Christmas Is Coming and So Is Holiday Fraud

Christmas is generally considered to be a wonderful time. It is a time where people share, make merry and hang out with their friends and families. This makes the Christmas holiday a cash cow for merchants. Secretly, fraudsters also work hard to milk both merchants and holiday spenders out of their last cents.
09/20/2016 05:00 pm ET Updated Sep 21, 2017

Christmas is generally considered to be a wonderful time. It is a time where people share, make merry and hang out with their friends and families. This makes the Christmas holiday a cash cow for merchants. Secretly, fraudsters also work hard to milk both merchants and holiday spenders out of their last cents.

There are different types of holiday fraud that take place during the Christmas season as shown below.

· Holiday gift-return scam

This affects both consumers and retailers, as shown by The Counterfeit Report. Here, scammers buy an authentic item and its counterfeit version. They then switch them and return the counterfeit to the retailer, asking for a full refund. Due to the fact that there are so many products being sold, retailers don't even check whether the returned product is real or fake, they simply refund and resell the fake item to unsuspecting customers.

Infiltration of cheap, counterfeit products into the market damages the reputation of manufacturers. When retailers sell the returned counterfeits to consumers, it lowers the confidence of the consumers towards the retailer and the brand. Furthermore, some of these fakes may be deadly.

Tests have proven the presence of bacteria, urine and lead among other dangerous substances in fake perfumes and colognes. There have also been injuries and fires caused by fake chargers. More damages have been caused by many other fake items.

· Identity Theft

Identity theft is huge. The US Bureau of Justice Statistics shows that 17.4 million American citizens experienced identity theft in 2014. The number is expected to be much higher right now. 

Anyone who shops online is at risk of having their identity stolen. This is where you wake up one morning and get a rude shock that your credit card was used to buy an expensive gadget from an online retailer, without your authorization.

Usually, there is a huge bump in the number of fraud incidences that occur during the holidays. This is generally due to the fact that everyone is in a mood of spending and many merchants and consumers are not heavily on the lookout for scams.

Digital fraud used to happen a lot offline when credit and debit cards used to just have the magnetic strip. All that scammers needed back then was just a machine that would copy and replicate the data on the magnetic strip.

With the advent of the EMV chipped cards, it is extremely difficult to copy and replicate the data on the chip. This has led to most of the scamming being taken online.

The most common forms of identity theft scams include stealing credit card details and stealing identities. The Bureau of Justice statistics report shows that 2 out of every three victims of identity theft loses money. The average amount that was lost per person was $1,341, which is very significant.

Most people do not even know they have been defrauded until they are called by their financial institutions, thus fraudsters have a lot of time to get away with the scamming act.

· Loan Frauds

During the holidays, everyone wants to have a good time. Not everyone can afford that fun, therefore some people take loans. As usual, people love doing things online due to the convenience it offers, turning to online loans and brokerage firms.

There are many legitimate sites that assist people in getting loans. However, there are also scam sites that take advantage of innocent users trying to access quick loans.

Loan fraud scammers pose as credit brokers. They either take their customers’ money or their bank details to help them arrange for loans. However, the loans never really materialize and eventually, the poor victims either lose their cash or fall prey to identity theft e.g. people opening bank accounts with their details.

· Mobile payment fraud

As stated above, the rollout of EMV chip cards significantly reduced credit card fraud. When this happened, fraudsters shifted their focus to online fraud. Mobile payments are heavily on the rise, and so are potential scams.

In the 2015 Black Friday, history was made when almost 50% of online purchases were made through mobile devices. This is expected to increase with time.

Card not present or CNP fraud, which includes online payments is expected to increase to be almost four times more than point-of-sale card fraud by 2018 (in comparison with 2014). This is according to a report by Javelin Strategy & Research.

During the holidays, many merchants strive to meet heavy customer demands. They create a checkout process that is fast and streamlined. However, many end up leaving out security measures, thus becoming vulnerable to fraudsters.

Holiday fraud mitigation

To ensure you have a smooth holiday, there need to be some mitigation measures carried out. Below are some measures that can be taken to help minimize fraud during the holidays.

1. Ensure optimal performance of the fraud team

This post in a leading ecommerce fraud prevention company Riskified’s blog offers four steps that merchants can take to maximize their performance during the holidays.

“The biggest challenge risk management teams face during the holidays is the sudden, dramatic spike of incoming orders. It is imperative that orders be processed expeditiously, otherwise the back-log could have customers waiting several days for order confirmation,” wrote Andy Freedman, Head of Marketing at Riskified.

Basically, merchants can prepare for a spike in their orders, make use of smart technology, improve accuracy and efficiency of their review process and have a great strategy to take care of international orders. Taking care of the above steps ensures that merchants are hardly defrauded.

2. Analyze your systems after the holidays are over

As a merchant, you need to perform an analysis on what happens after holidays in your firm. What did you learn? What gaps did you identify? Are there any patterns that occur after every holiday?

An analysis of your declined orders will help you reduce false positives. As much as you try to prevent fraud, you should not turn down genuine customers assuming they're fraudsters.

It is very important for you to also analyze your chargebacks, especially the fraud-related ones where a client claimed that their card was used without their authorization. This will reveal some gaps that you can fill to improve your fraud detection system.

3. Consumers should practice online safety measures

It's not only merchants who are defrauded during holidays, but also consumers get scammed. To prevent this, they need to practice this basic online safety measures. These include:

  • Using strong passwords
  • Using 2-factor authentication
  • Avoiding phishing scams
  • Do not share passwords and personal financial information
  • Use secure sites for payments
  • Not logging into their financial sites using public Wi-Fi

As stated, you have every right to enjoy Christmas, whether you're a merchant or a consumer. Use the methods above to ensure you don't get scammed.