rise of the global eCommerce market has created a radically new fraud environment, where fraudsters now seek bigger targets, but strike less often. The evolution comes at a time when merchants that have embraced payments innovation are dealing with the challenges of an evolving fraud landscape – and face new risks of losing business or customers as old ways of detecting and preventing fraud no longer work.

Estimates are that global eCommerce sales are up 15% compared to 2020, driven by outsized rebounds in segments such as travel and ticketing, which rose by 122% as restrictions were eased. It’s exactly the kind of consumer demand shift – coupled with sharply higher ticket prices – that fraudsters seek to quickly identify, adapt and exploit.

Naturally, fraudsters intensified their efforts and began to target new digital channels, including digital downloads and surging buy online, pick up in-store (BOPIS) options.

As a result, according to ACI, mobile data fraud increased by just 1.22%, while theft within the BOPIS channel rose more than 6% in the first quarter of 2021. Additionally, the average transaction value of attempted fraud increased by 4.7%, while overall occurrences decreased by 3.2%.

See also: Merchants Must Mind Fraud and Honor Consumer Needs Amid Rising RTP 

Understanding the Increased Frauds 

“We are seeing an increased amount of frauds, such as account takeovers (ATO), synthetic ID frauds and friendly frauds,” said Erika Dietrich, head of merchant payment analytics and optimization at ACI Worldwide told PYMNTS. She noted that merchants and retailers have been dealing with a significant increase in account takeover. Fraudsters take over accounts to get information about consumers, including their usernames and passwords. They use the stolen account credentials at merchants to commit financial fraud and banking fraud, and subsequently create synthetic identity fraud by using the genuine parts of the data to act as that consumer.

“Application fraud is really up, as we’re seeing a drastic increase in short-term loans, alternative payment methods and buy now, pay later, where consumers are opening accounts with applications that have synthetic identities,” said Dietrich.

Friendly fraud has also seen an increase in recent times, Dietrich said. As shipment delays mount, consumers complain of missing or damaged products. In an effort to do the right thing for consumers, merchants may ship out a new product without requesting a return in order to maintain loyalty, even though the consumer may have actually received the item.

The Need for a Robust Fraud Prevention Strategy

Dietrich highlighted that the evolving patterns indicate a need for more sophisticated fraud strategies.

Fraudsters look for the weakest links and the easiest ways to exploit a merchant’s data. Businesses must have systems that spot such behavior and block those attempts without compromising good customer relationships. The key is tailoring the solution for the merchants’ specific needs and channels – a complex challenge, as merchants must apply fraud prevention strategies consistently across the channels that consumers now seamlessly move between.

“As omnichannel continues to grow, evolve and change, merchants really need an end-to-end solution that will consider the customer journey – no matter what channel they’re in, what they’re buying or how they’re going to pick it up – in order to understand spending behaviors and patterns to ensure that they get the highest acceptance rates and are able to offer coupons and promotions throughout the various channels,” said Dietrich.

Merchants must also take into account the customers’ preferred payment and delivery methods. Dietrich shares that BNPL has the highest acceptance rates, while traditional credit cards have lower acceptance rates – hence, providing such capabilities should be a focus for businesses.

“You want to make sure that you have a very tailored solution to not only protect yourself as a merchant, but also to ensure the best buying experience for the consumers – and that’s all about deploying a tailored end-to-end solution,” said Dietrich.

See also: FIs Need Real-Time Tools to Stop Real-Time Payments Fraud 

Fraud Prevention Technology Investments

As the fraud patterns evolve each day, businesses must be aware of the key factors influencing fraud prevention technology investments. Dietrich claims that the most significant factor is PCI.

“Government regulators and financial institutions are calling for multiple authentications and validation tools around issuing and the acquiring side that merchants must adhere to,” he told PYMNTS. “These requirements and regulations are driving the need for digital identity verification controls and application fraud controls as one of the larger areas of investment.

“As merchants are having to identify and validate these consumers by using intelligent tools and techniques like data science, they’re having to bring all of this under one cohesive plan for fraud prevention, payments and business strategy,” Dietrich continued.

As the number of data points to authenticate and verify consumers increases, making real-time decisions based on that data gets even more complicated. Businesses need to rely more on technology that enables them to be scalable and to work smarter, not harder. Incremental learning technology is an integral part of ACI fraud management that considerably enhances fraud protection for merchants and FIs by enabling them to retrain and update their models for genuine and fraudulent trends.

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