Exactly how much will the Covid-19 pandemic impact the 2020 holiday season? While more consumers are predicted to shop using digital channels, companies are rushing to offer contactless shopping solutions to accommodate them in bricks-and-mortar locations.
Fraudsters are also taking note and see these as new avenues to commit cybercrime through increased bot attacks and leveraging synthetic IDs.
What new tactics might criminals try this year? And how can businesses protect themselves from the threats of the season? CardNotPresent caught up with Chris Schnieper, director of fraud and identity at LexisNexis Risk Solutions, for some insight.
CardNotPresent: The 2020 holiday season is here and many consumers are using digital channels to make purchases. How is this impacting fraud prevention?
Chris Schnieper: Covid-19 has certainly driven an increase in digital transactions since March of 2020, particularly for retailers. In many ways, retailers have been experiencing a holiday-like digital rush for many months. Organizations across almost all industries had to pivot quickly to accommodate this digital transaction increase. Fraudsters are shifting just as quickly and are attempting to commit fraud at all points along the consumer journey—from account origination through to contactless curbside pickup.
Because there is an expectation to accommodate a touchless experience, businesses have to optimize fraud controls across the digital experience, leveraging more passive and low-friction fraud and authentication modality for low-risk transactions—like for balance inquiries—and higher-risk appropriate fraud and authentication modality for higher-risk transactions, such as high-value purchases or changing PII in user profiles. It is important to do this to ensure a positive experience for trusted consumers while making it difficult for bad actors. A consistent consumer experience and sharing risk signals across different channels (call center, mobile app, in-store, etc.) is vital to ensure consumer safety and convenience during the holiday season.
Based on figures from your recent report, The True Cost of Fraud, how much does fraud cost companies today and how is that important for the holiday shopping season?
Schnieper: In the latest LexisNexis® Risk Solutions True Cost of Fraud Study for Retail/e-Commerce, for every dollar lost to fraud in 2020, retailers and e-commerce merchants actually lose $3.36. This is up from $3.13 in 2019. Among different sections of large/mid/small and physical store-based/e-commerce retailers, the increase ranges from an increase of 5.2 percent to 10.4 percent. This additional cost is attributed to transaction face value, for which firms are held liable, plus fees and interest incurred, fines and legal fees, labor and investigation costs and external recovery expenses.
The study further found organizations employing fully integrated cybersecurity and fraud controls have a lower fraud cost—around $2.92. Especially in these times of hyper-competition, consumers expect a safe and convenient digital experience. General uncertainty may cause consumers to be risk averse and anxious and some organizations will move mountains to ensure both safety and convenience, but hopefully not at the cost of fraud control. Companies can integrate these different areas through sharing data, risk signals, fraud outcomes and other events in order to ensure the best consumer experience with the highest level of risk appropriate risk controls.
Do you expect to see any new or novel attack techniques or fraud patterns this holiday season?
Schnieper: It is very difficult, if not impossible, to predict what fraud attacks or techniques retailers will experience at any time (novel or not). Organizations should always anticipate novel attacks regardless of the season. This can range from social engineering in order to gather critical data for account takeover to new ways to create synthetic identities.
Given the level of overall uncertainty that consumers are experiencing both health-wise and economically, I would not be surprised to see fraud schemes that take advantage of those concerns/anxiety.
Organizations are also likely looking to provide a lower friction experience for their consumers to ensure quick transactions that may lead to unanticipated fraud exposure. Most businesses can address some, if not all, fraud techniques by leveraging a wider range of digital (device, incoming IP, etc.) to physical (PII, etc.) risk signals. Analytics can quickly evaluate these signals to process and accept/reject or challenge a response to determine the appropriate fraud/identity or authentication modality to utilize at each point across consumer journey.
What tactics can retailers use to best protect themselves against fraud this holiday season?
Schnieper: Leveraging a risk appropriate multi-layered approach utilizing physical and digital data and analytics is the best protection. It is like tightening the net, so to speak, ensuring fewer bad actors get through.
The level of fraud control organizations apply should correspond to the level of risk and expectations of the consumer’s journey and should be performed in real time. This will vary per organization and each consumer’s journey, like at new account opening, during account management or per transaction. Utilizing digital signals ranging from telemetry of the device itself or changes on the device—phone number forwarding or sim swap of the phone—can be very insightful. Organizations can also investigate the interaction of the consumer with the device or computer through robust behavioral biometrics coupled with a wide set of data that can compare inputted data with verified/corroborated data sources.
A lot will be at stake during the holiday season this year. Consumers will be looking for some type of certainty in an uncertain world. Many will look to their trusted brand to provide them with that certainty as they look for a safe and convenient experience. Regardless of the appropriate fraud controls, organizations should measure those controls against the risk of the transaction and the ability to support a great consumer experience.
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