What are the key fraud trends to look out for in 2022? Cybersource Managed Risk Analysts share their top five.
Through their work supporting global clients in many different industries to manage and mitigate fraud, our Managed Risk Analysts have their fingers on the pulse of the current fraud landscape. Here, we outline five key fraud trends they've identified as we head into 2022, and offer some hints and tips for merchants to help protect themselves and their customers.
1. Friendly fraud will continue to be the No. 1 fraud attack
Friendly fraud occurs when a customer requests a chargeback from their bank despite having received the goods or services they ordered. Merchants of all sizes tell us that friendly fraud is now the No. 1 fraud attack they have to deal with (up from No. 5 in 2019).1
So what lies behind friendly fraud? Consumers spending long hours at home during pandemic-related restrictions may have made impulse purchases, then experienced buyers' remorse.
It’s almost impossible to address friendly fraud before it happens, so you need to ensure you have a robust process in place to identify and act on it once it takes place. Our research shows that 80 percent of merchants take a multi-pronged approach to counteract friendly fraud.2 Tactics include customer notifications, clear payment and return policies, a rigorous chargeback process, and verification measures to confirm customer identities. Identity behavior analytics included in fraud management tools like Cybersource Decision Manager also help, by enabling you to analyze customer risk based on past behavior.
2. Refund fraud will take many forms
Like friendly fraud, with which it may be linked, refund fraud also occurs post transaction. Individuals who attempt refund fraud may count on refunds being handled by a merchant's customer service agents, who may have little knowledge of the fraud landscape. A refund policy that's very generous or doesn't feature many fraud checks can spark significant losses for the retailer if organized fraudsters take advantage.
Refund fraud typically involves the non-return of goods, or the sending back of a different item than the one originally purchased. It can be a grey area for merchants, however, as customers making genuine refund requests may legitimately:
- Have no item to send back, owing to non-delivery or "porch piracy"
- Be returning an item precisely because it isn't what they ordered
So-called professional refunders are increasingly emerging, who market themselves as experts in certain merchants' returns policies, with strategies to make it more likely that refunds will be approved. They typically charge a fee of up to 40 percent of the value of the item once the refund is complete. They also discourage their customers from targeting the same merchant more than once a year, which makes it especially challenging for merchants to anticipate the tactic.
3. You'll need to defend against card testing and botnet attacks
To determine the validity of stolen card numbers, fraudsters may perform card testing—attempting small purchases on a merchant’s site to see which cards get approved. The fraudster can then go on to make larger purchases with the approved cards, or resell the validated information on the dark web.
Manually testing cards is time consuming, so fraudsters will use botnets to run thousands of low-value transactions in a short space of time. These attacks can be a drain on a merchant's resources, generate high volumes of authorization processing fees—causing a revenue hit, and may also harm the merchant's brand.
4. Social media: where fraudsters increasingly communicate
Previously, fraudsters used the dark web to share tips and strategies, but we're seeing more of these exchanges on alternative social media apps, like Telegram—and even on mainstream networks like Twitter, Facebook and TikTok. Influencers with a following can promote fraud and teach their followers about it.
To help your business stay up to date with the latest information circulating among fraudsters, consider assigning a member of your fraud management team to those communities—ideally, someone able to reverse-engineer the tips and guides being shared.
5. Buy Now, Pay Later: a growing challenge for both genuine and fraudulent transactions
The Buy Now, Pay Later (BNPL) payment method is becoming more popular among consumers and fraudsters. Providers—such as Klarna—deliver BNPL using one-time (or "ghost") payment cards. Although merchants will see the payments coming through as regular cards, these one-time cards can present new challenges to traditional fraud screening solutions.
For example, if one-time cards aren't correctly identified in the fraud screening system, it may look as though a customer paying via BNPL has used multiple cards in a short period of time, rather than the single card they used originally to place the order.
One-time card numbers may also be attractive to fraudsters, as they potentially allow them to bypass negative or product-specific velocity rules.
To help safeguard your business and your customers in 2022, consider choosing a fraud screening solution that offers wide-ranging capabilities and is backed up by the experience and expertise of fraud management experts.
1 2021 Global Fraud Report, Cybersource and MRC, 2021, p16
2 2021 Global Fraud Report, Cybersource and MRC, 2021, p17