How Merchants Can Defend Against Coronavirus Fraud

How Merchants Can Defend Against Coronavirus Fraud

March 26, 2020

By Joan Goodchild, Card Not Present Staff

For weeks, fraudsters have been finding ways to take advantage of the panic around coronavirus. Now that many countries around the globe have placed citizens in quarantine and require social distancing protocols be followed, criminals are creating even more schemes amid the chaos as more people head online to shop.

TransUnion this week released new research that looks at the impact of coronavirus and Covid-19, the associated disease, and found a 23 percent increase in global e-commerce transactions in the week following the World Health Organization declaration that the virus had turned to a pandemic.

“It is clear that social distancing has changed consumer shopping behaviors globally and will continue to do so for the foreseeable future,” said Greg Pierson, senior vice president of business planning and development at TransUnion. “No doubt fraudsters will continue to follow the trends of good consumers and adjust their schemes accordingly.”

Indeed, they have, as the TransUnion survey of 1068 Americans 18 and older finds 22 percent said they have been recently been targeted by digital fraud related to Covid-19.

Uri Arad, co-founder and vice president of product & research for Identiq, said his firm is observing multiple types of fraud hitting both merchants and consumers during this time. They include:

Gift card fraud – Consumer intent is in the right place and many are trying to keep local businesses and restaurants afloat by purchasing gift cards to be used later. But Arad says fraudsters are also taking note and purchasing gift cards with stolen financial credentials and taking advantage of the run on these kinds of purchases.

Phishing – Criminals never miss an opportunity to find new hooks to lure people in over phishing emails. Many of these scam messages currently prey on fear and anxiety. The FBI Internet Crime Complaint Center (IC3) recently issued an alert warning of emails claiming to be from the Centers for Disease Control and Prevention (CDC) or other healthcare organizations, pretending to share information about the virus. Other phishing emails promise people information on stimulus checks, airline refunds, and charitable donations and prompt victims to open malicious attachments or hand over credit card and bank account information.

Fake sites – Fraudulent sites are also cropping up that take advantage of panic and fear. Many of them sell fake products, such as virus testing kits and vaccines.

Stolen products – Criminals are using stolen credit card numbers to purchase legitimate, but hot, in-demand products, like hand sanitizer and disinfecting wipes, and then selling them for profit.

Shipping fraud – With a spike in online orders, criminals are taking over customer accounts but don’t initially change the shipping address, which helps them avoid detection. Once the package has shipped, they intercept it at the carrier site and change the shipping address.

Recommendations for merchants today

Arad said with the change in purchasing patterns many e-merchants are now experiencing, now is a good time to learn some lessons and take different steps to guard against fraud. He makes several recommendations.

Be careful of statistical models

“The basic assumption is that good user behavior is going to remain constant over time,” said Arad. “But there’s no longer a normal behavior. Everything is shifting.”

Arad suggests that these shifting traffic patterns mean statistical models can no longer be relied on, and many false positives may come in due to new patterns taking place amid the online behaviors of many people in quarantine.

“A lot of good consumers may be declined,” said Arad.

Train based on new models

Because of the increase in false models, Arad recommends training that relies on a model of spending time to look for “good” consumers and on positive identification, rather than spending more time looking for bad actors.

“We see the weakness of looking for anomaly, because everything looks like an anomaly now,” he said.

Communicate with customers

Arad also urges merchants to communicate with customers to let them know the guidelines of how you will communicate with them—and warn them of any potentially fraudulent attempts that criminals may try to pull off.

Use wallets

As many small businesses that once operated with a lot of cash transactions must shift to card and digital payments, Arad recommends using wallet applications whenever possible because they “offer risk management behind the scenes.”

Collaborate with other merchants

Arad sees this as an opportunity for merchants to work together more often to combat fraud.

“Fraudsters are taking advantage of merchants working in silos. I see this as an opportunity to think about not only how they manage risk, but how they can collaborate.”

Be ready for the future

While the pandemic will pass, it offers lessons for dealing with other global events in the future, says Arad.

“See whether you can stay in touch with customers and shift focus,” he said. “How you can continue looking for good customers and able to identify them and give them a seamless, positive experience.”'

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Joan Goodchild

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