The Covid-19 outbreak has meant that industries across the board have had to adapt to different ways of operating while countries around the world are in lockdown. Nowhere is this as true as it is in the payments industry, as customers have been forced to buy goods online rather than visiting their favorite stores. As a result, the eCommerce industry is booming.
However, although businesses may be seeing huge surges in online sales, new challenges have arisen for both retailers and financial institutions, as fraud increases in correlation with online activity. Companies throughout the entire payments value chain must be prepared for this.
To make matters worse, fraudsters are very much aware that this is the perfect opportunity to make money. We’re also seeing those who are desperate and in need of money following job losses and furloughs turning to this type of criminal activity to make ends meet.
So, what fraud trends can we expect to see during the pandemic and how can businesses and financial institutions begin to mitigate the risk?
How can we expect fraud to develop during the pandemic?
From a fraud perspective, companies will be facing the same problems as before the pandemic, only on a greater scale. This can be broken down into friendly fraud and malicious fraud.
Friendly fraud occurs when a consumer deliberately disputes a transaction that took place with a merchant, despite that transaction being completely legitimate and the goods arriving on time and in one piece. With the amount of payments taking place online and the number of deliveries increasing, this type of fraud is rapidly growing.
In addition, we’ve seen a rise in identity theft and phishing attacks as fraudsters take advantage of increased online activity. Savvy fraudsters are playing on the fact that people are looking for new jobs and need financial support, by targeting them with phishing scams that offer financial aid or stealing identities through false employment websites.
Anyone doing business online, along with the financial institutions that service them, will be impacted by this, as the identities being stolen will be used to make purchases which will result in fraudulent transactions and increased chargebacks.
Rising to the challenge
The speed at which fraudsters have responded to the opportunity presented by the global crisis is alarming but not unexpected – it now needs to be matched with urgency and expertise from online businesses, payment service providers (PSPs) and financial institutions that support the industry.
There are two things that these businesses must always do when combating fraud: firstly, they must be able to distinguish between what is genuine and what is not in order to prevent false positives and the rejection of genuine customers; the second is that they mustn’t increase negative friction during the payment process and ultimately lose conversions.
Traditionally, to prevent fraud, businesses have used technologies that make smart decisions in the back end, through the analysis of information inputted during the payment process. This approach usually results increased friction during the user experience (UX) and customers dropping off before completing a payment.
Instead, they should use solutions that assess fraud on the front end of a transaction, such as whether the transaction is taking place on the same device it usually is, or whether the device has been used to make purchases in the past. I have seen this approach being used highly successfully during the outbreak as it makes security invisible and also tends to prevent false positives. In addition, it allows companies to collect compelling evidence that can be used to dispute fraudulent chargebacks further down the line.
Moving towards the future
The pandemic has brought a rapid mass move to digitization, across sectors, devices and consumer groups. As a result, it’s acting as an accelerator for companies throughout the entire payments value chain, who are having to adopt new and innovative ways to effectively handle fraud at this sensitive time.
Light touch fraud models, where security is invisible to consumers and negative friction is absent, will be crucial for retailers and the financial institutions that serve them, when it comes to maintaining sales volumes and preventing fraud. The balance between fraud and friction is undoubtedly a vital element to businesses that want to preserve customer loyalty and trust, while also protecting financial data during the outbreak.
To learn more about how to combat fraud during the pandemic, visit: https://seon.io/