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The Green Sheet Online Edition

June 08, 2020 • Issue 20:06:01

Fraud in a time of COVID-19

By Patti Murphy

Fraud is a perpetual problem in the payments space. But as the COVID-19 pandemic rages on, fraudsters are racing out of the woodwork. Fraudulent chargebacks, ecommerce account takeovers and phishing attacks are all trending upward, and in the process, threatening the financial stability of businesses and the integrity of the payments system.

Here’s how Michael D’Ambrosio, deputy assistant director of the Office of Investigations at the U.S. Secret Service described it in a recent op-ed published in The Washington Post: "Swindles, scams and outright thefts have long been a feature of major disasters. The more catastrophic the event, the more active the fraudsters. However, the COVID-19 pandemic provides criminal opportunities on a scale likely to dwarf anything seen before. The speed at which criminals are devising and executing their schemes is truly breathtaking."

The Federal Trade Commission said it fielded nearly 43,000 consumer complaints between Jan. 1 and May 13, 2020, with 43.5 percent resulting in financial losses. Fraudulent credit card transactions (totaling $5.2 million) and wire transfers ($7.9 million), combined, accounted for 42 percent of total financial losses reported, the FTC said.

Although the FTC has not published fraud data specific to the coronavirus, a flurry of published warnings suggest the agency is seeing an uptick. "Scammers have no shame, and nothing – not even a global health crisis – is off limits," Karen Hobbs, assistant director of the Division of Consumer and Business Education at the FTC, wrote in an advisory.

Chargebacks, ATOs rise

One irksome type of fraud on the rise with the pandemic involves bogus chargebacks, or what some refer to as "friendly fraud," which, of course, is anything but friendly. Not surprisingly, the ecommerce channel, which has seen sharp increases in transaction volumes as more consumers shop from home, is a major target, experiencing a 40 percent increase in recent months by some accounts.

Certain facets of ecommerce have been especially hard hit, including online gaming sites, which saw chargebacks jump by more than 18 percent in March and April, and digital content providers, which saw a 31 percent increase, according to Monica Eaton-Cardone, co-founder of Chargebacks 911.

Eaton-Cardone believes many consumers who may not have done so in the past are using the chargeback mechanism to shrink credit card bills. Making matters worse, merchants overstretched by order volume, short-staffing and supply chain/fulfillment problems are neglecting to dispute chargebacks, she said.

Visa is addressing the problem with a new COVID-19 Dispute Monitoring Program, which encourages card issuers to contain unnecessary chargebacks by requiring more detailed information when filing disputes. Those that drop the ball and file more than 50 disputes a day that are deemed invalid, now face costly fines.

Account takeover fraud also has become more problematic. ATOs involve fraudsters gaining access to a legitimate customer's ecommerce accounts and making purchases. Purchases using compromised store accounts are tough to detect because they look like they’re being made by legitimate customers. And the implications for merchants are huge. Not only do they lose merchandise and money, but they also risk reputational damage.

A recent survey by the fraud prevention company Riskified found 65 percent of consumers would likely stop shopping an ecommerce site if their accounts were compromised. More than half said they would delete their accounts, 39 percent said they would switch to a competitor, and 30 percent said they would encourage friends to stop shopping on that site.

Don’t take the hook

Phishing attacks have exploded in recent months, too, with coronavirus as the hook, and emails requesting bogus payments the ultimate goal. Healthcare companies have been especially hard hit, according to the FBI.

Once employees take the hook by opening a link in a phishing email, fraudsters can burrow into company systems and study vendor relationships, learning billing practices and executives’ email style, eventually emailing what appear to be legitimate requests for payments to what seem like legitimate vendors. Business email compromise attacks accounted for half of all reported cybercrime losses last year – an estimated $1.77 billion, the FBI said.

Fraudsters see crises like the COVID-19 pandemic as opportunities; it’s more important than ever that payment services companies step up fraud-fighting efforts. end of article

Patti Murphy is senior editor at The Green Sheet and co-host of the Merchant Sales Podcast.. Follow her on Twitter @GS_PayMaven.

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