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If An Economic Downturn is Coming, Fraud Fighters Can’t Afford to Be Surprised
“Hoping for the best, prepared for the worst, and unsurprised by anything in between.”
― Maya Angelou
Maya Angelou certainly wasn’t talking about fraud prevention when she wrote that - but it’s a sentiment that’s very relevant to fraud fighters, especially now.
It’s not yet clear what will happen in the wider economy, but between inflation, layoffs and hiring freezes, and the word “downturn” entering regular conversations, it’s clear that fraud prevention teams need to start preparing for the worst - even if we all continue to hope for the best.
Start Out With Strategy
What the worst might look like for your company will vary depending on your industry, the types of products and services you provide, the customer personas you primarily target and so on - which is why the first step (taken sooner rather than later) needs to be strategizing.
Think through the most probable impact on your customers, and their behavior, and then work out what you’d do to protect against the (inevitable) fraud consequences. This will probably involve discussion, negotiation and collaboration with other departments, so decide who needs to be involved for which parts of your strategy, and be proactive about making it happen.
You don’t have to start from scratch when you’re working out the most likely scenarios. Draw on past experience to work out the most probable directions that trouble will come from. For example:
- What happened last time? Are there people in your company who remember the 2008/9 financial crisis, and could talk you through what happened to the business then?
- Learn from the pandemic. You have the recent experience of the Covid 19 pandemic to learn from. The societal changes and pressures ahead might be different, but the pandemic probably shed light on areas that could be vulnerabilities going forward.
- Connect. Looking outside your own team, are there fraud fighters in your network who can share experiences and advice that might be relevant for your own planning? You can reach out to personal contacts, or via industry forums like the MRC, or attend events like this webinar bringing experts together to talk it through.
Look Beyond Fraud & Chargebacks
If the downturn gets real, companies are going to be focusing on their bottom line. As a fraud fighter, when that happens it’s easy to get overly focused on real fraud chargebacks as a metric of loss, since it’s the obvious way your company is losing money to fraud. Looking at past experiences, though, it’s crucial to look beyond chargebacks as well - or risk losing even more.
Notably, make sure you’re prepared to protect against friendly/first-party fraud and abuse, and ATO.
The term “friendly fraud” became common parlance in the fraud prevention world during the 2008/9 recession. It makes sense; people have less to spend, and are frightened about splashing out for treats, but also want to keep the kind of life they’re used to.
The economic uncertainties of the recent pandemic showed a similar pattern with both friendly fraud and promo abuse. Consumers are more aware than ever of their rights and strengths when it comes to the fraud chargeback process - and willing to use that knowledge to cheat the system, and your company.
Disputes. Make sure you’re prepared to identify which chargebacks should be disputed, and know how to do so effectively. We’ve seen at Identiq how investing in these processes helps our members who use the Identiq network to identify friendly fraud chargebacks. The impact can be significant.
Returns abuse. Go beyond chargeback fraud as well. Returns fraud is a growing problem, and a financial downturn is only going to exacerbate it. If this is an issue for your business, or could be, you need to work with other departments to analyze the problem and collaborate to solve it.
Promo abuse. In the same way, if your company works with promotions to increase user base and engagement, that’s another probable source of loss within the same category of first-party misuse. Make sure you’re raising awareness of this internally, and take steps in collaboration with other departments to protect your company.
Identiq recently hosted a webinar with our VP Product, Uri Arad, and Karisse Hendrick, creator of the Fraudology podcast, which dove into exactly these issues - and it’s available on demand here.
Desperation Leads to Danger
Like friendly fraud, phishing is also sensitive to crisis; incidents rose 220% during the height of the global pandemic, compared to the yearly average. People were too stressed and confused to be as careful as usual, and so were more likely to fall for scams stealing their personal details.
ATO. Fueled by the flood of phishing, ATO attacks spiked as well: ATO increased 148% in 2021 on a year-over-year basis. If consumers become more desperate, and less careful, during an economic downturn, fraudsters will have even more opportunity to launch successful phishing attacks.
Fraud prevention teams need to make sure they’re prepared to repel an ATO uptick - even in cases where the “customer” has all the right static data that matches the account. Email and password can’t be enough; you need to be checking more deeply. In the same way, don’t wait to protect against ATO at transaction; fraudsters typically “peek” into the account for some time before monetizing. Protect login.
Gig economy of fraud. In the same way, people who have lost their jobs and need to earn a salary somehow are less likely to be cautious about accepting the first offer that comes in - even if it’s too good to be true.
The gig economy of fraud is growing, and an economic downturn will likely contribute to that trend increasing further. Fraudsters with greater access to mules of all kinds around the world can use them for reshipping, moving money around, creating and aging accounts, and even making transactions. You need to think through how this could impact your business, and how you would guard against it.
Invest in Fraud Prevention
No one gets into fraud prevention so that they can argue with executives or spend time explaining what appears to be obvious to people who’ve never even heard of account takeover before, and don’t know what friendly fraud is. But. In order to be successful as a department, fraud prevention has to be understood and appreciated by the rest of the organization, including upper management.
We’ve talked before on the blog about why educating the rest of your company is crucial, and it’s even more important during times of economic uncertainty - because uncertainty means cuts. It might be of budget, resources or even personnel, but it’s likely that at least some of the departments in a company will be experiencing some kind of limitation. Fraud fighters need to be responsible for making sure that the impact on fraud prevention is as minor as possible.
Essentially, you need to make it clear (repeatedly, with numbers) that your company can’t afford to cut down on fraud prevention. Here are some points to note (also covered in this infographic, if you want to have it in easily skimmable form).
- Fraud is impacting e-commerce more than ever. The MRC reported that: “From more revenue being lost to fraud to more eCommerce orders being rejected as fraudulent to increasing chargebacks and disputes, the average figures merchants reported for every key indicator tracked in the survey increased over the past year globally, on average”
- Track all your metrics. Be able to show, at a moment’s notice, how much loss you prevented this week, this month, this quarter.
- Be proactive about helping to improve customer experience, including for new users - demonstrate that your department contributes to the bottom line.
It Pays to Be Prepared
Ultimately, you need to approach whatever is ahead with an open mind. However tempting it might be to take the ostrich approach, you, your team and your company will fare far better if you make a point of keeping track of developing trends in your industry and in the wider economy, as well as in fraud. At the same time, listen to your fraud fighting peers, and draw on their knowledge and experience.
Watch the panel with Ticketmaster’s Holly Sandberg, Identiq’s Uri Arad and Chargelytics’ Karisse Hendrick (also host of popular Fraudology podcast) in this webinar panel on demand as they reflect on what they learned in the 2008/9 financial crisis, and discuss what fraud fighters can do to get it right in the future - even if the future turns out to be much sooner than we’re all hoping. It pays to be prepared.
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