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Best Practices for Avoiding Holiday Fraud

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Rich Stuppy, Chief Customer Experience Officer, Kount on how to protect your credit card or bank account this holiday season. See his by-lined piece below.

In 2018, U.S. holiday shoppers rang up $126 billion in online purchases, which was a 16.5% increase over the previous year. This year, online holiday sales are expected to rise even further. But while holiday shopping online may put consumers and retailers in a merry mood, it has a dark side.

The terrible thing about this most wonderful time of year is that fraud comes out in force—and attacks are becoming more bold and more complex.

Fraud preys on vulnerability. That’s why fraud tends to spike dramatically during the holidays, when many people are feeling frazzled and distracted. For example, you may receive a fake email from your favorite retailer notifying you of a limited-time offer. This creates a sense of urgency. It’s more likely you will click the link in that email because you don’t want to miss out—and you don’t take the time to question whether the message is legitimate. But that link can take you to a fraudulent site that asks you to log in, then captures your username and password. The scammer is now equipped with your login credentials and has a head start on hacking your other accounts, such as your credit card or bank account, because if you’re like a lot of people, you probably use the same username and password at multiple sites.

Consumers should improve personal security protocols

What can consumers and merchants do to protect themselves this holiday season? Actually, quite a lot.

The first piece of advice for consumers is to keep tabs on all your accounts, particularly during the holidays. A lot of people don’t do this. They’re shopping and spending, and they don’t notice that their credit card or bank account balance isn’t what it should be. Keep an eye out for fraudulent charges.

Consumers might even purposely ignore checking their balances until after the holidays because they’re just too painful to consider. Fraudsters prey on this aspect of human nature. They know that people are not paying close attention to their accounts during the holidays. That’s why it’s important to frequently check your balances and look out for any notifications alerting you to changes in your account.

Many consumers will also save up their loyalty rewards over the course of the year to reduce their out-of-pocket spend on holiday gifts. You should be aware that loyalty programs are a target-rich environment for fraudsters and are extremely susceptible to account takeover. Most people don’t keep close tabs on these programs at the best of times and their attention wanders even further during the busy holiday season.

Retailers can lean on AI tools to protect your credit card or bank account

Merchants must also improve security during the holidays. The use of artificial intelligence (AI) allows merchants to reduce reliance on rules that should be adapted for changes in the holiday season.

The holidays are the time of year when everyone tends to spend freely and make big-ticket purchases. This is a perfect breeding ground for fraudsters. Typically, merchants might flag high-priced orders and take extra time to scrutinize them before approval. But they may not have that luxury during the holiday season. With everyone working at a feverish pace, decisions need to be made quickly, bringing a greater risk for fraud.

Take, for example, a $600 order that has a different billing and shipping address. During the rest of the year, such an order might be classified as high risk and go directly to manual review before approval. But during the holidays, these orders are commonplace and adding unnecessary friction to the buying process can harm your business and result in lost sales.

That’s why savvy online retailers are increasingly implementing AI and automated decision-making technologies. AI has the capability to emulate the decision-making process of an experienced fraud analyst—and do it faster, more accurately and on a much larger scale. AI can also detect what is a normal transaction for any given week or even any given day. This enables businesses to increase the effectiveness of their fraud prevention and at the same time reduce the number of false positives in which customer orders are erroneously delayed or canceled.

Temp workers threaten your credit card or bank account

Here’s another critical piece of advice: businesses should avoid hiring an army of temp workers to do manual review of orders during the holiday season. Many businesses think that if their orders double during the holidays, they also need to double the number of people reviewing those transactions. In my experience, that’s a waste of time and money because temp workers can’t get up to speed fast enough to do an effective job of catching fraud. What they often end up doing is making bad decisions and slowing down good customers. AI can emulate the judgement of an experienced fraud analyst. Adjust your fraud strategy to incorporate AI such as Kount’s Omniscore and avoid mistakes that inexperienced analysts make.

It’s also important to take a step back and understand your tolerance for fraud. Can you afford to compromise the customer experience in order to reduce the number of chargebacks you will face after the holiday rush? Sometimes the upside of additional sales is so high that it’s worth letting a little more fraud slip through if you can ensure that customers have a frictionless experience.

By thinking strategically and investing in the right technologies, you can reduce customer friction, increase profits, and make sure that fraudsters have a very unmerry holiday season.

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