Holiday FraudMythsHow They Leave Retailers Vulnerable

Table of ContentsIntroductionMyth #1 – Digital Gift CardsMyth #2 – Distance, Dollar and ExpediteMyth #3 – Machine vs. Manual ReviewMyth #4 – International OrdersMyth #5 – Freight ForwardersClosing

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The Holiday SeasonIs Upon UsConsumers will flood online and brick-and-mortar stores to buy gifts for friends and family, and opportunistic fraudsters will follow. There is no question that criminals capitalize on the season, with the number of fraudulent purchases doubling during the holidays.

eBay Enterprise’s first Holiday Fraud Index shows how criminals are becoming more creative regarding where, when and how they take advantage of the season. We reviewed factors such as the locations and times of the week that have high incidences of fraud, and we’re sharing our insights to help retailers become more adaptable and resourceful than the fraudsters.

This year will also be the first holiday season where EMV or “chip” credit cards and point-of-sale systems will be used by customers and retailers nation-wide. We know that chip cards make it difficult for criminals to steal data and produce cards for use in-store. Time will tell if ecommerce fraud increases in the U.S. by one and a half to three times over the next few years like it did in countries that already transitioned to EMV.

As in-store precautions are strengthened, retailers need to be more prepared than ever for fraudulent purchasing to move online. Using common sense fraud prevention strategies that sometimes reject legitimate orders and subsequently reduce overall sales should be re-evaluated. We looked at these common sense tactics and found that many are myths that can negatively impact a retailer’s bottom line. Check out five of these myths below, along with better ways for retailers to protect their online business.

Myth #1

Digital Gift Cards Are Too Risky To Sell

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Digital gift cards can be intimidating for retailers, and in many ways, these fears are justified. Digital gift cards are the equivalent of cash, which makes them extremely attractive to fraudsters. Because there is no physical item at play, it is easier for criminals to craft a complete digital attack where they automate with bots and scripts to bombard retailers with fraudulent orders. Fraudsters have a short wait for the gift card instead of the regular shipping time, and no physical address is required. Making this type of fraud far more lucrative and far less risky for criminals.

Even considering the above, digital gift cards should never be viewed as too risky to sell. They are an extremely popular choice among good customers – especially during the holiday season – and the volume of legitimate orders far outweighs the fraudulent attempts.

Comprehensive and effective fraud management can help curtail the risk digital gift cards pose, while allowing merchants to cash in on this popular gift choice. Identifying and understanding gift card fraud trends, properly linking orders, and blocking the appropriate information to prevent future losses will enable retailers to manage these complex fraud attacks and take advantage of the increased sales potential digital gift cards deliver.

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“They are an extremely popular choice among good customers...and the volume of legitimate orders far outweights the fraudulent attempts.”

Digital Gift Cards

Myth #2

High Distance, High Dollar, High Expedite Equals High Fraud Risk

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Greater distances, more expensive dollar values and faster shipping options don’t guarantee fraud, just as short distances, inexpensive dollar values and slower shipping don’t ensure good orders. It’s vital not to rely on a single suspicious attribute to screen orders during the season. Doing so will result in overly cautious, incomplete decision making that results in good orders being canceled. In addition, fraudsters are quick to identify fraud management tactics that key in on singular pieces of information.

For example, fraudsters like to use expedited shipping methods because orders are delivered faster, and therefore a smaller time frame to have fraudulent purchases detected. But they also know that these shipping methods are screened more heavily for fraudulent activity. Because of this, fraudsters will shift to lower priority shipping methods like second day, third day and ground. As a result, retailers should pair ship method with other risk factors as a more effective method of fraud management. This is particularly true during the holiday season, and becomes more critical when shipping cutoffs creep up on frantic shoppers and the volume of expedited orders, including fraudulent ones, increases. If a retailer relies only on shipping method alone to flag suspicious orders, the risk for disappointing good customers and missing fraudulent orders increases exponentially.

Using a combination of attributes that creates layers of fraud detection ensures more good orders are converted and fraudulent transactions are captured even during the busiest of times.

