Shift in Spending Doesn’t Mean Shift in Fraud

As consumers dine out and go to events less, Jared Kernodle, chief revenue officer at Kount, an Equifax company, predicts in the PYMNTS eBook “Baseline 2022: What the Next Six Months Hold” that bad actors will follow the shift in spending — making it harder for businesses to know their customers and separate fraud from legitimate business.

What often goes unnoticed in an economic downturn is the shift in spending and where consumers spend most of their resources. Obviously, the merchants who target consumers’ disposable income will have to be even more aware of fraud, as every dollar earned is more and more valuable to keep the business afloat. However, now that online payments have expanded to more verticals — a shift largely due to COVID-19 — even businesses at lower risk have things to watch out for. As consumers shift from discretionary spending to more necessary expenses to adapt to higher gas prices and inflation, so do fraudsters.

Fewer discretionary funds mean consumers will be dining out and going to events less and staying in more, which shifts their spending away from travel, gas and in-person cash and debit card use. This shift will continue to make it harder for merchants to know their customers and make informed decisions. As a result, bad actors will continue to penetrate each market, so merchants must make sure they aren’t over-indexing themselves on consumers who could be bad actors.

That’s where we come in. We can leverage our physical data to help merchants understand their customers and help them live their financial best. Our combination of physical and digital identifier data can help give consumers access to more flexible payment options, like buy now, pay later (BNPL), that can help stimulate the economy and protect the business.

Today, consumers are looking for more flexible options for their money, which opens merchants up to more fraud. Instead of merchants just dealing with traditional cash and debit card payments, they’re putting themselves at risk by offering high-demand digital CNP, BNPL and other payment options.

Outstanding liability for the merchant will increase as they introduce more flexible payment options. Merchants who use these flexible payment options need to be confident in their customer’s digital identity.

Overall, the digital shift is the most prominent new baseline and trend to continue watching. Only a portion of payments have evolved to digital, but more will continue to emerge. Good consumer spending is just going to shift between markets as economic trends change.

Merchants who rely on discretionary spending can expect to see their good customers reduce spending along with an economic downturn. But their fraud risks will stay the same or increase. If they aren’t protecting themselves, their fraud and chargeback rates can increase significantly, despite reduced consumer spending.

Our combination of digital and physical data can help merchants in the evolving digital landscape by helping them understand and know their consumers better. With fewer customers coming through the digital doors, identifying good customers and assessing fraud risks will be more important than ever.