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Digital wallets and coronavirus add extra danger to payment fraud

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Merchants in every industry, from e-commerce to travel, are constantly looking for ways to prevent fraud on their online platforms. However, fraudsters know the methods they’ve used to steal from businesses and consumers in the past will only work for so long, and will continue to pivot their approach to carry out fraud attacks.

This creates a cat-and-mouse game in which businesses must constantly protect themselves against the newest fraud vector.

Adding more complexity, the world of consumer payments is shifting with the adoption of digital wallets, giving fraudsters new ways to outsmart merchants. This has been exacerbated during the COVID-19 pandemic, as shelter-in-place orders forced consumers inside and businesses to close their physical doors, while simultaneously opening online ones.

Sift’s COVID-19 and E-Commerce Fraud Tracker explores the newest and most surprising developments in payment fraud since the onset of the COVID-19 pandemic, derived from over 34,000 sites and apps. The data shows payment fraud has spiked at the beginning of the pandemic and continues to remain at elevated levels. Additionally, Sift’s Digital Trust & Safety Index revealed that fraudsters have moved to targeting new forms of online payment, taking a mobile-first approach. Sift also found that attempted content abuse on digital marketplaces rose 109% year over year in the period between January and May 2020, likely fueled in part by coronavirus-related scams. As we’re seeing today amid COVID-19, surges in fraud can happen any time and businesses need to be prepared.

To ensure their methods remain one step ahead, cybercriminals are turning away from traditional credit card fraud and moving toward emerging forms of payment. In fact, credit card fraud only ranked seventh on the top 10 list of payment types most associated with fraud in 2019.

Instead, online promos and digital wallets topped the list – with 25% of attempted transactions involving online promo discounts flagged as fraudulent. These digital-only payment innovations, in addition to cryptocurrency, made up three of the top five payment types.

While merchants may have felt confident about the fraud prevention measures they previously had in place, the landscape has clearly changed. When putting in place trust and safety measures, teams should try and remain as dynamic as possible —
which is nearly impossible to do with rules-based fraud prevention techniques.

Fraudsters aren’t working primarily from laptops or desktop computers, as one might think from movies or TV shows. The majority of fraudsters have gone mobile: More than half (51%) of the payment fraud attempted in the last year was done via mobile devices, challenging the notion that fraudsters are operating in basements on their laptops.

Unfortunately, according to the Merchant Risk Council, only 52% of merchants report tracking fraud on mobile channels. As mobile-driven transaction methods continue to grow, cybercriminals have seized the opportunity for fraud and taken to these devices to steal from merchants. As a result, analyzing mobile signals has become more important than ever to defend against fraud and abuse.

Consumers and security teams tend to think the peak-sales holiday shopping season would be a draw for fraudsters and result in a greater volume of fraudulent activity. This belief often puts fraud teams on high alert in November and December, especially around Black Friday. However, the holiday shopping season isn’t the highest fraud season.

It may seem counterintuitive, but fraudsters kick their scams into high gear during the off months, when we’re least expecting them. The “fraudiest” day of 2019 was Aug. 11 — right in the middle of summer. We expect to see a different fraudiest day this year in light of recent trends around COVID-19.

With coronavirus first hitting in mid-spring, several industries are already experiencing increasing spikes in fraud. As of May 3, 2020, the FTC had received nearly 6,000 travel-related fraud complaints during coronavirus; the week prior, Sift saw a nearly 50% fraud rate increase in this sector when compared to the 2019 total average.

As technology evolves, fraudsters will also adapt their methods to find cracks in the foundation and outsmart consumers and merchants alike. As we’ve seen most recently, cybercriminals are exploiting emerging technologies and changing their behaviors to subvert effective fraud prevention and throw fraud professionals off their scent.

Couple this with the fact that 56% of consumers said they would stop using a service and select another provider if they discovered that their personal information had been exposed as a result of a scam on that website, and it’s all the more reason to stay one step ahead of fraudsters.

Understanding and internalizing these developments is critical in establishing dynamic, successful digital trust and safety strategies, which in turn help businesses proactively protect against fraud while reducing friction for legitimate transactions.

Merchants and their security teams need to be more nimble and accurate than ever, and ensure they have both the strategy and technology in place to stay one step ahead of bad actors. This is especially true now, since every order means that much more for merchants’ bottom lines.

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Coronavirus Payment fraud Risk Mobile wallets Payment processing
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