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Distance, Dollar and Expedite

Myth #3

Machine Learning Can Replace Manual Review

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Although machine learning tactics and complex software algorithms are clearly a benefit to fraud detection, there are nuances in some good orders that even the most sophisticated computer programs mistakenly label as fraud. That means an aggressive computer program could be killing legitimate orders that have markers for fraud.

Conversely, fraudsters are always learning and evolving. Even the most advanced algorithms will not stop sophisticated criminals who take advantage of things like identity theft and account takeover. An analytical manual investigation penetrates these complicated fraud attacks, cancels the order, places blocks on the proper information, and prevents future fraud using that same information. A machine will never achieve that level of precision.

The value of manual review can best be seen by analyzing the actions of fraudsters. Case in point, eBay Enterprise increased its manual review coverage in 2014 to support weekends and evenings and temporarily had less manual coverage midweek. Fraud attempts increased on the days with less coverage. Fraudsters pragmatically increased their fraud attempts mid-week, therefore finding a weak spot. When regular coverage was re-instated throughout the week, fraud attempts went back down because fraudsters quickly learned the weak spot no longer existed.

Although it will always be important in ecommerce to improve technologically to combat unauthorized activity, it is just as important to understand the value of manual review as a necessary part of fraud management.

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“Fraudsters are always learning and evolving. Even the most advanced algorithms will not stop sophisticated criminals who take advantage of identity theft and account takeover.”

Manual Review vs. Machine

Myth #4

International Orders Are More Risky Than Domestic Ones

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International orders are tricky for retailers. As a result, many have decided not to ship internationally due to freight costs, fraud concerns, payment transaction fees and tax calculations. In some cases, there is even less data available for international orders since address verification may not be enabled and verifying information with the bank or customer may not be a feasible option.

While these factors may increase order processing complexities for international orders, they don’t correlate to an increase in fraud risk. For eBay Enterprise clients, more than 97 percent of orders shipping internationally have been good, and 98 percent of orders with international IP and BIN numbers have been legitimate.

Plus, many international customers have found ways to bypass shipping restrictions, and they sometimes use freight forwarders – also known as mail forwarding companies – that reside in the U.S., but ship internationally. Freight forwarders provide a valuable service for international customers, which brings us to the final myth.

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International Orders

Myth #5

Freight ForwardersAre Inherently Bad

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Freight forwarders have a negative reputation in some ecommerce circles. They look bad from a fraud perspective because there are many different customers shipping to the same location with transactions that are high dollar, low dollar and everything in between. As a result, orders shipping to freight forwarders have certain markers for fraud that can cause headaches for fraud prevention groups.

Retailers need to remember that hundreds of thousands of good transactions, like those from product resellers, flow through freight forwarders. These are sales that merchants do not want to lose. While these transactions can look suspicious at first glance, they are legitimate orders that drive profits for merchants.

There are retailers that avoid doing business with resellers because they feel it diminishes their brand and reduces the inventory available to regular customers. Retailers should look to navigate these waters with a qualified resource that can enable international sales, manage the risk associated with freight forwarders, and help manage business rules such as restricting reseller activity, while still enabling sales.

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“Retailers need to remember that hundreds of thousands of good transactions...flow through freight forwarders. While these transactions can look suspicious at first glance, they are legitimate orders that drive profits...”

Freight Forwarders

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Don’t Buy IntoThe Myths

With the important holiday season comes twice the stakes for fraud. Retailers see a spike in order volumes, along with an increase in fraudulent attacks.

The remedy shouldn’t be to give into overly cautious strategies that end up killing good orders. The help of an expert partner – like eBay Enterprise’s payments, tax and fraud team – can be a beneficial resource to guide you through the complexity of online fraud management. What does your business have to lose (and gain) this holiday season?

eBay Enterprise is a global omnichannel commerce provider.

eBay Enterprise delivers order management, store fulfillment, dropship, payments, and  fraud protection and risk management solutions, and fulfillment, freight and customer care services. Hundreds of retailers and brands rely on eBay Enterprise to simplify commerce, connect supply to demand, and seamlessly integrate technologies, with speed and agility to increase profitability and customer loyalty. eBay Enterprise’s integration with Innotrac Corporation has created one of the world’s leading independent omnichannel commerce providers.

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