6 trends fueling 2020 holiday fraud

There’s no escaping fraud during one of the merriest months of the year as cyber thieves are busy trying to make their own wishes come true.

It’s also a time of year when consumers can be more vulnerable as they shop at new merchants, visit never-before-seen websites and feel good about making donations to new charities.

“One of the things we saw in last year’s holiday period was a 220% increase in shipping fraud,” said Angie White, senior manager of global fraud and identity solutions at TransUnion. “We are on the lookout now because we expect it to be big again for this holiday season. Consumers can protect themselves by diligently tracking their packages to minimize theft by porch pirates and be able to deal with an issue such as a package being diverted to an unknown address.”

While internet fraud is a known scourge for e-commerce merchants who rely on digital sales, particularly in the COVID-19 pandemic, their ability to mitigate the dangers of fraud are limited by consumer demands for convenience when it comes to online shopping.

According to data from the TransUnion 2020 Holiday Retail Report, only 50% of consumers reported they would be willing to shop online using two-factor authentication — a key tool available to merchants in the fight against fraud. About one quarter (23%) said they would not be willing to shop at a merchant using the authentication technology and the remaining 27% were not sure if they would.

For e-commerce, consumers clearly want convenience and merchants are reluctant to put up barriers that cause friction if it means abandoned shopping carts.

“There is always a balance between convenience and security,” said Shai Cohen, senior vice president of Global Fraud Solutions at TransUnion. “Europeans are more accustomed to the friction of identity verification whereas in the U.S., consumers are not. It’s a very delicate balance that merchants must strive to achieve.”
“Transactions in general went up on Cyber Monday and fraudsters go where the volume is,” added Cohen. “They know that with more people shopping digitally on that day it’s easier for them to hide in the crowd.”

Based on data provided by TransUnion, about one quarter (26.03%) of e-commerce transactions conducted on this year’s Cyber Monday were believed to have been fraudulent, which is more than double the rate of the other days of the five-day holiday shopping period.

It appears, at least from the TransUnion data, that some cyber thieves took the day off on Sunday as the level of suspected fraudulent transactions on that day was the lowest over the five-day holiday period.

One advantage playing in the favor of fraudsters is the consumer penchant for convenience online. About six in 10 consumers said it’s important to have personal information pre-filled at checkout, according to the TransUnion 2020 Holiday Retail Report. In other words, for fraudsters targeting consumers in “spear phishing” attacks with phony websites or scams, filling out their personal information in advance could lead to higher success rates and greater consumer losses.
About half (50%) of consumers are worried about fraud this holiday season according to the TransUnion 2020 Holiday Retail Report with Gen Z the most fearful.

“In general, consumers are very aware of the possibility of fraud during the holidays,” noted White. “Since younger consumers are more likely to be shopping online more frequently than older consumers, that could be a factor to their higher levels of concern about fraud.

The fear among younger consumers may be well founded. Based on TransUnion’s Hardship Report, Wave 14, which was released November 6, 20% of Gen Z consumers surveyed reported becoming a victim this year as a result of acting on a fraud scheme, compared to 16% of millennials, 10% of Gen X and just 3% of Boomers.

The Hardship Report also found Gen Z were the most likely to be targeted among all generations at 48% (combines both fraud schemes where they became a victim and where they did not act upon the fraud scheme). In comparison, the total percentage of Boomers targeted with fraud schemes was just 23%, and Gen X was 34%.
Fraudsters have adapted their craft as a result of the massive number of data breaches in the most recent years, such as the Marriott and Equifax breaches of 2018. According to data from the FBI Internet Crimes Complaint Center, also known as IC3, phishing scams took over as the top reported internet crime in 2019, leapfrogging the longstanding #1 crime of non-payment/non-delivery of goods and services.

The FBI reported that fraudsters have taken phishing scams to new levels which includes video (vishing), text/sms (smishing) and long-term fraud cultivation (pharming) and the expectation is that these tactics will be brought to higher levels over the holidays.

This holiday season, the FBI is warning consumers to be extra vigilant. In a press release titled “ ‘Tis the season for Holiday Scams," the FBI provided advice about online shopping scams with the cautionary note: “If a deal looks too good to be true, it probably is! Steer clear of unfamiliar sites offering unrealistic discounts on brand-name merchandise. Scammers frequently prey on Black Friday and Cyber Monday bargain hunters by advertising 'One-Day Only' promotions from recognized brands.”
One key vector fraudsters are expected to use this holiday season is the charitable cause scam, according to the FBI. Overall the FBI reported that charity fraud scams have become big business and that consumers can take several steps to protect themselves by doing research on the charity itself, such as giving only to established charities that are known and trusted as well as using the Federal Trade Commission’s resources to examine the track record of a charity.

The main reason charity scams are so popular during the winter holidays is due to simple mathematics — almost one third (31%) of all donations made by Americans in any given year are done during the month of December, according to Neon One, a philanthropy technology provider. Neon One data revealed that the last three days of December account for 12% of all donations given in any year.

So as fraudsters often move to where the money is, the expectation is that with such a large dollar opportunity, charitable fraud will be a key tactic of cyber thieves during the holidays, preying on innocent, well-meaning consumers.
“Fraud as a percentage of transactions during the Thanksgiving holiday was on par with last year, but up from 2018,” said Cohen. “The big story though is e-commerce fraud overall is up for the whole year compared to prior years. Since more people are shopping online, it’s creating an opportunity for fraudsters to pursue.”

According to TransUnion data, 15.54% of e-commerce transactions were suspected to be fraudulent over the 2020 Thanksgiving holiday period compared to 15.7% of the 2019 holiday and just 9.76% of the 2018 holiday. As Cohen noted, for the 11 month period of 2020 total e-commerce suspected fraud transactions are much higher than previous years — 13.67% in 2020, compared to 9.8% in 2019 and 11.12% in 2018.

One important tool that can be used to fight fraud is device identification, noted Cohen. As consumers shop increasingly with their mobile devices, TransUnion is able to help merchants mitigate fraud by correctly identifying a consumer’s smartphone that may have been used in previous transactions.