Online shopping rose rapidly during the pandemic, providing fraudsters the perfect cover to attack. But there are ways to counteract.
2020 changed many aspects of our daily lives. How we work, travel and shop transformed as soon as Covid-19 was declared a pandemic. One of the more significant changes occurred in online shopping sales, which shot up by 81 per cent between May 2019 and May 2020. This was great news for struggling economies, but concerning for those forced to shop online for the first time, unaware of the potential threats posed by fraudsters lying in wait.
Global e-commerce booms and purchasing behaviours change
The way in which people shopped changed drastically during the initial stages of the pandemic. Although e-commerce retail sales were already rising and forecast to grow further over the next five years, the effects of lockdowns across the world hastened all prognoses as brick-and-mortar shops closed, forcing shoppers and merchants online.
Initially, shoppers focused on cautious purchases of facemasks, disinfectants and other supplies, followed by panic buying of non-perishable foods and personal hygiene products. As lockdowns extended, people paid for digital entertainment services, exercise equipment and sporting goods to stave off boredom and stay fit. When lockdown and travel restrictions eased in some countries, online purchases of luggage and summer clothing rose as people hoped for a normal holiday. Despite a dip in global online sales as the pandemic progressed, figures remained above pre-pandemic levels , with e-commerce accounting for 19 per cent of all retail sales in 2020 (up from 16 per cent in 2019).
During the pandemic-induced rise in e-commerce, consumers – including older generations and those less tech-savvy than more experienced web surfers – were forced to adapt. Unaware of the potential dangers of buying and selling online, many shoppers and merchants became the ideal targets for fraudsters using old tricks to exploit their victims, especially at a time when genuine fear of a virus led to panicked purchases.
Fraud rates are decreasing, but fraudsters search for weak points…
While global fraud rates appear to be going down, reported at 3.8 per cent in May 2019 and 3.4 per cent in May 2020, it is easy to trumpet this as a measure of success.
However, the sheer increase in e-commerce transactions during this period has hidden the full scale of criminality. An ocean of genuine transactions provides the perfect hiding place for fraudsters to use professional tools to employ all manners of attacks, many of them tried and tested, on the vast number of new online shoppers.
For example, the number of phishing sites tripled between January and March 2020, as the pandemic took hold, and by the end of 2020, Google reported that two million were active – a 19 per cent increase from 2019. It is therefore unsurprising that account takeovers (ATO) through phishing have risen sharply, but what is surprising is that many merchants admit they do not have the measures to combat ATO, or even identify it has occurred, unless a customer has informed them.
As shopping behaviours have adapted during the past two years, so have payment methods, with many shoppers preferring credit/debit card payments and e-wallets such as PayPal. Even in Germany, the EU’s third largest e-commerce market, e-wallet payments have been gaining traction where for decades buying on account has dominated (and remains popular). This payment method involves consumers placing an order on invoice, receiving goods and deciding within 14 or 28 days whether to keep or return them.
For some online shops, it is still enough to provide only a name and a date of birth to process a transaction. For fraudsters, armed with personal details gained from ATOs, Germany is seen as a perfect target. All a fraudster needs to do is place an order to a delivery point of their choice (addresses added to an order are often unchecked). The seller loses merchandise and individuals (whose details have been stolen) could face problems with debt collection agencies and a negative “schufa”, or German debt history record.
How to protect against fraudsters
Education is key. For individuals, simply being aware of the risks and getting into the routine of employing basic security measures, such as having strong passwords, updating software regularly, and not clicking on links in suspicious emails, can have a positive effect.
But merchants need to be educated – to continue increasing online sales and maintain a good reputation with customers, top-level protection of payment methods must be in place. This is where fintech companies such as Poland’s Nethone step in, with dedicated teams scouring the very online communities where fraudsters share information.
This wealth of knowledge, along with other variables, is used to continually adapt Nethone’s proprietary know your user (KYU) machine learning (ML) profiling model, which employs passive behavioural biometrics to identify more than 5,000 unique digital attributes of users making payments. With a 95.3 per cent success rate at preventing account takeovers, fraudsters are weeded out and false positives are kept to a minimum – a win-win for customers and merchants.
Such is the effectiveness of Nethone’s model that in 2021 its Series A fundraising efforts resulted in a $6.7m boost from Polish and international growth and venture funds and angel investors, allowing the company to expand its fraud-fighting capabilities with its KYU profiling technology.
If e-commerce continues to grow beyond the pandemic, as expected, consumers and businesses need to be ready to beat the fraudsters – and the solutions are already available. The alternative is to face the potential nasty reality of becoming a fraud statistic.
If you liked this article and would like to learn more about expert e-commerce anti-fraud analysis and solutions, visit Nethone’s website.
by Patrick Drexler, Head of Business Development, Nethone