The 2017 holidays rewrote the eCommerce record books, and once all the data is in we’ll surely find that, as a whole, it was yet another record-setting year for online sales.
But along with this surge in eCommerce, we saw CNP fraud popping up in new places and taking new forms. In this post, I’ll look back at 2017 in eCommerce and fraud and share projections for 2018.
1) Premium shipping options will get safer for merchants
Customers are increasingly demanding omnichannel shopping options, and more ways to receive their purchased goods. As Amazon sets the standard, shipping options are becoming a competitive edge for merchants; customers are coming to expect that they can click and collect within 30 minutes, or get same day delivery.
Fraudsters used to shell out for these upscale options disproportionately, since they weren’t paying with their own money. But as these premium preferences grow more mainstream, expect to see fraud rates in these orders dip, as legitimate customers dilute the fraud.
This trend already began in 2017: last year we saw a 4% increase in the rate of orders requesting same day or next day delivery, and these orders were four times safer than they were in 2016.
Similarly, reshipper use was up 3%, as international customers decided they were willing to pay extra to have their goods shipped to their door. The rate of fraud in these orders was 34% lower YoY.
We’re not suggesting that merchants should auto-approve orders with premium shipping, but they should expect to approve higher rates of them in 2018. Note though, these sort of shifts don’t happen overnight on New Years – an algorithmic fraud solution that can continually self-optimize is the best way to keep on top of changes in risk indicators.
2) eCommerce in Latin America will surge, fraud rates will fall.
In 2017, the primary drivers of eCommerce growth were in Asia Pacific and the Middle East: China, Malaysia, Indonesia, Saudi Arabia and Russia were among the most rapidly developing markets. While Asian markets will continue developing, we’re projecting that Latin America will present some of the most exciting new eCommerce opportunities in 2018.
The conditions in the region are more than ripe for an eCommerce boom. For starters, Argentina and Brazil are finally recovering from recessions and, not coincidently, Latin American currencies stabilized this year following a tumultuous 2016.
We also saw a nearly region-wide increase in the proportion of eCommerce that came through mobile, a strong indication of a quickly emerging economy:
This sea change also means merchants breaking into the LATAM markets should be sure their mobile sites are optimized, and that they’re providing a smooth shopping experience; shoppers in this region are particularly likely to use a mobile site to conduct research, but make the actual purchase elsewhere.
Another key for merchants attempting to leverage this market is to make sure they accept alternate payment methods, like Boleto. Due partially to exorbitant rates, LATAM shoppers choose not to own credit cards. In Brazil, for example, only 30% of 15+ year olds have one. Furthermore, over 50% of the credit cards in this region can’t even be used to shop internationally.
Assuming these regional economic trends continue, it’s reasonable to expect a self-perpetuating effect: a more stable economy will lead to more legitimate online shoppers (and more internet and mobile access), which in turn will lower the fraud rate. This shift will encourage merchants to enter the market and offer LATAM shoppers the payment options they prefer. More online shopping options will inspire even more legitimate customers, reducing the fraud rate even further.
Don’t let LATAM’s reputation as a risky region turn you off to these orders, or keep you from devoting resources to courting this market. A deep understanding of local trends, and a sophisticated fraud solution will go a long way toward helping you take advantage of this opportunity in 2018.
3) Fraud will pop up in hitherto safe industries
In 2018, we’re expecting fraudsters to diversify.
Last year the travel industry was hit hardest – and fraudsters will likely continue attacking OTAs and airlines as long as they’re having success. They know that their orders have a better-than-average chance of being accepted in this vertical: orders must be reviewed quickly because prices fluctuate wildly, competition is cutthroat, and merchants can’t rely on order data mismatches to spot fraud, since they’re present in so many legitimate orders (mainly because customers are traveling or booking on behalf of others).
But ease of access to the dark web and a growing supply of stolen PII means the price of stolen credit cards keeps dropping. It’s becoming worth it for fraudsters to use stolen cards to pay for their day to day needs instead of just trying to pull off the big heist.
