The increase in eCommerce activity over the past 18 months is good news for merchants hoping to drive online sales, but it’s also raising the risk of fraud and raising consumers’ anxieties about how bad actors might compromise their personal data.
“As eCommerce has increased in general, we’re seeing fraud increase as well,” Elad Cohen, vice president of data science at Riskified. “It’s getting much more popular, more lucrative for fraudsters to continue doing this.”
According to research released by Riskified earlier this month, 1 in 5 U.S. consumers have been the victim of some form of online shopping fraud in the past year, with 71% saying the retailer could have done more to prevent the fraud. Sixty-six percent of consumers said they wouldn’t return to the shop where the fraud occurred, and 25% of respondents deleted online shopping accounts after becoming a victim of fraud.
This tracks with previous PYMNTS research, which also found that 59% of consumers need a guarantee of personal data protection before buying products from a merchant. Additionally, 48% of consumers are more concerned about data security than they were prior to the pandemic.
More than half of all retailers surveyed, none of whom were Riskified clients, said they were confident in their ability to prevent eCommerce-related fraud, but only 34% of consumers said they trusted retailers’ ability to prevent fraud. “It is surprising, but the merchants really need to keep that in mind,” Cohen said. “Fraud is a problem for everyone.”
Additionally, because merchants are liable for the chargeback complaints, they tend to be conservative with the orders they approve, which Cohen said then leads to lower approval rates and therefore fewer sales. “From a merchant’s perspective, it’s a very difficult situation to try to solve this on their own,” Cohen said. “It’s never really easy.” Over one-quarter of retailers said fraud is significantly damaging to their profitability, with 34% saying they lost between 5% and 10% of their eCommerce revenue to fraud in 2020.
The Challenge of Changing Patterns
Some of the biggest changes in fraud and fraud prevention over the past 18 months have actually come on the legitimate side, Cohen told PYMNTS. “Everything that used to be normal is now riskier,” he noted, and things that used to be riskier, such as new shipping methods, are now safe. For example, prior to the pandemic, buying a last-minute flight out of Europe likely would have been flagged as risky behavior, but with COVID-19 restrictions changing regularly, “then all of a sudden, this is safe behavior,” Cohen said.
“Because of those changes, it definitely creates much more challenges for different solutions to be able to adapt very quickly,” he added.
Additionally, older consumers use eCommerce much more now than they did two years ago, which can pose potential issues for merchants. According to PYMNTS research, 57% of baby boomers and seniors are shopping online more than they did prior to the pandemic; and new customers are 60% riskier than existing customers, Cohen said, which means these older consumers are at a higher risk of having their transactions declined.
“It’s painful to see because these are people who have to buy through eCommerce because there are no physical options available,” he said. “Probably not their first choice, and this is a necessity, and then they get declined because the merchant has never seen them before.”
Nearly 18 months into the pandemic, though, Cohen said many merchants have found solutions to these issues and hopefully are showing new customers the benefits of eCommerce. “Now that they’ve seen what eCommerce can deliver and how much of a great customer experience this is, we believe that eCommerce is going to continue to boom, and a lot of these new customers are going to get hooked and continue to shop there permanently,” he said.