At a time when online sales are soaring, e-commerce merchants need to be aware of the rapidly increasing risk of omnichannel fraud. If you run an online business, it’s important that you understand just how prevalent this form of digital criminal activity is becoming—and what measures you should take in order to protect yourself from it.
In this blog post, we will discuss the rise of omnichannel fraud and provide key strategies for protecting your business against it. Read on to learn more about how changing technologies and consumer shopping trends have created new opportunities for cybercriminals hoping to exploit vulnerabilities within the payment system.
What is Omnichannel Fraud?
This fraud is a type of financial crime that takes place across multiple communication channels. These include digital and physical channels such as the internet, phone banking, credit, and debit cards along with new technologies like ATMs and AI-based payment apps.
The prevalence of such fraud can be attributed to advances in technology giving fraudsters new ways to exploit systems while simultaneously making it harder for law enforcement and other organizations to detect and block fraudulent activities.
In order to reduce this growing threat, organizations must adopt more advanced defenses that utilize predictive analytics and machine learning tools along with an omnichannel approach that allows for monitoring across all possible channels. By combining intelligent solutions such as these with end-user education, secured protocols, and continuous risk assessment, businesses can better protect themselves from Omnichannel Fraud.
How it Differs from Traditional Fraud Methods?
Omnichannel fraud differs from traditional fraud methods in its complexity and blend of different access channels. It consists of malicious activities that occur on digital channels, such as websites or mobile apps, as well as physical channels like stores, customer service centers, and call centers.
While the majority of traditional fraud activity happens on a single access channel, such as unauthorized credit card usage, these fraud involves various access channels.
Furthermore, it often has multiple points of contact, with criminals targeting consumers across multiple touchpoints to get all the information they need to commit fraud.
Traditional fraud prevention measures may not be enough when attempting to detect and prevent omnichannel fraud, as it requires an advanced approach that incorporates data analysis and control mechanisms across all access channels and is focused on customer behavior.
Omnichannel Fraud Statistics for Merchants
Based on the statistics provided in the TransUnion 2023 State of Omnichannel Fraud Report:
- The volume of suspected digital fraud attempts increased by 80% globally from 2019 to 2022. This is due to a number of factors, including the increase in digital transactions, the sophistication of fraudsters, and the availability of stolen data.
- Fraudsters are targeting a variety of industries, but travel & leisure, logistics, and financial services are seeing the highest increases in fraud attempts. This is because these industries are experiencing significant transaction volume increases, as the pandemic has driven shifts in consumer behavior.
- Fraudsters are using a variety of methods to commit fraud, including account takeover, credit card cloning, and synthetic identity fraud. Account takeover is the most common method, and it involves using stolen credentials to access a victim's account. Credit card cloning is a method of creating a counterfeit credit card that contains the victim's account information. Synthetic identity fraud is a method of creating a false identity that is used to obtain credit or other financial products.
- Merchants can take a number of steps to reduce their risk of fraud, including implementing strong fraud prevention measures, educating their employees about fraud, and working with a fraud prevention partner. Strong fraud prevention measures include using tools such as fraud scoring, device fingerprinting, and transaction monitoring. Educating employees about fraud can help them identify and report suspicious activity. Working with a fraud prevention partner can provide merchants with access to the latest fraud prevention technology and expertise.
Types of Omnichannel Fraud
As businesses increasingly rely on omnichannel strategies to reach and engage customers, they face new challenges in preventing fraud. It refers to fraudulent activities that occur across multiple channels, such as online, mobile, and in-store, which can be difficult to detect and prevent due to the complexity and diversity of the channels involved.
Here are some of the most common types of omnichannel fraud:
1. Account Takeover (ATO) Fraud
ATO fraud occurs when a fraudster gains unauthorized access to a customer's account, such as a bank account, e-commerce account, or social media account. This can be done through various methods, such as phishing, social engineering, or brute force attacks. Once the fraudster has access to the account, they can steal personal information, make fraudulent purchases, or transfer funds to their own account.
2. Synthetic Identity Fraud
Synthetic identity fraud is a type of fraud where a fraudster creates a new identity by combining real and fake information. The fraudster may use stolen personal information, such as social security numbers, to create a synthetic identity and open new accounts or apply for loans. This type of fraud can be particularly challenging to detect as the synthetic identity may appear legitimate on the surface.
