Navigating The ‘Fraud Economy’ In The Digital Era

In A Decade of Digital Transformation in 12 Months, 46 C-suite executives spoke with PYMNTS for its Q2 eBook on what the world will look like as recovery rolls on and the next iteration of normal rolls out. In this excerpt, Marc Olesen, president and CEO of Sift, discusses how the digital shift has made businesses more vulnerable to fraudsters, and the importance of adopting a digital trust and safety strategy.

Read the entire eBook here.

The pandemic has forced many retailers to rapidly increase their online presence to meet shoppers where they are. But this digital shift has also created a wealth of opportunity for fraudsters to take advantage of the expanding fraud economy to execute new attacks. As the amount of money spent by online shoppers nearly doubled last year, fraudsters followed climbing transaction volumes and new consumer behaviors to drive the average value of attempted fraudulent purchases up by 69 percent year over year.

However, fraudsters didn’t just evolve by setting their sights on higher-value targets – they have also expanded the ways they plan and execute their schemes. Secure messaging apps like Telegram, for example, have become popular venues for seasoned scammers to offer their services to more casual fraudsters merely looking to score discounted merchandise.

The shift to new channels highlights an important change in the fraud economy. It no longer takes a group of state-sponsored hackers with years of experience to take down a merchant. Small, frequent and easily scalable attacks – such as professional bad actors offering opportunistic fraudsters a cheap meal at a discount using a stolen credit card on Telegram forums – can have a huge impact on businesses’ bottom lines.

As fraudsters adopted new methods during the pandemic, merchants have faced the challenge of balancing rigorous anti-fraud measures with optimizing the experience of legitimate customers.

False positives (also called customer insults), whereby a legitimate interaction or transaction is flagged as fraudulent, not only causes costly friction within the user experience, but can also cause brand damage and sever customer relationships altogether. In fact, 25 percent of consumers stated that they would buy from the competition after having their transaction denied by a brand. With nearly limitless eCommerce options at their fingertips, consumers are increasingly fickle and won’t hesitate to give another brand their business if friction interrupts their experience.

The pandemic also supercharged emerging fulfillment options like buy online, pick up in-store (BOPIS) and buy online, return in-store (BORIS), which I believe will remain popular well beyond the pandemic. While these methods enable omnichannel merchants to further meet customers wherever they are, businesses must also consider the risks that make them more vulnerable to fraud within these new processes, such as lack of billing information or ID checks at curbside pickup.

The key to staying ahead of fraud vectors targeting the eCommerce industry in the post-pandemic economy is to evolve beyond legacy approaches and adopt a digital trust and safety strategy – one that dynamically addresses fraud without impacting the shopping experience for legitimate customers. By adopting a more holistic approach to fraud, merchants can keep the bad actors at bay, while continuing to provide a seamless customer experience and growing revenue.