BY BEN DRAKE | NOVEMBER 27, 2023
For some, Black Friday conjures images of parasite-infected shoppers running amok in a mall. (Rotten Tomatoes gives the movie a 65% rating). For bargain hunters, it is a whirlwind of unbeatable deals and frenzied shopping sprees. Thanksgiving Day, Black Friday and Cyber Monday are the year’s biggest days for American merchants. The hype has crossed borders. Canadian merchants align with the US dates for Black Friday, while other countries such as Mexico, Romania, India, and the United Kingdom have their versions on various dates. Many stores now advertise Black Friday week sales.
Forbes estimates that these three days will account for 16.7% of seasonal sales. Black Friday is not just a big day for in-store shopping but also for online purchasing. In 2022, 87.2 million Americans shopped online during Black Friday.
So, while shoppers flock to the bargains, it’s unsurprising that financial criminals rub their hands in glee at the prospect of an all-you-can-steal buffet of potential fraud victims. Let’s discuss how you can make your Black Friday fraud-free, worry-free, and truly rewarding for your customer’s shopping experience.
Understanding Payment Fraud: What is it?
Fraud and scams are sometimes used interchangeably, and while the results are the same―consumers, merchants, and even banks are victimized―the methods differ.
Scams are sophisticated methods of tricking people into giving up personal information or money. Phishing, vishing, smishing, and whale phishing are popular scams that aim to compromise personal data or install malware. The consistent underlying objective is to deceive individuals into relinquishing sensitive information or to gain unauthorized access to financial accounts.
Payment fraud, a critical concern in the digital age, encompasses a broad spectrum of illicit activities aimed at financial theft. These activities take various forms, including unauthorized transactions, identity theft, and account takeovers. Once information has been obtained through scams, payment fraud is enabled.
At the core of these fraudulent operations are cybercriminals, often well-funded gangs, who combine advanced technological skills with psychological manipulation and social engineering. They capitalize on the general public’s lack of awareness about fraud indicators and their lack of protective measures.
The payment fraud risk is omnichannel, affecting POS devices, ATMs, online and mobile channels. The threat intensifies during peak retail periods such as Black Friday. The surge in transaction volume during these events creates a desirable environment for fraudsters, heightening the risk of financial and data breaches.
The Rise of Payment Fraud during Black Friday
According to Queue-It, global online Black Friday sales reached $65.3 billion in 2022, a 3.5% increase from the previous year. Additionally, in-person transactions in U.S. retail stores saw a 12% year-over-year growth. While beneficial for the economy and business revenue, the high traffic volumes and atypical purchasing patterns during this period attract fraudsters aiming to exploit holiday shoppers.
TransUnion’s analysis revealed a startling trend: the average number of suspected digital fraud attempts between Thanksgiving and Cyber Monday was 82% higher globally than the rest of the year. Furthermore, 15% of all global e-commerce transactions during this period were potentially fraudulent. Visa notes that 2022 fraud rates during the holidays were 11% higher than during the non-holiday period.
Fraud has a substantial financial impact on businesses. For instance, when a fraudster executes an account takeover and makes large purchases, these transactions can initially appear legitimate. However, when the actual account owner notices these unauthorized charges and disputes them, the business faces chargebacks. Chargeback Gurus notes that chargeback fees can range from $20 to $100 per transaction. Coupled with the transaction value, fees, product cost, marketing, and operational expenses, a seemingly profitable $100 transaction can quickly become a loss exceeding $200 due to a single chargeback.
Fraudsters are bold, and their schemes are increasingly sophisticated. In fact, the threat vectors of payment fraud and cyberattacks are converging. No merchant or issuer ever wants their networks sabotaged by a bot or bin attack at any time, and certainly not during the most lucrative time of the year. Financial criminals will launch a cyberattack as a distraction while they implement a fraud attack. INETCO has been blogging about converged threats for nearly two years. Having robust payment fraud protection is required 365 days of the year, but never more so than during the holiday season.
How to Spot Payment Fraud: Red Flags
Detecting payment fraud in today’s landscape can be challenging. However, recognizing certain red flags can aid in identifying potential fraud:
Too-Good-To-Be-True Offers: Educate your customers on scrutinizing too-good-to-be-true offers, as fraudsters often use such deals as bait. Customers should be wary of offers that seem incredibly attractive or unrealistic. Fraudsters frequently use such deals as bait to lure victims. As the saying goes, if it looks too good to be true, it probably is.
