How to Identify the Changing Face of Fraud

Global e-commerce sales rose 38 percent to $876 billion in the first quarter of 2021. While this is positive for retailers, it’s also accompanied by rising fraud. A report from Feedzai on financial crimes revealed the sheer scale of the problem: in the first three months of 2021, there was a 159 percent increase in fraud compared with the same quarter of 2020.

The financial cost of fraud was estimated to jump by 18 percent in 2021 to more than $20 billion. Just like payment methods, fraud incidents are incredibly localized, and are becoming harder to detect as they evolve quickly and become more sophisticated.

For many small to midsize businesses (SMBs) operating across borders, there's simply no capacity to respond to fraud in every region in which they want to sell. While many payment service providers offer to process transactions as "cross-border," this leads to higher processing fees and higher decline rates. For retailers that want to sell their products globally, the merchant of record (MOR) model could be the solution that gives them the perfect balance of security and better acceptance rates.

The emerging fraud threats to watch out for include the following:

• If a regular customer’s buying behavior changes suddenly, such as buying multiple big-ticket items in quick succession, this could indicate that an account takeover (ATO) is happening. ATO occurs when personal details are stolen and used to hack into a customer’s account and make purchases. This fraud type is extremely difficult to detect, particularly in the wake of the COVID-19 pandemic. The ensuing surge in e-commerce volumes has clouded anti-fraud system ability to flag high-risk transactions.
• Another emerging threat is Fraud-as-a-Service (FaaS), when fraudsters convince genuine customers to purchase an item and file a false refund claim in exchange for a percentage of the money returned. The fake refund fraud, or return fraud, is being exploited by fraudsters with success, and e-commerce businesses are especially vulnerable to it with more consumers buying online. Return fraud typically involves someone stealing an item from a delivery address doorway to enable a falsified return, or a seemingly genuine customer orders an item, then claims that the item was stolen from their address and files a refund claim.
• When a business experiences a spike in new customer signups, a bot attack could be underway. How can you tell if those customers even exist? With more online sales, fraudsters are harvesting customer data and using bots to create fake customer accounts and infiltrate log-ins, payments, and even loyalty point redemptions.

MOR Providers Can Stop Fraud in its Tracks

With the MOR’s extensive network of fraud information providers, retailers can process transactions "in-country" rather than cross-border, enabling them to accept more transactions, choke fraud attacks, and reduce false positives at the same time. Ultimately, businesses get an increased global customer base and a massive boost in conversions. By partnering with skilled MOR providers that can remove risk, retailers can tap into the rich opportunities awaiting them in cross-border e-commerce.

Sam Ranieri is the chief executive officer of Reach, the global payment localization provider.