As we welcome the new year, online merchants and marketers prepare for the increasing threats of dishonest customers and insider misconduct.
The economic downturn has exacerbated this trend, as it has reduced cybersecurity budgets. This makes the market more vulnerable to attacks from nation-state hackers with political motivation.
Merchants have changed their strategy in response to the increasing fraud scams that only teach customers new ways to cheat. They no longer require the return or exchange of items that are disputed, but instead offer hassle-free returns and refunds.
The reason for the change is that the costs and complications of returning goods are prohibitive, and often exceed the potential benefits. Even when fraud is suspected, this is not the case. Retailers believe it is more cost-effective and efficient to let customers keep the disputed item and address their complaint quickly.
E-Commerce Fraud: The Many Faces
Marketing reports indicate that merchants now regard ‘friendly fraud’ — where legitimate customers make a purchase, receive the product or service, then file a chargeback to reverse the transaction while keeping the goods — as an inevitable cost of doing business. This lack of action in addressing fraudulent retail claims encourages further consumer fraud.
The Q4 2022 Digital Trust & Safety Index from Sift, a fraud prevention software provider, reveals that 23% of consumers admitted To dispute purchases as fraud after receiving the item and being satisfied suggests that the actual incidence of fraud could be higher.
The Ponemon Institute 2022 Cost of Insider Threats Study highlights another growing concern – economic insecurity, which can affect employee judgment and lead them to digital wrongdoing. Cyberattacks by such bad actors have increased by 44% between 2016 and 2023. They have defrauded organizations of millions.
These challenges are also increasing the operational costs of merchants. These merchants are now incurring increased costs to implement protections, such as delivery insurance There are fraud controls.
This extra measure is essential to minimize the risk of fraud or dishonesty. Rodrigo Figueroa is the COO at Chargeback Gurus. The firm specializes in loss prevention and recover solutions.
Many delivery processes require now signatures, or more importantly, photos of the product at the delivery location. “This pressure on merchants” was the reason for this change, he said to E-Commerce Times.
Hemorrhaging Due to Friendly Fraud
Figueroa has expressed his dislike of the term “friendly fraud” because it sounds so soft. He uses harsher words, like consumer theft.
As the holiday season 2023 approaches, current shopping trends indicate that fraud is on the rise. According to research, the average cost per incident is over $15 million.
Bridewell has released some alarming statistics. The report warns that the economic downturn is driving internal employees towards cybercrime. Over a quarter (35%) cyber professionals think that the economic recession is driving more internal employees towards cybercrime.
A report by Riskified, a fraud management company, shows that retailers are likely to lose $100 billion per year to bots and coupon stacking. According to the report, AI advancements and a growing risk of data leaks are creating a need for more tools that can combat fraud without compromising consumer privacy.
Tackling E-Commerce Fraud and Retail Threats: Q&A
Rodrigo Figueroa Chargeback Gurus We discussed the effects of fraud in online shopping, and the ongoing struggles with the economy. He explained the challenges retailers face when deciding how they will handle consumers who steal and make false claims about stolen goods.
E-Commerce Times – How can merchants protect themselves from false consumer claims about “porch Piracy”?
Rodrigo Figueroa: Merchants can often track the shipping process to hold handlers accountable. These steps add to the cost of delivery. The biggest problem is the delivery address of the customer. The last mile has always been a problem.
If you’re a regular retailer, you add cost to your logistical processes and confirmation of delivery. If you’re not a digital products company, then you must invest in this capability. It is important that you recognize the device and IP address of your buyer so that you know where they are coming from. These things are important today.
Do you expect the industry to change its ways?
Figueroa: It’s a numbers game. Most retailers will refund the first time that a customer complains about not receiving the order. They want to retain the customer as a future customer. If this happens twice or three times, retailers may decide to stop being your customer.
What are the extreme measures that merchants may take?
Figueroa: Many merchants have a strict policy. If they notice a pattern of abuse or a series of incidents, they will be more strict.
You may be told you are no longer a valued customer. This will be an element. You will also see that a subscription-based provider is more proactive in helping merchants to reduce the costs of chargebacks.
Does your company have a large number of customers who are SMBs and mom-and-pop merchants or do you have a majority of business with larger corporations?
Figueroa: The majority of business comes from large corporations. Smaller retail shops take the risk of doing it on their own. If you own a small store, how much of your business is digital?
The cost of complying with a few chargebacks a month is simply not worth it. In this instance, they’ll call the payment processor in order to seek out a feasible solution.
How could this fraud impact on free delivery
Figueroa: It is a cost of doing business — no doubt about it. The margins of profit are extremely tight. Retail has been a very competitive sector. They must be highly efficient in order to survive within this wider e-commerce eco-system.
When the cost to the merchant of a customer becomes negative, it’s time to make tough decisions. This new level of stress is only a few years old. We don’t know what type of accommodation is going to happen.
Fraudulent payments can complicate the process. We start off with higher deflection levels. Invest in technology for new mandates and structures. To bring this down to a comfortable level for all, you need to have the entire ecosystem working together. It’s impossible to have zero fraud. It’s about how to get down to the smallest level, so that it doesn’t grow.
What is your opinion of the retail sector’s ability to reach that level?
Figueroa: I don’t believe that we’ve reached the level of adaptation that everyone is comfortable with. Each person adapts differently. Retail industry hasn’t found a single solution.
The aim is to have companies hire firms who can help them recover a portion of their lost revenue. The merchants are tired of losing money.
Is the outlook for retail as bleak and gloomy as it may sound with no hard-core solution?
Figueroa: The ecosystem is healthy. It is not dark in the sense that it has an abnormal ecosystem rife with fraud. The ecosystem is not uniform. You will suffer more if you have not invested in technology or authentication.
This is why I said that it can be more acute within certain industries. Knowing your customer is key. The attitude has changed significantly. It’s now about recognizing trends, and doing what works.
This shift forces retailers to invest more in understanding consumer behavior, their base of consumers, and patterns. Many companies became experts at it.
In light of this, are you aware that there is a movement in the retail sector to find repeat offenders and take legal action?
Figueroa: The reality is what matters. It must be a serious incident or issue to warrant law enforcement involvement. The incident or issue should be serious. It would be reasonable to pursue legal costs if you knew that the fraud was part of an organized fraud group that had successfully targeted you and involved large sums of cash.
Are you willing to add another layer of cost just to try and find these people? It is very hard to find these people in the digital space. It’s no wonder that companies are reluctant to go after these people.
