What have we learned about fraud prevention during the Covid-19 outbreak?

The Covid-19 outbreak has forced the retail industry to adapt to different ways of operating, as physical stores and highstreets close for business and many turned to online trading to stay afloat during lockdown. Over recent months, we’ve seen certain retailers prosper and others struggle, yet all have had to alter the way they do business.

This is especially true when it comes to combatting rising fraud. With people unable to visit their favourite shops they’ve been flocking online and the eCommerce industry is booming. However, with that comes its own set of challenges as fraud increases in lockstep with online activity, so while the level of online sales has gone through the roof, the amount of fraud being experienced has also dramatically increased. Especially as many new to online businesses are immediately exposed to risks they may not be prepared for.

In addition, fraudsters have seized this opportunity to make money – so too are those who are pressured, in need of money following job losses and furloughs, and are open to these types of criminal activities. As a result, merchants need to be more prepared than ever to face up to these challenges.

What types of fraud are we experiencing during the pandemic?

From a fraud perspective, most retailers will be facing the same problems as before the pandemic, only on a greater scale. This can be broken down into friendly fraud and malicious fraud.

Friendly fraud occurs when a consumer deliberately disputes a transaction that took place with a merchant, despite that transaction being completely legitimate and the goods arriving on time and in one piece. With the amount of purchases taking place online and the number of deliveries increasing, this type of fraud is on the up.

In addition, we’ve seen a rise in identity theft and phishing attacks as fraudsters take advantage of increased online activity. Savvy fraudsters are playing on the fact that people are looking for new jobs and need financial support, by targeting them with phishing scams that offer financial aid or stealing identities through false employment websites.

Anyone doing business online will be impacted by this as the identities being stolen are used to make purchases, which will result in fraudulent transactions and increased chargebacks.

The best way to combat fraud during and after the pandemic

Companies in the business of preventing fraud are now the front line against serious criminal organisations. That’s a fact. But stopping ‘bad people’ is a cat and mouse game and right now, we risk fraudsters staying out in front.

There are two things that online retailers must always do when combating fraud: firstly, they must be able to distinguish between what is genuine and what is not in order to prevent false positives and the rejection of genuine customers; the second is that they mustn’t increase negative friction during the payment process and ultimately lose conversions.

Traditionally, to prevent fraud, businesses have used technologies that make smart decisions in the back end, through the analysis of information inputted during the payment process. This approach usually results increased friction during the user experience (UX) and customers dropping off before completing a payment.

Instead, merchants should use solutions that assess fraud on the front end of a transaction, such as whether a transaction is taking place on the same device it usually is, or whether the device has been used to make purchases in the past. This approach makes security invisible and also tends to prevent false positives. In addition, it allows companies to collect compelling evidence that can be used to dispute fraudulent chargebacks further down the line. 

Attitudes to fraud

Across many industries, there is a level of something we call ‘data breach fatigue’ taking place, which can cause fraud prevention to become a tick box exercise and decreasing budget line. If this is not addressed on an emotional level in a business, as well as on a technology level, we will soon be standing at the edge of an unbridgeable chasm – the current crisis is a chance for businesses to seriously review their approach to fighting fraud.

The pandemic has brought a rapid mass move to digitization, across sectors, devices and consumer groups. The effective handling of fraud at this sensitive time, is undoubtedly a vital element to businesses that want to preserve customer loyalty and trust – as well as protect financial data.