Retailers suffered a 79 percent greater risk of fraud in the fourth quarter of 2016 compared with the same quarter a year ago.
Merchants in the U.S. — and in the apparel industry in particular — bear the brunt of the growth, according to a new analysis from Forter Inc. a maker of fraud prevention software. The jump in fraudulent activity was probably due to the growing adoption of Europay, Mastercard and Visa, or EMV, chips in U.S. credit cards, which makes it harder for criminals to duplicate physical cards and thus shifts their focus to online attacks. Online fraud attacks increased a more modest 8.9 percent overall for the full year.
Forter, in conjunction with the Merchant Risk Council, analyzed 136 million records from the database of transactions Forter processed for its retail merchant customers. The company makes what it calls a “decision-as-a-service” platform that uses machine learning algorithms to help online retailers detect fraud during the checkout process.
International fraud attacks actually decreased 13 percent year-over-year in the fourth quarter, a fact that Forter attributed more to growth in legitimate international orders rather than to a decline in fraud incidents. International orders were still found to be 62 percent riskier than domestic ones in 2016, with the international risk rate remaining 250 percent higher than the U.S. domestic risk rate. Nearly 5 percent of dollars spent online were at risk of being fraudulent in the further quarter, nearly double the figure from a year earlier.
The frequency of attack varied widely by retail industry, ranging from a 70 percent increase in the apparel market to a 33 percent decrease in travel and hospitality. Attacks aimed at stealing luxury items — a perennial favorite of fraudsters — shrank significantly over the same quarter last year.
The growth in attacks on apparel merchants may reflect the overall popularity of this sector at the holidays or “the increased comfort of genuine shoppers with the idea of buying fashion items online and returning as necessary,” Forter Chief Executive Michael Reitblat said in a press release. On average, more than $20 out of every $100 spent on apparel was at risk of fraudulent activity in the fourth quarter. That compares with less than $2.50 per $100 of food deliveries.
The good news is that fewer merchants are seeing their owned accounts taken over by criminals than in the past. In that scenario, the attacker penetrates the merchant’s e-commerce server and pretends to be a legitimate customer. The bad news is that takeovers of online payment services (PayPal and Apple Pay are examples, although not necessarily victims) grew 131 percent in the fourth quarter.
Trends in attacks by vertical industry, as well as the ratio of takeovers of merchant accounts versus payment accounts, tend to swing wildly over time because of what Forter called the “ROI mindset” of today’s fraudsters. “Their aim is to minimize effort and maximize profit. To do this they keep close track of what works against which targets. If effort increases or profits decrease, they will move elsewhere,” the company wrote.
Founded in 2013, Forter is a Tel Aviv-based fraud prevention company that uses a wide variety of internal and external criteria to evaluate transactions for evidence of fraud. It claims to increase sales of its retail customers about 5 percent on average by reducing the number of transactions declined due to suspicion of fraud.