Since the emergence of e-Commerce back in the 1990s, digital fraud has been a formidable foe for businesses. Unfortunately, this trend has not shifted, but only grown from strength to strength with every passing year.
In a study conducted by Experian, it was found that the losses stemming from “fraudulent identities” grew from 51% in 2017 to 57% in 2019. Based on PwC’s Economic Crime and Fraud Survey 2020, this criminal activity cost businesses $42 billion just in the last 24 months.
So what is driving digital fraud to grow from year to year? Here are a few reasons:
Why Digital Fraud Is On The Rise
Reasons run the gamut as to why we are seeing a surge of online fraud that has merchants and payment providers scrambling for solutions. It can be anywhere from consumer trends and attitudes to technological improvements and more sophisticated strategies.
Here are a few more reasons:
- Confusion due to COVID-19 pandemic.
Hackers are taking this unique opportunity to steal stimulus checks and unemployment benefits. There have also been collections for “fake” COVID-19 treatments, deceiving Americnas to donate to fraudulent charities.
In just the first half of 2020, there were 1.1 billion fraud attacks, exactly double the attack volume at around the same time in 2019. Fraudulent activity due to COVID-19 has cost Americans $145 million.
- Evolving e-Commerce landscape.
As more retail purchases have shifted entirely online, the risk of fraud has increased. Card not present transactions (CNP) have grown dramatically in just the past few years. In fact, in 2019, it accounted for 27% of all debit transactions. With the COVID-19 restrictions, more consumers stay home and therefore drive online sales. This particular trend lends itself vulnerable to attacks of fraudulent transactions by cybercriminals.
- More advanced fraud tactics.
Due to the increased number of data breaches performed over the last few years, fraudsters are more likely to access PII (personally identifiable information) to use it against customers. The way they do it is they merge real and fake data (they’ll use the home address of one person and mix it with someone else’s social security number).
Using this information, they will create new identities and open bank accounts as well as credit cards. Once they have solidified their credit rating, they will ask for higher limits on their credit card or for loans, only to cease paying their bill. Not only is this potentially damaging to consumers, but it is also incredibly expensive to lenders, costing them $6 billion every year.
What Merchants Can Do
It may seem that all of these trends are moving rapidly and the incoming challenges may seem insurmountable. However, merchants and those in the payment industry must evolve along with fraudsters. They can begin by letting go “rules-based risk assessment” and adopt machine-learning approaches. This can equip them to not only easily identify but also combat digital fraud.