2024 e-Commerce Fraud Trends

As digital commerce expands, the rise of fraudulent activities remains a significant challenge. The Merchant Risk Council (MRC), in partnership with Visa Acceptance Solutions and Verifi, has released the 2024 Global eCommerce Payments and Fraud Survey, offering essential insights into online payment security and fraud prevention trends.

Key Takeaways

•           Revenue Loss Due to Fraud: Merchants estimate a loss of about 3% of total eCommerce revenue to fraud annually, with a comparable proportion of orders deemed fraudulent.

•           Impact on Merchant Relationships: Fraudulent activities not only damage relationships with customers but also with crucial partners like card issuers and fulfillment vendors. Merchants report rejecting around 6% of received orders due to fraud suspicions each year, with false positive rates ranging from 2% to 10%.

•           Chargebacks and Disputes: Merchants generally experience low success rates (below 20%) in disputes over fraud-coded chargebacks.

•           First-party Misuse on the Rise: An increase in first-party misuse (FPM) has been noted by over 60% of merchants over the last year, fueled by increased eCommerce sales, rising inflation, and greater customer awareness of fraud tactics.

Merchants in the eCommerce sector have encountered various types of fraud (2022-2024):

1. First-party Fraud (Friendly Fraud): Customers falsely challenge legitimate transactions.
2. Refund/Chargeback Abuse: Some customers manipulate return policies excessively, impacting merchant profitability.
3. Vishing: Fraudsters use phone calls to impersonate trusted entities and steal sensitive information.
4. Pharming: Malicious code redirects users to fraudulent websites designed to harvest login details.
5. Whaling: This phishing variant targets high-level executives, potentially leading to significant breaches.
6. Card Testing Fraud: Fraudsters use stolen credit card numbers for small transactions to evade detection.
7. Identity Theft: The unauthorized use of someone else’s personal or financial information to conduct fraudulent transactions.

Here’s a summary of the top fraud attacks experienced over the past 12 months, categorized by region and the notable trends in each:

• North America: The region sees a wide array of fraud types but is particularly plagued by refund/policy abuse and first-party misuse (FPM). These forms of fraud have significantly higher rates compared to other areas.
• Asia-Pacific: This region is predominantly affected by cyberattacks such as phishing, pharming, and whaling. These types of attacks are widespread and represent the major threat in the area.
• Latin America: Card testing fraud is the most dominant form of fraud here. This involves small, usually unnoticed transactions that are performed to verify the validity of stolen credit card details.
• Europe: Similar to North America, Europe has seen a significant rise in refund/policy abuse and first-party misuse. These types of fraud are becoming more common and pose considerable challenges to merchants.

SMBs and mid-size companies predominantly face refund/policy abuse fraud. Additionally, SMBs also encounter significant challenges with phishing, pharming, and whaling attacks.

Larger companies mostly report incidents related to first-party misuse (FPM), refund abuse, and card testing fraud. Although rare across all business sizes, there has been a noticeable increase in account takeover incidents over the past year.

Challenges in Fraud Management:

Merchants identify a lack of resources, inadequate fraud detection tools, and insufficient data access as primary challenges, with 30-40% reporting significant impacts on their ability to manage fraud effectively.

Tactics and Budgets:

Effective Tactics: Reviewing and analyzing non-fraud chargebacks, checking customer purchase histories, and monitoring transaction data for anomalies are among the most effective strategies. Requiring CVV for transactions and collaborating with service providers also rank high. Merchants are also incorporating additional fees for customers who choose to pay using non-preferred methods. According to the survey, 32% of respondents identified the primary reason for encouraging preferred payment methods as the reduced risk of payment fraud, followed by lower payment processing costs.

Future Spending: While half of the merchants plan to increase spending on fraud management tools and personnel, the other half are focused on optimizing existing budgets to maintain or improve outcomes.

The majority of merchants are prioritizing the integration of AI/ML-driven tools, fraud orchestration systems, and robust refund management practices into their operations. This focus signals a strategic pivot towards automation and more sophisticated, integrated methods for managing fraud. In contrast, less emphasis is being placed on business process outsourcing, the management of omnichannel sales, and the reduction or elimination of manual reviews, with fewer than one-third of merchants considering these areas as priorities for the upcoming year. This trend underscores a broader shift in the industry towards leveraging technology to enhance fraud detection and prevention capabilities.

The findings of the 2024 Global eCommerce Payments and Fraud Survey underscore the persistent challenges that merchants face in the digital marketplace. As eCommerce continues to grow, so does the sophistication of fraudsters, making it imperative for businesses to continually evolve their fraud management tactics to safeguard their operations and maintain customer trust.

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