Monitoring Transactions in Real-Time: Real-time monitoring of transactions entering and exiting your payment network is one of the best ways to spot potentially fraudulent transactions. Monitor the complete transaction journey to identify when individual red flags arise on any given transaction. This vigilance is crucial for early detection and response.
Know Your Customer (KYC) Practices: Implement robust KYC practices to verify the identity of customers. Use payment analytics and artificial intelligence tools to understand their transaction behaviors and flag unusual transaction patterns or activities that don’t align with a customer’s profile.
Transaction Anomalies: Be wary of transactions that deviate significantly from the norm, especially during high-volume periods like Black Friday. Anomalies include high-value orders, rapid succession of high-value transactions, or orders shipped to regions not typically associated with your customer base.
Payment Method Inconsistencies: Pay attention to inconsistencies in payment methods. For instance, multiple transactions using different cards but shipped to the same address could indicate fraud.
Address Verification System (AVS) Alerts: AVS mismatches, where the billing address provided does not match the address on file with the card issuer, can be a sign of fraudulent activity.
Rapid Changes in Buying Behavior: Sudden and significant changes in a customer’s buying behavior, such as a sharp increase in purchase frequency or amount, should prompt further verification.
Be aware of Major Fraud Threats
E-commerce fraud is a year-round concern, but certain types of fraud become particularly rampant during Black Friday. Some of the most common scams are:
Phishing Attacks: Phishing remains one of the most prevalent forms of online fraud, where fraudsters craft official-looking emails or text messages that appear to be from well-known organizations. These communications often include malicious links leading to fraudulent websites designed to harvest personal and financial information. Encourage your customers to always verify the source before clicking on any links or providing information.
Account Takeovers: This type of fraud spikes during the holiday shopping season. Cybercriminals use stolen credentials to gain unauthorized access to users’ accounts. Once inside, they can make unauthorized purchases, alter account details, and potentially lock the legitimate user out of their account. Remind your customers to change their passwords regularly and to refrain from using the same password for all sites. Implement two-factor authentication (2FA) to mitigate this risk.
Chargeback Fraud occurs when a customer makes an online purchase and then requests a chargeback from the issuing bank after receiving the goods or services. During Black Friday, the high volume of transactions can increase such fraudulent chargeback requests, causing significant losses for retailers. Many chargeback attacks are bot-driven, so having a payment protection system that can detect and prevent bot attacks is key.
Synthetic Identity Fraud: Synthetic identity fraud involves creating new, fictitious identities by combining real (often stolen) and fabricated information. For instance, fraudsters might combine a personal identification number such as a social security number (SSN) or a social insurance number (SIN) with a fake name and address. They use these synthetic identities to open fraudulent accounts, apply for credit, or make purchases. During Black Friday, the high volume of transactions and new account openings provides an ideal environment for such fraud to go unnoticed.
Another concern is the risk of DDoS and DDOS ransom attacks. No merchant or issuer wants their networks sabotaged at any time, but particularly not during the most lucrative season of the year. The threat vectors of payment fraud and cyberattacks are converging.
Consumers and businesses can proactively safeguard themselves by being aware of these threats. The payment ecosystem has a lot of players. When merchants, issuers, acquirers, and payment providers implement strong security measures, it forces fraudsters to find victims in less well-protected environments.
4 Ways to Better Protect Your Business on Black Friday
In addition to educating staff and customers, take advantage of the available technologies to protect payments.
Leverage Machine Learning for Advanced Fraud Detection
Real-Time Transaction Monitoring
Implement Robust Authentication Protocols
Implement End-to-End Fraud Detection and Prevention Solutions
While the threat of payment fraud, particularly during high-volume shopping events like Black Friday, is a significant concern, businesses are not powerless. By implementing these strategies, companies can create a more secure environment, protecting their financial interests and building customer trust. A proactive, multi-layered approach to fraud prevention is key to ensuring a safe and successful Black Friday.
Stay Safe from Payment Fraud with INETCO BullzAI
INETCO BullzAI (BullzAI) is an intelligent, real-time platform purpose-built to protect payments not just from payment fraud but also from cyberattacks.
BullzAI can detect and prevent card present, card-not-present, account takeover, chargeback fraud, and many others without creating false positives. Integrating INETCO BullzAI into your financial security strategy gives you a robust shield against the payment fraud and cyberattacks that can take a big bite out of your Black Friday profits. Discover how INETCO can help you mitigate fraud risks by scheduling a demo with our experts and being ready for Black Friday 2024.
Originally posted to: https://www.inetco.com/blog/
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