The criminals have already started. They are buying fraud tutorials and data from other criminals online. They are eyeing juicy targets such as gift cards and loyalty programs, both of which are of increasing importance to merchants’ holiday revenues. They are setting up fences and other methods to sell stolen goods — as well as rewards points and those gift cards — and win paydays.
The 2018 holiday shopping season has already started for people and organizations bent on fraud. It’s not just about stealing products from shelves, of course. This year, fraud will probably bring more account takeovers than last year, according to experts — along with the theft of gift cards, loyalty points and other consumer data ID.
In a new PYMNTS interview, Tricia Phillips, SVP of product at Kount, discussed the fraud trends for the upcoming fourth quarter. Though many consumers have yet to shift focus onto the season (Halloween is next on their agenda, after the rush of back-to-school shopping), retail preparations, of course, are well underway. Macy’s, for instance, recently said it will hire 80,000 temporary workers for the holiday season, and will add more employees to handle online orders.
Fraudsters, too, are finishing up their homework and starting their work. Even when it comes to crime, the old saying that "the early bird gets the worm” holds true. By the time a flood of chargebacks shows a retailer that criminals have committed fraud, it’s too late, she said, which puts a premium on enacting defenses as early as possible, and making sure they are flexible enough to respond to the movements of online, globally active digital thieves.
Attack can be a simpler proposition than defense. That’s because merchants face the challenge of “balancing the customer experience with fraud prevention,” Phillips said. That’s a year-round task, of course — introducing any friction into the shopping and checkout experience encourages consumers to rethink their purchases, abandon their shopping carts and reduce their brand and store loyalties. However, during the holidays, the challenge increases, given that consumers are shopping at new stores and going off wish lists, potentially blending into a crowd that might include fraudsters.
“It’s a huge risk asking those customers to jump through a bunch of hoops,” is how Phillips summed up that holiday season retail challenge. In addition, she said, “the expectations of customers continue to increase month after month, after month. It’s the Amazon effect.”
At the same time, criminals engaged in fraud become ever-more sophisticated — trading information, strategies and tactics online, as well as striving to keep themselves at the cutting edge of new payments, ID and commerce technologies.
The 2018 holiday shopping season seems likely to feature account takeover as a bigger fraud feature than in years past. Phillips said, “It’s easier to take over an account if you use credential-stuffing attacks with bots.” The appeal of such an attack is increased because many consumers use simple, similar or the same passwords and emails for multiple retail accounts, which “exposes” those customers widely in the larger eCommerce and retail landscape.
Gift cards and loyalty programs, too, present attractive targets for criminals. As retail competition increases, merchants and brands beef up their loyalty programs, often enabling easier transfer and use of points that can accumulate to high amounts and make the return on investment (ROI) positive for fraudsters. Stolen gift cards, meanwhile, can be resold online, via Craigslist or other channels.
Retailers need to employ fraud prevention professionals and technology — including more use of machine learning — to build effective defenses against those criminals, Phillips said. However, that’s not the only key to a successful holiday shopping season.
“Focus on what fraudsters will be doing the most,” Phillips said, “and also think about what your best, good customers are going to be doing.”
Woe to the merchant that erects hurdles for those top-level customers — it’s better to find ways to reduce friction for those shoppers who are known well by the retailer, and who will spend a good deal of money during the holiday season. “Advanced retailers know what a good customer looks like,” Phillips noted, “and they make as little friction for them as possible.” One way to do that is combine machine learning models with human supervision to determine who are those best customers.
Holiday shopping this year will be a messy, complicated mix of brick-and-mortar and online retail. In 2017, for instance, online retail sales increased 14.7 percent year over year during the 2017 holiday season to $108 billion, according to Gartner. Yet, 85 percent of holiday sales were in physical stores in 2017.
That mix presents opportunities for enterprising criminals, which underscores the importance for retailers to not only working on their fraud prevention right now, but have the smarts and nimbleness to shift when fraud experts or software spot signs of change.