Know the Enemy: What Merchants Can Learn From Fraudulent Behavior

How do fraudsters operate? A big part of succeeding in the challenge of fighting fraud is having an in-depth understanding of the enemy. Who are they? What motivates them? What are their typical methods of operation? We've researched and analyzed data in order to present a general snapshot of fraudsters' behavior. Knowledge is power — understanding these aspects and others like them might be valuable for merchants trying to keep a fraud-free e-commerce environment.

Crime Stalks the Night
The percentage of fraudulent transactions goes up in the early hours of the morning, because most legitimate shoppers are likely to be asleep, while the number of fraudsters stays steady! In fact, the rate of fraud between 2 a.m. to 6 a.m. is 10 times as high as the fraud rate between 2 p.m. to 6 p.m.

What causes this level of disparity? Part of it is simply that genuine customers are more active in the afternoons, but it's also true that fraudsters do work more at night, either because they have a "day job" to maintain or because they're working in a different time zone.

Retailers that rely on manual reviews should bear this in mind; it's natural for reviewers to want to rush through the backlog that's built up during the night, but in fact special care should be taken with the orders that came in before dawn. Merchants that worry about balancing the demands of speedy shipping with preventing fraud should consider automating all or most of their fraud prevention.

No Rest for the Wicked
A similar message applies to orders which come in over the holidays. For instance, fraud rates surge Christmas Eve and Christmas, rising by an astonishing 200 percent. Again, part of the explanation here is that most legitimate shoppers have already completed their purchases by that point in time, but there's also the fact that fraudsters don't take time off to wait for Santa. Retailers must not lose sight of the fact that these criminals are professionals, with clear goals and plans of action, and this informs their actions.

Similarly to the morning rush, merchants that rely on manual reviews face enhanced risk during the period after the holidays, when reviewers get back to work.

Fraudsters Pay With Style
You might think that elite cards would be safer than ordinary ones, but actually it's the other way around. Although elite cards are rarer and cost more on the black marketplaces, criminals often feel that it's worth paying extra as these cards have higher credit limits (i.e., access to more money), which means that their potential for maximizing a fraudster's bottom line is greater. Never forget that fraudsters are rational actors — it's all about the money.

More specifically, retailers shouldn't be lured into a false sense of security when they see an elite card. For example, a "black card" from American Express might project prestige, but it also comes with fraud rates that are 2.5 times higher than the rates associated with standard cards.

The Bottom Line
The overall takeaway for merchants is simple: Preventing fraud means combating professional criminals who are supported by a sophisticated criminal ecosystem. To succeed in protecting your customers and business, you must deal with this challenge in a similarly professional manner and always stay in the know.

Fraudsters are fast, agile and always have an eye on their bottom line. Retailers might feel as if they're always racing to keep up and educate themselves, but the cost of falling behind might be too high.

Alon Shemesh is the co-founder and chief analyst of Forter which provides a decision-as-a-service fraud prevention solution for online retailers.