In 2018, we suspect that the prevalence of cheap cards will lead to surges in CNP fraud in staple industries like ride sharing, food delivery, restaurants, and department stores. When stolen card information costs only fifteen dollars, fraudsters don’t need to do anything sophisticated: they just buy a card and use it for everything until it’s canceled.
How do we recommend fighting fraud in low-value transactions? For these orders it’s definitely not worth your time or money to have any manual input into the approval process; It’s critical to choose a fraud solution that’s able to auto-void and auto-capture orders in real-time, allowing you to streamline operations and keep customers from waiting.
4) Cryptocurrencies won’t significantly impact eCommerce or CNP fraud in 2018
It’s true that in 2017 a handful of merchants – like Overstock.com – benefited from accepting payments in Bitcoin. In addition to the surges in stock price and profits from appreciation, these companies don’t have to deal with certain types of fraud on Bitcoin transactions; thanks to the blockchain ledger it’s impossible to pose as somebody else, eliminating the possibility of buyer fraud and fraudulent chargebacks.
But accepting cryptocurrency won’t be the answer to the issue of CNP fraud anytime soon, and certainly not in 2018; there are simply too many impracticalities preventing online merchants from letting shoppers pay with virtual coins.
For one thing, the lack of transactional third parties – banks and card issuers – creates problems: if a customer accidentally sends cryptocurrency in the wrong amount or to the wrong merchant, there’s no recourse. The lack of oversight or chargeback system means nobody can be penalized for refusing to give a refund. Online shopping is built on a foundation of trust, and without assurance that a faulty transaction will be refunded, customers are unlikely to adopt a virtual coin as their shopping currency.
Furthermore, while the blockchain may fix the problem of buyer fraud, cryptos are susceptible to other forms of fraud. Theft through hacking is common, not to mention that many Initial Coin Offerings are simply exit scams. And because these currencies are unregulated, there is no FDIC around to insure your virtual wallet.
Finally, volatility may be exciting for investors, but in order for a currency to be practical for both eCommerce merchants and individuals it has to be a reliable store of value. A currency that fluctuates like Bitcoin creates a situation akin to a hyperinflation or hyperdeflation. Merchants won’t widely accept cryptos until they’ve proven their staying power and stability – otherwise they open themselves to currency risk.
What cryptos will look like in a decade is anyone’s guess, but we don’t expect them to gain significant eCommerce market share in 2018.
5) CNP fraud will get more sophisticated
Thinking of fraudsters as amateurs is a mistake. The level of organization in the fraud community is astounding; aspiring fraudsters can download guides and even join seminars on “carding”. Last year saw an unprecedented rate of innovation in fraud techniques.
For example, in 2017, account takeovers–a particularly sophisticated and hard-to-detect type of CNP fraud–were on the rise. Because of the nature of these fraud attempts, it’s hard to gather precise statistics on them, however we’ve seen evidence that in 2017 the rate of ATOs and fraud ring related attacks climbed 4% in the gift cards vertical, and 10% in the travel industry, to name a few.
This spike occurred in conjunction with a decrease in ‘simple’ proxy attacks, as fraudsters realized that proxy detection was catching up with them and these orders were being flagged. More and more, fraudsters are only utilizing proxies in conjunction with very sophisticated tools.
The professional fraudster network is working around the clock to find weaknesses in detection systems. Merchants looking to stay ahead of the game need to implement a self-optimizing fraud prevention solution and leverage cutting-edge technology that can identify anomalies in real time.
Here’s to a safe and profitable 2018!
There’s every reason to anticipate another record-breaking year in eCommerce. To make the most of this opportunity, we advise merchants to constantly monitor trends in CNP fraud. A good place to start is the Riskified blog – hit the button below to receive a monthly email with our latest posts. For any other questions, contact us at firstname.lastname@example.org