The season of goodwill and celebration is done and the sales results for the quarter to December 29, have been posted with commentary that we have all come to expect – store sales down, online sales up. It wasn’t difficult to miss attention-grabbing headlines and statistics on the retail sector that appeared throughout 2018 including those published by ONS that showed in November 2018 online sales as a proportion of all retailing exceeded 20% for the first time.
In many retail businesses it’s likely teams will be celebrating an increase in online sales while worrying about a decline in store performance and analysing the full price and markdown makeup of total sales and its impact on profit.
For those working in logistics the season is likely to have extended past the New Year. They will have been wrapped in a considerable amount of packaging but not the shiny new packaging used for dispatching goods, but the recycled type that contain the much-dreaded high volume of returns, the bane of online retail.
While many of the returns will be genuine, there will be some that will only add to the workload of those working in fraud. As online sales continue to grow, fraud professionals should now be viewed as key advisers for the revenue-generating business areas supporting efforts to maximise sales opportunities. With the right strategy, fraud teams are turning from a cost centre into a profit-making centre across all retail sectors. No longer does stopping fraud just save money, but with the certainty brought by the right strategy in every online interaction with the customer, retailers can reduce friction and increase revenue, with business intelligence reporting providing insights that can help advise other business areas.
As technology becomes more sophisticated and payment options continue to evolve, so does criminal fraud. Fraud teams need to keep up with the latest trends and keep abreast of the latest fraud tools and technology. No longer can there be a rigid strategy to protect from attacks, it needs to be a robust but flexible strategy that prevents the business from becoming a target. With this in mind these are the types of fraud challenges that have been evident in 2018 and are likely to be top-of-mind in 2019.
Data breaches are on the rise for both retailers and other businesses. Not only does that bring the risk of losing customers regardless of whether their personal data was compromised or not, it is also behind the fast growing, hard to detect form of identity theft.
Synthetic identity fraud is one of the fastest growing forms of identity theft in the US, according to the Department of Justice.
“High-tech fraudsters armed with real personal information on good consumers apply with multiple identities for multiple products with multiple lenders within hours or days,” said Geoff Miller, head of global fraud and identity solutions for TransUnion. (CNBC: Scammers create a new form of theft: ‘Synthetic-identity fraud’ 7 June 2018)
The large number of data breaches occurring, and the depth of the information uncovered in those breaches, has given fraudsters the opportunity to construct fake profiles that look legitimate.
Whilst mobile shopping is an increased convenience for customers, it poses a greater fraud risk as the proliferation of mobile devices make it easier for fraudsters. With access to customer credit card information as most mobile consumers store this information in online retail accounts it makes it easier for fraudsters to steal.
As the recent MasterCard study shows people are using their devices on the move which requires a more powerful approach to authenticating customers.
Customers and retailers alike embrace the convenience and cost savings associated with online ordering and in store collection, but it also presents an opportunity for the fraudsters who seek to take advantage of poor communication and tracking that makes it easier for them to bypass verifications that are in place for items being shipped to a customer’s home address.
Using stolen credit card details, fraudsters will test them by making small online purchases which go broadly unnoticed. Once the check proves the validity of the credit card they proceed with making larger purchases.
It’s a real thing with many now using the term insult rate to describe legitimate orders that are falsely declined, one of the easiest ways to lose a customer – new or existing.
Indeed, it is a real issue with Barclaycard reporting that over one-in-five of all declined payments online turn out to be false positives (Barclaycard: ‘Online retailers: The quickest way to frustrate a customer’ Nov 28 2017) which makes it a costly business when you factor in the cost of not just acquiring a customer but also their lifetime value.
So, going back to my introduction and why I believe logistics add to the fraud professional’s workload and woes during the season of good will and celebration. Returns – the bane of online retail, with an annual average of 20% which can jump to 40% plus for fashion retail.
According to research from Barclaycard, retailers claim that an average of only 25 percent of products returned are actually fit for resale and that many customer returns are worn, marked or even have missing parts, ultimately making them unfit for resale through what could be considered a new form of ‘friendly fraud’ behaviour.
Chargeback fraud doesn’t necessarily have to involve identity theft either. It can be that items are ordered and then a chargeback is initiated by those deemed as genuine customers after the items have shipped with a claim that their identity has been stolen or the items were never received.
The 30-60-90 day lag in chargeback reporting could show that sales you thought you had in December turn out to be ugly losses in February, March and April.
However, a Fraud professional doesn’t have to feel helpless in the face of all these challenges, be they technically savvy fraudsters or not. Knowing the signs allows for ongoing changes to be made to the robust but flexible fraud detection strategies in place.
For ideas and examples on how you can improve your fraud capability in 2019 download our recent Retail Fraud Report