Guest Column | November 8, 2021

Naughty Or Nice: Key Fraud Insights For A Profitable And Seamless Holiday Season

By Christina Luttrell, IDology

Retail Holiday

With as much as 40 percent of annual revenue generated from end-of-year sales, the holiday season is a critical time for brands and retailers. Unsure what to expect, many retailers were pleasantly surprised last year when sales outperformed projections and online sales alone increased by an astounding 49 percent.

Countering that success was a significant increase in fraud. As more consumers turned to digital shopping, fraudsters were ready to take full advantage of the opportunity. Sixty-nine percent of companies reported an increase in fraud attempts, 53 percent higher than the previous year. As the 2021 holiday season approaches, retailers and brands must prepare for fraudsters who are advancing their capabilities to target online more aggressively and mobile transactions. Juniper Research estimates that e-Commerce retailers are at risk of losing over $20 billion in 2021 due to online fraudulent activities, an 18 percent increase from the $17.5 billion loss recorded last year.

Anticipating The Biggest Fraud Threats

Among the challenges facing retailers and brands this holiday season is the growing consumer reliance on and preference for mobile devices. Experts predict that mobile commerce will account for 36 percent of all eCommerce sales this year. As mobile devices have become more important in our lives - from shopping to banking and establishing credentials - naturally, they’ve also become a prime target for fraud.

After last year’s rapid and sudden rise in mobile commerce left retailers vulnerable to fraud, many had to rethink how they verify customer identities. In parallel, they must consider the impact anti-fraud efforts will have on the customer experience. Consumers expect shopping to be quick, easy, and secure. A verification process that takes too long or requires too many steps may lead to abandonment.

While we know fraud will play a role in this year’s peak season, it’s important to understand how fraudsters will take aim at digital commerce.

Account Takeover

Account takeover can happen in several ways but is most commonly initiated by luring unsuspecting users into revealing their login credentials. After targeting their victims, fraudsters attempt to gain their trust. This can take the form of a friend request on a social media platform or an email that appears to be from a legitimate company.

Through these efforts, a criminal will gain access to a bank account, credit card or other financial resource. This form of fraud is particularly devastating to victims, and it’s typically committed using login credentials the criminal purchased online following a large-scale hack or data breach. Account takeover has long been a fraud threat but with 36 billion records breached in 2020, its potential to create problems for businesses and consumers increases significantly.

Card Fraud
Card-not-present fraud is the unauthorized use of an account number, card security code (if required by the merchant) and an accountholder’s address to pay for products or services online. It’s one of the most prevalent form of fraud facing online retailers today.

Several years ago, EMV card readers improved security with chip-and-pin requirements in stores and other physical locations but drove more fraud online as fraudsters still use account numbers and other identifying information to bypass digital safeguards.

Fraudsters have been utilizing email phishing tactics for decades in an attempt to steal personally identifiable information (PII) and/or account credentials from unsuspecting people. The most significant cause of large-scale breaches, phishing was prevalent in the industries of 56 percent of businesses surveyed by IDology in 2020.

While phishing can lead to a data breach and substantial loss, fraudsters also use it to target individuals and, monitor their activity to learn their account credentials and passwords. They then use this information to assume identities and defraud businesses by attempting to access accounts and purchase products illegally. Without the proper measures in place, these attacks have a high potential to go undetected.

Striking The Balance Between Fraud And Friction

How can retailers and brands build trust with digital, mobile-first and mobile-only consumers who demand better security without added friction?

Although the intention is to prevent fraud, requiring too much effort can backfire. Research shows the abandonment rate among consumers has steadily grown each year. Nearly half of Americans have bailed out of signing up for a new account because the process was untrustworthy or too time-consuming. Now more than ever, consumers desire trust, security, and ease.

Customers must be verified, but not at the expense of a positive experience. At the same time, basic identity proofing and data matching are no longer sufficient methods for verifying identities. Key to balancing fraud and customer experience is identity verification that works in the background to quickly locate, match, and authenticate legitimate customers with less friction. This is accomplished by leveraging multiple layers of data, including mobile network data, device information and geolocation, as well as the integration of machine learning and human fraud intelligence to improve the processing of that data. By utilizing smart layers of identity attributes and analyzing disparate identity characteristics behind the scenes, retailers and brands can quickly greenlight legitimate customers and escalate to additional authentication methods only when necessary.

Consumers Expect Flexible Fulfillment Options 

Today's consumers have fully embraced the best omni-channel experience. Adapted from the "buy online, pick up in-store" (BOPIS) method, curbside pickup was designed to protect customers and employees by limiting contact during the pandemic but also promotes convenience and accelerates buying interactions. However, curbside pickup also requires retailers to organize customer data and validate orders or risk creating a costly hiccup in this otherwise seamless process. 

To deliver on the convenience of curbside pickup, retailers must ensure they collect high-quality data across all points of sale. Technology can help accurately verify customer data and make the process of connecting customer profiles and purchase histories, online and in-store, seamless. Additionally, phone and email verification will ensure that the data presented for pickup matches the data captured during the time of purchase. Not only will this minimize the risk of fraud but also will result in lower wait times and a high-quality customer experience.

Looking Ahead

With peak season around the corner, the opportunities are ready for retailers and brands to seize. At the heart of building consumer trust and meeting expectations for a seamless experience will be having multi-layered identity verification processes and technology in place. This year, more than ever, lowering effort and building trust are the keys to outperforming the competition and securing long-term customer loyalty.

About The Author

Christina Luttrell is the chief executive officer for IDology, a GBG company and leader in multi-layered identity verification and fraud prevention. In over 10 years at IDology, Luttrell has significantly advanced the company’s technology, forged close relationships with IDology customers and driven the development of technology innovations that help organizations stay ahead of constantly shifting fraud tactics without impacting the customer experience. 

A well-respected industry thought leader, Luttrell was recognized in 2018 by One World Identity as a top 100 influencer in identity verification. She has been named one of the leading women in security by Security Magazine and in 2019 was selected as one of Atlanta's Women Who Mean Business by the Atlanta Business Chronicle. In 2021 she was recognized by Global InfoSec Awards as a top Woman in Cybersecurity. Under Luttrell's leadership, IDology has experienced dramatic growth.