By Patti Murphy
With the 2017 holiday shopping season in full swing, all signs point to healthy consumer spending. "Coming into this holiday season, shoppers have seen an increase in personal income – especially disposable income – which is helping to build off a 2016 holiday season that was one of the best in years," Jared Drieling, Director of Business Intelligence at The Strawhecker Group, said in November.
But this could prove a double-edged sword for retailers, since what many law-abiding citizens see as the "season of giving" is the "season of taking" for fraudsters. Fraud is an ever-present and continuously growing threat to payment cards. According to the web portal Statista, fraud will siphon $8.6 billion from financial institutions and merchant balance sheets this year. The biggest drain, at an estimated $5.2 billion, is expected from card-not-present transactions.
Indeed, a combination of recent events and trends – including massive data breaches that compromised the personally identifiable information of hundreds of millions of consumers, ongoing ecommerce growth and continued reliance on magnetic-strip card technologies – practically guarantees surges in card fraud attempts this holiday season and into 2018.
ACI Worldwide Inc. is predicting a 30 percent increase in payment fraud activity across channels this holiday season, vis-à-vis 2016. The average ticket value of fraudulent card transactions is expected to rise from $210 to $215, as fraudsters hone in on high-ticket items, according to ACI's analysis. "Fraudsters continue to target electronics and home goods – and show preference for immediate purchases like buy online, pick-up in store and next-day delivery," said Erika Dietrich, Global Director of Payments Risk Management at ACI.
No card-accepting business is immune to the scourge of fraud. But businesses can take steps to minimize their chances of being victimized. With criminals upping their game, now is a good time for ISOs and merchant level salespeople to remind clients of steps they can take to combat card fraud.
With the advent of EMV (Europay, Mastercard and Visa), a significant amount of payment fraud is moving online. However, many merchants aren't EMV compliant. I'm amazed at the number of retail locations that aren't using chip-card readers two years after EMV compliance rules took effect. Those rules put the financial onus for fraud on noncompliant merchants. Regardless of EMV compliance status, both online and offline merchants can take steps to minimize exposure to fraud.
Ongoing employee training is one important step. Merchants should instruct front-line employees to be suspicious of transactions containing multiple fraud-prone items (for example, three gold watches). At brick-and-mortar locations, cashiers can be trained to spot suspicious customer behavior and cards. Customers who appear nervous or agitated, for example, or who purchase unusual amounts of expensive items, deserve closer scrutiny. Brick-and-mortar personnel also should be requesting IDs and verifying signatures on all card transactions.
Online fulfillment personnel should be on the lookout for multiple orders that are destined for the same address but initiated using different credit cards. Different bill-to and ship-to addresses may signal potential fraudulent transactions. Ditto for orders seeking immediate or overnight delivery. Consider requesting online buyers to provide additional information, by phone or email, to complete high-value transactions. Legitimate customers should have no problem providing the information; fraudsters likely will be scared off.
Merchants can also employ customized approaches to address fraud. This can be particularly advantageous for online merchants. One technique gaining traction is setting up rules for flagging specific orders for review, such as those originating from certain IP addresses or countries, or those exceeding established dollar thresholds.
Merchants can and should also keep track of their experiences with fraudsters. Maintaining databases of prior fraud attempts, problem customers and chargebacks that incoming orders can be checked against can be valuable. It can be equally beneficial to maintain and refer to records on good repeat customers, since they are less likely to be engaging in fraud. All of these records, of course, will need to be encrypted.
Payment card fraud is not static. Fraudsters are good at adapting to market and technology changes. Merchants and their payment services providers must be adaptive, too, and proactive in combatting card fraud.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her a firstname.lastname@example.org.
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