3. Payment Fraud
Payment fraud refers to fraudulent activities involving payment methods, such as credit cards, debit cards, and digital wallets. Payment fraud can occur in various ways, such as through stolen card information, fraudulent chargebacks, or account takeovers. Payment fraud can also occur through online marketplaces where fraudsters may sell fake products or use stolen credit cards to purchase items.
4. Loyalty Fraud
Loyalty fraud occurs when a fraudster takes advantage of a loyalty program by earning rewards or benefits through fraudulent means. For example, a fraudster may use stolen points or create multiple accounts to earn more rewards. This type of fraud can be difficult to detect as it may involve small transactions spread out over a long period.
5. Phishing and Social Engineering
Phishing and social engineering refer to methods used by fraudsters to trick individuals into revealing personal information, such as passwords or credit card information. Phishing typically involves sending fraudulent emails or messages that appear to be from a legitimate source, such as a bank or e-commerce site. Social engineering involves manipulating individuals into divulging information through phone calls or in-person interactions.
Why is Omnichannel Fraud on the Rise?
Omnichannel fraud is a growing issue, which is driven by a combination of factors. According to the latest data from CyberSource, global e-commerce grew by almost 21% in 2020 and the top 20 world economies saw a 50% increase in e-commerce fraud activity during this same time period.
Additionally, the COVID-19 pandemic forced shoppers to find alternative ways to purchase items, resulting in exponential growth in cross-channel activity for retailers. The resulting difficulty for online retailers who need to manage hundreds of accounts across multiple touchpoints has made it increasingly difficult to detect fraud activities as they happen.
This difficulty in detection has led to an overall increase in these frauds attempts over recent years – with many experts predicting that levels of fraud will continue to rise as reliance on e-commerce grows worldwide.
How Does Omnichannel Fraud Affect Businesses?
Fraudsters use sophisticated techniques to exploit vulnerabilities in these channels, resulting in various negative impacts on businesses. Here are some ways in which omnichannel fraud affects businesses:
1. Financial Losses from Fraud
The most obvious impact of omnichannel fraud on businesses is financial loss. Fraudsters use stolen or fake identities to make fraudulent purchases or transfer money from a victim's account to their own. This can result in chargebacks, refunds, and loss of revenue for the business. In addition, businesses may also face fines and penalties from payment processors and regulatory authorities for failing to prevent fraud.
2. Damage to Brand Reputation and Customer Trust
It can also damage a business's reputation and erode customer trust. If customers experience fraud or unauthorized transactions on their accounts, they may lose faith in the business and switch to competitors. Negative reviews and feedback on social media and review sites can further damage the business's reputation and discourage potential customers from doing business with them.
3. Legal and Regulatory Risks
Businesses that fail to prevent or detect fraud may face legal and regulatory risks. They may be liable for damages resulting from fraudulent transactions and may be required to comply with data protection regulations and consumer protection laws. Non-compliance can result in fines, lawsuits, and other legal penalties.
4. Operational Costs
Businesses may incur additional operational costs to prevent and mitigate fraud. This may include investing in fraud detection and prevention tools, hiring fraud analysts, and training employees to identify and report suspicious activity. These costs can add up quickly and reduce the business's profitability.
Protecting Your Business from Omnichannel Fraud
As a business owner, it’s essential to have foolproof safety protocols in place to protect yourself, customers, and employees from fraud. Having the right prevention strategies can help your business stay ahead of any potential problems.
Additionally, it's important to consider how you will respond if suspect fraud does occur - developing processes that quickly detect and address any suspicious activity is key. Technology can also provide reliable assistance when it comes to preventing fraud - using digital identification verification services like facial recognition or AI-based monitoring tools can significantly decrease your exposure to risk and increase customer trust in your brand.
There are many factors at play when it comes to protecting yourself from online fraudulent activities but with the right strategies in place you can create a secure environment for customers, employees and yourself alike.
Final Thoughts of Omnichannel Fraud
It is evident that omnichannel fraud is a serious issue for businesses and as more consumers adopt digital commerce services, it is only going to become an increasingly pressing matter. Businesses must take proactive steps to review and update their fraud prevention strategies in order to protect themselves from fraudulent activities.
Doing so can help reduce the prevalence of fraudulent activities and allow businesses to operate securely within the digital space.
Additionally, by recognizing the importance of using effective techniques, not only will businesses be able to minimize risk, but they can also ensure that the customer experience remains positive.
By staying ahead of threats and creating strategy with their well-being in mind, businesses can feel secure knowing they have taken all precautions necessary to protect themselves against such fraud attacks.