NewsApril 27, 2017 @ 11:55 AM

Rising Retail Fraud Gives Merchants Cause for Concern

Retail fraud continues to rise, and there is significant growth in online attacks across all sectors. Forter’s “2016 Fraud Attack Index” showed a 69.9 percent rise in attacks against apparel websites and goods. Luxury goods were also targeted, with an average fraud rate of $5.91 at risk out of $100 of sales.

The report, created in collaboration with the Merchant Risk Council, highlighted the continued presence of retail fraud as well as the shifted priorities and techniques of attackers. Retail IT decision-makers should pay attention to attack trends and consider ways to respond.

Understanding the Rise in Retail Fraud

Overall, 2016 saw a moderate increase of 8.9 percent for online fraud attacks from January to December. But there was also a 79 percent year-over-year increase in fraud risk for domestic holiday orders during Q4.

Forter suggested the rise in domestic online attacks and card-not-present (CNP) fraud is significant but unsurprising. U.S. fraudsters have moved online following the October 2015 adoption of Europay, MasterCard and Visa (EMV) cards, a move that made it harder to copy physical cards.

Michael Reitblat, CEO of Forter, suggested that the significant growth in fraud attack rates in the apparel industry might also be related to EMV adoption. Fraudsters who have recently joined the online criminal ranks might be sticking to a sector they understand, he said in a press release.

Detailing Other Report Trends

However, this rising trend doesn’t seem to be entirely universal: The fraud attack rate for international markets dropped by 13 percent compared to 2015. Forter researchers described this fall as a surprise, since international orders were found to be 62.4 percent riskier than domestic ones throughout 2016. They attributed the drop to a growth in genuine international orders rather a fall in fraud.

In the online service payment sector, researchers highlighted a 131 percent rise in account takeover (ATO). Specifically, there was a shift to online payment ATO, drawing away from attempts to break into accounts on retailers’ websites.

The research also provided statistics on the frequency of retail fraud attacks in a range of key verticals, including:

  • Travel and hospitality (33 percent decrease);
  • Luxury (8.4 percent decrease);
  • Electronics (1.8 percent decrease);
  • Digital goods (22.6 percent decrease); and
  • Food and beverages (49.8 percent increase).

Fraud prevention firm Verifi told CSO Online that every $1 stolen costs retailers an additional $3.08 in lost time, services or merchandise. The crime doesn’t just hit retailers financially, but throughout multiple departments in an organization.

Finding Ways to Respond Effectively

Retailers must find the right balance between fraud coverage and strong defense strategies that might be too restrictive and alienate customers. It is crucial for retail organizations to understand attack trends and make the necessary security investments.

These organizations should aim for a customizable technological platform that allows for the fine-tuning of fraud mitigation according to market and attack patterns. Merchants and issuers should also consider ways to share information that can help resolve fraud claims easily in the event that a breach does occur.

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Mark Samuels

Tech Journalist

Mark Samuels is an experienced business technology journalist with an outstanding track record in research. He specializes in the role of chief information officers (CIOs) and is adept at helping executives understand the business benefits of complex technologies. Key areas of interest include innovation, digital transformation, cloud computing, mobility, information security, ecommerce and big data. Mark has written articles for national newspapers, including The Guardian, The Times and The Sunday Times. He has also produced features and columns for a range of IT trade publications, such as Computer Weekly, ZDNet, Tech Republic, IT Pro, Channel Pro, CBR and The Register.