It wasn’t so long ago that large, global corporations were the primary targets of fraudsters. In turn, these big fish organizations got to work, investing in full-featured detection and prevention technologies. Today, given the dramatic changes to the spending habits of consumers, with >50% increase to U.S ecommerce sales alone since 2019 and with the U.S. market expected to reach over $1.1TR in sales this year, fraudsters are feeling much more…inclusive.
That’s right. Those forward-thinking small to medium businesses (SMBs) who have established an ecommerce presence to meet demand over the past few years are today facing ever-increasing risk from ecommerce fraud, promo abuse and chargeback fraud. In fact, global ecommerce fraud loss is expected to reach $48B by the end of this year, with North American merchants bearing the brunt, expected to account for 42% of the total loss.
Common types of ecommerce fraud
- Account takeover (ATO)
A well-known identity theft attack – and a universal problem for companies across industries – ATO fraud happens when a hacker illegally accesses a site using stolen credentials. Based on a recent study, 22% of US adults have fallen victim to identity fraud in the last year, costing households across the nation nearly $288B. Quantifying the cost to merchants is more significant still, considering the costs associated with customer service operations, lost customer lifetime value and the impact on brand reputation.
- Synthetic identity theft
As you will read in our eBook, in synthetic identity theft the identity isn’t stolen per se, it is created by a fraudster using legitimate personal data. The Federal Reserve cites synthetic identity fraud as the fastest-growing financial crime in the US, accounting for nearly 80% of all identity fraud.
- Chargeback fraud and abuse
A recent report states that merchants are expected to pay over $100B in chargebacks this year alone. Also known as first-party fraud or, ironically, friendly fraud, illegitimate chargebacks make up the majority of chargebacks most merchants receive. In fact, research suggests that friendly chargeback fraud will represent 61% of all chargebacks come the end of this year. Furthermore, recent reports have found nearly one in four consumers admit to disputing legitimate purchases. Given the average cost of a chargeback is $191, with merchants bearing more than 75% of the financial impact, there is nothing friendly about this scam.
- Promotion abuse
So prevalent, we wrote an eBook about it, promo abuse is a fast-growing area of concern, with 49% of ecommerce businesses having experienced an increase since 2020. In fact, in 2021 73% of US retailers with revenues of >$100M reported some level of promo fraud, costing upwards of $89 billion annually nationwide. For smaller businesses, this loss of revenue and reputation cannot be afforded.
What’s a merchant to do?
It’s clear that fraudsters won’t go gentle into the night. In fact, according to the Fraud Prevention in Ecommerce 2022-2023 Report, the current global economic downturn may further expand fraudsters’ area of reach, “looking for additional vulnerabilities from both merchants and end-users to carry on their criminal activities.”
Unfortunately, the solution isn’t as simple as “invest in digital fraud prevention.” As we break down in our eBook Friction – Friend or Foe?, walking the tightrope between best-in-class fraud-fighting technology and a seamless customer experience is paramount to staying in business.
This means multi-layering your fraud prevention strategy. A recent Ekata survey found that 70% of ecommerce companies use three or more tools to help strike the right balance between fraud prevention efforts and a smooth consumer experience at each touchpoint.
To discover how Ekata can help your SMB protect itself from promo abuse and chargeback fraud while providing customers with a secure transaction, unburdened by unnecessary step-up authentication, get in touch with us today.