Know fraud when you see it
With fewer purchases occurring in brick-and-mortar stores and retailers promoting frictionless omnichannel transactions, e-commerce fraud is on the rise, both in scope and in the range of activities and techniques. To start protecting your business, it’s important to understand and identify these common types of retail fraud:
Sophisticated, difficult to spot quickly, and growing rapidly, identity theft occurs when fraudulent actors obtain personal data about victims such as social security numbers, dates of birth, or other identifying information—often through a large corporate data breach. Criminals then use the data to create fraudulent credit card accounts to make purchases or obtain cash advances.
Account takeover (ATO).
ATO attacks occur when fraudulent actors use bot attacks, phishing, malware, and other tools to steal or otherwise acquire user credentials to take control of bank, e-commerce, or other online accounts. After the malicious actor has command of the account, they can use it to transfer money, make purchases, modify the account, or use stolen information to target other accounts. Spikes in failed sign-ins, multiple locked accounts, or sudden changes to account profiles, such as a change of address right before a major purchase, can all signal potential ATO attacks.
Card not present (CNP).
With so many transactions occurring online or over the phone, retailers can’t always physically confirm credit card credentials or a card holder’s identity, creating potential for CNP fraud. This gives malicious actors the opportunity they need to use stolen credit card information to buy products or services through a web browser, by phone, or with other omnichannel points of contact.
Click and collect (C&C).
When a criminal steals a credit card number, uses it to buy something online, and then picks up the purchase in person from a brick-and-mortar store, they’ve committed C&C fraud.
Card testing is another common form of credit card fraud. Fraudulent actors use bots to test the validity of stolen credit card numbers by adding them to an account payment profile. When a merchant verifies the information, the criminal can then use that account to make purchases—either with the same online merchant or a different one.
Cross-border or cross-channel fraud.
To delay exposure, cover their tracks, and drain the most value from their victims, fraudulent actors will often obtain usernames, passwords, account numbers, or other personal information in one channel and then use it to quickly attack those accounts in other channels.
Mobile payment fraud.
Rapidly outpacing web fraud, mobile payment fraud involves attacks through phone calls or mobile apps. If a phone becomes infected with a malware application that’s linked to a malicious system, fraudulent actors can access any credentials, account information, or other personal data on the infected mobile device.
The impact of retail fraud
Without the right fraud prevention services, retailers risk lost revenue, customer distrust, and reputational damage from a successful attack or security breach. Businesses of all sizes are vulnerable in an omnichannel retail environment.
Consider the harm inflicted on your business and customers when credit card information is stolen or sign-in credentials are exposed. These events can mean lost revenue and long-lasting damage to your brand. In addition, stolen personal information can result in poor credit ratings and can haunt your customers for years by impacting their ability to apply for loans, mortgages, and other forms of credit.
Fraud prevention strategies
While developing an omnichannel strategy is an essential component in today’s retail landscape, doing so while also focusing on fraud prevention is critical. With that in mind, these immediate steps will help you spot red flags and discourage fraudulent actors:
- Keep thorough records of all transactions, wherever purchases occur.
- Confirm credit card credentials, including security codes, when payments are made.
- Contact credit card issuers if you detect any suspicious behavior or transactions.
- Educate yourself about the types of fraud and how fraud prevention services can protect your business.
While customers want a consistent shopping experience across all channels, retailers still need a consistent way to authenticate customers’ identities. This type of authentication is still in development, but there are sophisticated fraud prevention technologies you can put in place now.
For example, look for fraud detection and prevention services that employ machine learning. This deep-learning technology can recognize and learn from complex patterns. It detects relationships through a holistic view of fraudulent activity and is far more accurate than rules-based tools.
Understanding fraud prevention services
Cross-channel shopping gives bad actors more opportunities than ever to commit fraud.
However, by identifying patterns of fraudulent activity, fraud prevention services can effectively detect and stop it. As a result, businesses that use these services gain three key competitive advantages:
Revenue protection: Sales aren’t impacted by fraudulent activities or false rejections.
Operational efficiency: Automated efforts eliminate the need for time-consuming, manual practices.
Customer satisfaction: By protecting account creation, personal information, and activity, loyalty is maintained.
Remember that fraud detection isn’t a static process. By using technologies like AI and machine learning, these services automate previously manual processes, combining large data sets and employing analytics to generate easy-to-read reports with actionable insights. This is key—rather than using a fixed set of rules, today’s fraud prevention services involve continuous learning, so improvements are always being fed into the system.
Choosing a fraud prevention solution
Once you’ve decided to implement a fraud prevention solution, what capabilities should you look for? And how will each help protect your business and customers? Here are some features to consider:
- Purchase protection: Helps safeguard your online revenue by increasing bank acceptance rates and reducing checkout friction that can result in abandoned carts.
- Account protection: Safeguards your reputation, revenue, and customer accounts by preventing fraudulent account access, fake account creation, and account takeovers by bad actors.
- Loss prevention: Empowers store managers and investigators with strategies to prevent loss and to take action by quickly identifying potential fraud on returns and discounts for omnichannel purchases.
In addition to these capabilities, you’ll want to evaluate whether a potential fraud protection service is a standalone solution, how it integrates with your other retail technologies, what type of reporting it generates, how it supports a seamless customer experience, and whether there’s technical support available, in case you need it.