Ecommerce fraud isn’t just growing, it’s evolving. Although the most common types are still card-not-present and chargeback fraud, bad actors are continually innovating.
We’ve devoted time to understanding the changes in the fraud ecosystem so we can work to prevent new threats. Multichannel companies are at particular risk. Unlike pure-play ecommerce or physical retailers, the growing number of omnichannel companies will be exposed to everything from sophisticated computer penetration to shoplifting, and will need strategies to counter them all.
Below are five ecommerce fraud trends to watch in 2022. Some are new, and some are existing forms that will remain prominent in the new year.
Policy Fraud
The policies that ecommerce sites use to handle refunds and other everyday events can sometimes be misused by unscrupulous customers. A classic example is “the customer is always right” in physical retail. A fraudster picks an item off the shelf, take it to a customer service and asks for a refund, saying they received the item as a gift and don’t have a receipt.
Online, it’s much easier. Written policies can be pored over by fraudsters, and it’s easy for them to find flaws and loopholes there. The only way around this is to continually check, update policies, and balance security with customer friendliness.
Bandwagon Fraud
It’s easy to find tutorials on how to commit ecommerce fraud. A quick search on YouTube, Reddit and increasingly TikTok can turn up dozens of ideas. For amateurs who want to go pro, there are training seminars complete with PowerPoint presentations on the finer points of digital crime.
Once an idea on how to commit fraud proves successful, it will tend to proliferate via social media and word of mouth, creating a bandwagon effect. This psychological phenomenon occurs when people do something simply because others are, regardless of their own beliefs, which they may ignore or override. Typically, the company or companies this technique targets will change their policies or technology to stop the attack, but another bandwagon will start soon after, causing everyone to play an endless game of whack-a-mole.
Fortunately, most modern security researchers are aware of where to find information on the latest fraud techniques so they can nip them in the bud much quicker than if they were working in the dark.
Wardrobing
This technique is not new, likely predating the internet, but ecommerce has made it much easier. It involves buying an item (often the same one in different sizes and colors), not removing labels, using it, and returning it for a refund, usually under a false pretext. It isn’t isolated to apparel. Although a shopper is most likely to wardrove an expensive suit or dress for an important event, they could equally score a high-quality camera to bring on vacation or even a big-screen TV for hosting a Super Bowl party.
This is a very difficult type of fraud to prevent, particularly online. Although some potential fraudsters may be too nervous to ask for a refund in person, most have no qualms about doing so online, and there is often no indication that the request is fraudulent. This brand of ecommerce fraud is also more damaging than most would realize. Even though items are returned in usable condition, they still have to be removed from their packaging, repackaged and sold at a discount or in some cases thrown out.
Empathy Fraud
COVID-19 has spawned a host of new scams, such as applying for government grants and welfare or selling bogus cures and protective equipment. It’s also finding its way into the chargebacks and fraud space, where emotional appeals to companies are becoming more common. For example, a person attempting to wardrobe an expensive item after the return period or return an item that typically can’t be brought back may claim to have been in the hospital or be caring for a sick relative.
For this reason, companies are often cautious when dealing with emotional appeals rather than dismissing them or asking for evidence. One possible way to prevent this is to log these types of requests for refunds or chargebacks and look for customers who have a history of this type of behavior.
Newbie Fraud
With so much information about fraud available online, especially on youth-orientated sites like TikTok, young people have access to all they need to get started. Most are very simple: Giving a friend their parent’s card to input, so the charge appears to come from a different number, or adding a parent’s card to their phone or game console to make in-app purchases.
This is usually spotted by parents on their card statements, or increasingly through pop-ups on their phones, so they usually lead to chargebacks. Because they are more common in areas like gaming, these industries will typically be treated as higher risk than others.
Staying Ahead of the Fraudsters
The ecommerce fraud ecosystem is growing so quickly, which is why it’s important to work with companies studying this ecosystem and finding new exploits. This can be a very difficult task to carry out in house in all but the very largest retailers, but you can find experts with experience and expertise identifying fraud patterns and developing countermeasures.
Monica Eaton-Cardone is COO and co-founder of Chargebacks911