COVID’s Great Acceleration Calls for Renewed Fraud and Consumer Abuse Vigilance

The COVID-19 pandemic has acted as the great accelerator in many ways including, it turns out, when it comes to ecommerce fraud.

Fraud pressure and instances of consumer abuse have risen dramatically, along with online spending, in the nearly one year since coronavirus lockdowns were first ordered. With many non-essential physical stores closed and with consumers sheltering at home, ecommerce saw a months-long surge of a magnitude generally reserved for the holiday shopping season.

For their part, fraud rings saw an opportunity. With dramatic increases in order volumes and a substantial shift to buy-online-pick-up-in-store and curbside pickup, retail staffs were overtaxed. The chaos gave fraudsters a chance to hide amid the noise. 

Fraud pressure is currently up more than 200% from pre-pandemic levels, according to Signifyd’s Ecommerce Pulse data. Signifyd determines fraud pressure by charting the rise and fall in very high-risk orders on its network. Such orders are presumably fraudulent.

The current 200% increase actually marks an improvement in fraudulent activity. In the early months of the pandemic fraud pressure reached heights of more than four times pre-pandemic levels and peaked during the 2020 holiday shopping season at more than six times pre-pandemic levels.

Consumers are more willing to break ecommerce rules

The fraud assault accompanied an increased willingness among consumers to break the rules in order to receive ecommerce orders for free or at discounted prices that they were not entitled to. In a Signifyd survey conducted just before the 2020 holiday shopping season, 40% of consumers said they’d falsely claimed that a legitimate charge on their credit card was fraudulent. More than 33% said they claimed that an order that had arrived in good condition either hadn’t arrived at all or arrived in unacceptable condition — all to receive a refund while keeping the product.

Another 30% of consumers said they had broken promotion or discount rules by, for instance, falsely claiming that they were a first-time buyer or that they used a one-time-only discount more than once, in order to get a break they didn’t deserve.  

The September results in the survey conducted for Signifyd by market research firm Upwave stood in contrast to a Signifyd survey conducted just before the pandemic. In January 2020,  only 14% of consumers said they had claimed a package had never arrived when it had or that a package that arrived in good condition was somehow unsatisfactory. 

All of which underscores how important it is for ecommerce enterprises to design a holistic fraud and consumer abuse protection strategy or to find a partner who can provide it for you. Signifyd, for instance, is the market leader in the guaranteed protection space. Its Commerce Protection Platform uses machine learning and big data to automate online order flows, instantaneously sort fraudulent orders from legitimate ones, triage abuse chargebacks stemming from customer disputes and future-proof the enterprise against rapidly evolving payments compliance issues.

Technology and financial guarantees allow merchants to prosper 

The combination of cutting edge technology and a financial guarantee allows ecommerce enterprises to open up their conversion funnel with full confidence that the orders they’re accepting are coming from legitimate customers. That confidence all but eliminates false declines, cases in which legitimate customers’ orders are incorrectly declined for fear of fraud. And it means customers don’t have to wait and wonder about their orders while they undergo time-consuming manual reviews.

False declines and delays in order confirmation are customer experience killers. Few experiences are as bad as trying to buy something you want from a retailer who appears willing to sell it, only to have that order declined for reasons that may or may not be clear. The experience is just as negative for the merchant. The business has not only lost the immediate sale, but quite likely has lost a customer for life. 

When Signifyd surveyed consumers and asked how many chances they would give an online retailer before ending the relationship for good, 53% said one or two bad experiences would be enough to send them to the competition.

Successful retailers are well aware of the implications for sales and lifetime customer value. Consider the experience of Heat & Cool, a customer of both Classy Llama and Signifyd that sells heating, ventilation and air conditioning systems and supplies. Due to the instant spike in traffic and orders caused by COVID-19, they had received an unprecedented amount of fraudulent orders and attempted purchases. Classy Llama quickly pulled in Signifyd to investigate and implement their automated system. 

When Heat & Cool turned to Signifyd, it was approving about 95% of its online orders. The HVAC retailer had been manually reviewing more than a third of the orders that were coming in causing major inefficiencies.

Signifyd moved Heat & Cool’s Order Approvals Up and to the Right

Signifyd’s automated system boosted Heat & Cool’s approval rate to 98.7%. The improvement increased the merchant’s top line and eliminated Heat & Cool’s need to manually review orders, saving time and providing an improved customer experience. 

As the full impact of the COVID-19 pandemic on retail becomes clearer by the day, one thing is certain: Ecommerce’s role in retail has grown significantly and will continue on its current trajectory. Overall, online sales in 2020 grew nearly 50% year over year, according to Signifyd Ecommerce Pulse data. In some verticals, such as sporting goods, the increase was closer to 130%.

Consumers have indicated they like it that way. In a September survey, nearly 80% of consumers said they would be shopping differently in the future than they had before the pandemic. That includes about half of shoppers who said they would continue to do more of their shopping online. 

Given that kind of enthusiasm and the lessons we’ve learned about the new era of ecommerce, it’s clear that retailers are going to want to build new fraud and consumer abuse protection into their digital commerce plans going forward. COVID-19 sped up the velocity of business and it’s pretty clear that the winners will be the ones who keep up.