Ecommerce retailers facing a 350% increase in fraudulent online orders

As the holiday shopping season hits full stride, ecommerce retailers across Europe face a new era of malicious attacks spurred by a COVID-inspired transformation in ecommerce and a 350% increase in fraudulent online orders, according to data published by Signifyd.

Retailers can expect a more perilous fraud landscape through the holiday shopping season and beyond. The heightened threat is thanks in part to the growing sophistication and diversification of organized fraud rings.

The golden age of ecommerce fraud

• A 350% increase in fraud pressure by mid-2021.
• A doubling of consumer abuse in the first half of 2021 — including false claims that an online order never arrived or that an order that did arrive was in unsatisfactory condition. Fraudsters and consumers make such claims in order to keep a product while receiving a refund.
• A dramatic increase in fraud rings’ use of bots. Automated fraud attacks increased 146% in 2020.

“Between the acceleration of ecommerce, changes in consumer behavior and the arrival of SCA, few would argue that commerce is not in a state of great transformation,” said Signifyd Managing Director, EMEA Ed Whitehead.

“The State of Fraud report lays out in detail how these changes came about and offers merchants actionable strategies and solutions to keep up in a dynamic industry at an historic time.”

The pandemic ushered in a “golden age of ecommerce fraud” fueled by several factors, the report says. They include:

• The increasing share of retail revenue attributable to ecommerce.
• A dramatic wave of first-time online shoppers.
• The need for fraud rings to move from protected segments of the buying journey to more vulnerable ones.

“Fraud is a moving target,” said Ollie Marshall, managing director of Maplin. “As fraud protection becomes more sophisticated, fraud rings find new vulnerabilities to attack. We shut them down and they move on. I have no doubt they’ll be back.”

Retailers facing historic fraud pressure

European retailers are facing historic fraud pressure at a time when the payments landscape is undergoing upheaval due to the enforcement of PSD2’s Strong Customer Authentication (SCA) requirement. The addition of SCA’s robust two-factor authentication process has been rolled out across much of Europe and will be enforced in the UK beginning in March.

SCA was instituted to protect retailers and consumers from online fraud. The beginning of SCA enforcement across Europe has resulted in an average transaction failure rate of 26% post-SCA enforcement, according to payment services consultancy CMSPI.

The report explores the conversion issue and reviews some of the strategies retailers are embracing to enjoy the benefit of added protection without introducing added friction to their customers’ buying experiences.

“Overall, the solutions which have been put in place have the potential to work well. A key factor for success is that all aspects of the payment ecosystem are ready and that there is effective communication and interoperability amongst the players,” Andrew Cregan, head of finance policy for the British Retail Consortium (BRC), said in the report. “The experience for the customer must be straightforward, but also it must be communicated well beforehand, so that it’s fully understood.”

“In our recent Global Payment and Risk Mitigation Survey, the majority of merchants surveyed reported increases in synthetic and account takeover fraud over the previous year,” John Winstel, global head of fraud product at FIS, said in the report.

“As these and other new fraud trends emerge, the safeguarding of a merchant’s revenue requires smart, dynamic protection against fraud throughout the payment lifecycle.”