Is Online Fraud and Financial Fraud the New Post-COVID Normal?

Even as retail merchants, ecommerce merchants, and financial institutions have tried to rise to the occasion of providing services to their customers, fraudsters and criminals have been working overtime to take advantage of people who are already hurting because of the down economy.

Fraud prevention experts everywhere are telling us that online fraud is only increasing, even as ecommerce and online shopping are increasing as well. A recent story in Digital Transactions magazine, Acquiring: Is This the New Normal?, reported that the U.S. Census Bureau has found that ecommerce sales were 16.1 percent of all retail sales, or more than $211.5 billion. That’s a sharp increase over 2019’s figure of 10.8 percent or $146.4 billion.

Fraud experts have also found a direct correlation between the increase in ecommerce and an increase in fraud.

The biggest type of fraud they’ve seen? Account takeovers.

A hacker perpetrating online fraud and financial fraud. A black and white photo of a man staring into the bright screen of a laptop.

This is just what it sounds like: A hacker takes over a person’s legitimate account and begins using it for themselves. For example, a hacker may take over a food delivery account and have food delivered to themselves. Or they may order electronics and other items to have “gifted” to their address. And still others will just sell the account credentials or customer information to other hackers.

According to its third-quarter Fraud & Abuse Report, Arkose Labs said they saw a 28 percent increase in attacks on logins, along with 30 percent fewer attacks on account registration and a 47% lower attack rate on payments.

In other words, hackers are devoting more attention to account takeovers rather than trying to create fake accounts or intercepting payments.

Once they’re discovered, these account takeovers often lead to chargebacks to the merchants, since the account owner never actually placed the order or received the items, but the merchant is still on the hook for the refund and/or extra fees that go along with a chargeback.

Digital Transactions also speculated that these account takeovers will increase especially as the holiday shopping season arrives.

“We will see an intensification,” said Julie Conroy, research director for Aite Group’s fraud and anti-money- laundering practice. “We haven’t seen a big spike yet because the fraudsters have been focused on defrauding unemployment and the Payroll Protection Program.”

However, that will likely change this quarter especially as a wave of digital newcomers adopt digital shopping methods. They’re more susceptible to scams and tricks like phishing or using easy-to-crack passwords like their kids’ and grandkids’ names, or even PASSWORD or the slightly more difficult P@SSW0RD.

Conroy said they have already seen an increase in phishing attacks as hackers trick users into giving up usernames and passwords.

Financial institutions are also seeing account takeover issues, especially as they work to get more and more merchants to comply with contactless payments and EMV implementation requirements.

Regular Chargebacks are Increasing Too

Chargebacks, in general, are also on the rise — there has been a 17 percent increase in the last 12 months — and not just because of fraud, although that’s still a major factor.

Conroy told Digital Transactions, “Most of the banks I interviewed have seen between a two- and threefold increase in non-fraud disputes in the early months of the pandemic.”

This was a combination of factors, such as travel providers refusing to provide refunds for canceled travel plans, or people experiencing buyer’s remorse.

“It’s likely this number is going to increase as a result of Covid fallout,” said John Buzzard, lead analyst for fraud and security at Javelin Strategy & Research.

“Anecdotally, we are hearing from some major processors that they are seeing an increase in friendly fraud chargebacks in the past two months as consumers have increasingly had buyer’s remorse and continuing financial uncertainty. This has been different than initial disputes centered around undelivered goods—think travel—that occurred when lockdowns first went into effect,” said Buzzard.

As merchants, there is only so much you can do to prevent fraud, but there are important steps to help you reduce the number of incidents. You might not be able to eliminate fraud perpetrated against your customers, but there are things you can do to protect yourself and your business against chargebacks and fraud.

  • Make sure you adopt the latest security technology for your website. Put security best practices into place, and consider moving your ecommerce site to a cloud-host like AWS, which has state-of-the-art security functions only available to the largest providers.
  • Make sure your in-store payment equipment is up-to-date with contactless payments and EMV requirements.
  • Train your staff to follow all security practices as well, such as checking IDs of in-person clients using credit cards.
  • Use digital receipts to notify customers when a purchase has been made.
  • Participate in Verifi’s Order Insights program to reduce charge disputes people don’t recall. Verifi customer service reps will also have access to transaction details, which helps them respond to customer calls immediately, rather than elevating disputes.
  • Require CVV codes on Card Not Present transactions to help reduce stolen credit card purchases.
  • Deal with all disputes quickly, since card networks only have a small window for you to respond. If you miss that window, the dispute will likely be elevated to a chargeback.

To learn more about how CB-Alert can help you reduce the number of chargebacks your business faces as well as online fraud, please visit the CB Alert website.

Photo credit: IAmMrRob (Pixabay, Creative Commons 0)

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