E-commerce retailers are at risk of losing over $20 billion in 2021 due to online fraudulent activities, a Juniper research report found. This loss would represent an 18% increase, compared to $17.5 billion recorded last year.
Identity theft, chargeback fraud, 'silent' fraud, account takeovers and 'pharming' are major fraud threats for online shoppers and merchants. China is expected to be the largest e-commerce fraud market in the world, accounting for over 40% of e-commerce fraud losses globally by 2025, at over $12 billion.
Automated behavioral analytics leveraging artificial intelligence (AI) and clear messaging around security checks will be essential to conserve user experience and save customers from fraud, the report stated. Using digital interfaces for know-your-customer (KYC) assessments and security checks will also be essential in preventing online payments fraud.
As the COVID-19 pandemic pushed customers towards e-commerce, fraudsters followed consumers.
E-commerce fraud is rising as online sales grow and fraudsters are easily able to target merchants that are new or unfamiliar with e-commerce, or lack the resources to provide advanced security measures.
Internet traffic surged about 60% and, as a result, money spent by online shoppers nearly doubled. The average value of attempted fraudulent purchases increased 69% year-over-year, according to a report from the digital fraud prevention company, Sift.
"While the need for security is greater than ever, the competitive e-commerce environment means merchants will need to ensure that extra security checks are justified to the user, or they risk higher cart abandonment rates," Juniper research co-author Susan Morrow wrote in a statement.
Identity and synthetic fraud are challenges facing online merchants and payment processing companies. Consumer-focused online transactions are based on having verified consumer identity, making identity data a prime target for fraudsters. Fraudsters can use the stolen data (like Social Security numbers, addresses and card details) to create a synthetic ID and steal funds from accounts; take out loans; or create new credit lines in the name of the customer.
In the U.S., the Consumer Sentinel Network, a part of the Federal Trade Commission (FTC), tracks identity-related fraud. Last year, Sentinel received more than 2.1 million reports of fraud, with consumers losing $3.3 billion to fraud. The Sentinel also registered 1.4 million reports of identity theft last year. The median loss for such fraud attempts was $311 per person, according to the FTC.
Last year, 406,375 reports were filed for misusing Personal Identifiable Information (PII). Typically, PIIs are used to apply for a government document or benefits. By comparison, there were 23,213 reports in 2019.
Fraudsters are able to steal consumer information through many channels like redirecting a consumer to a malicious page for checkout, or mirroring a shopper's screen to grab information.
Silent fraud is a cybercriminal technique where fraudsters try to evade detection through malware. Cybercriminals gather small amounts of account information from many different consumers, totaling more than a single large fraud event.
Merchants and customers need to be wary of sketchy checkout pages and portals while shopping online. Cybercriminals create false pages and redirect website traffic to an illegal site where customers unknowingly enter their personal data. This type of fraud is called pharming and has been on the rise since last year.
According to a Sift report, fraudsters sometimes disguise themselves as charity organizations and ask customers to donate. The pandemic drove online giving up by 20.7%, providing cover to fraudsters who hide behind traffic and transaction surges, knowing that many merchants won't be equipped to handle scaling demand and rising fraud simultaneously.
"These 'Cart Crashers' create these charity websites and get hold of a consumer's card details,' Kevin Lee, Sift's trust and safety architect, told Payments Dive. "They later use the card for extraordinary purchases, so there is a double-dipping going on there."
Merchants need to provide safe payments and shopping channels while reducing friction for the consumer.
"Clear messaging around security checks and automated behavioral analytics leveraging AI are key capabilities in preserving the user experience," the Juniper report stated.