Where Does Fraud Go From Here? How Coronavirus Has Forever Changed the E-Commerce Landscape

It’s an understatement to say that COVID-19 has changed the way we work and live. The onset of a global pandemic forced both businesses and consumers alike to operate online in new ways and at unprecedented rates. For merchants everywhere, facing COVID-19 hasn’t just been a shift—it’s caused a downright shakeup in how they approach business. While companies were busy redefining how they engage with customers, fraudsters discovered more opportunities than ever to hide behind atypical consumer behavior—and they aren’t backing down anytime soon

At Sift, we’re constantly analyzing more than 35 billion events per month in our global network to uncover new fraud signals and trends. Here’s how we’ve seen COVID-19 impact fraud so far, and what the future for merchants will look like.

Fraud peaks and valleys during COVID-19

Since March, we’ve tracked fraud rates on a week-by-week basis* across seven industries. While fraud rates and instances fluctuated across the board, certain verticals were heavily targeted by fraudsters—causing sky-high fraud rates in 2020 that soared past 2019 averages.

• Travel and transportation is a hot target. This industry saw a sharp decline in transaction volumes as residents stayed home and canceled travel plans—but fraudsters saw an opportunity to target these merchants, who experienced a 63% increase in fraud from March to April of this year. The recent promise of eased restrictions has caused eager, would-be jetsetters to start making new travel plans, with fraudsters following suit—the current fraud rate in this space is about 19% higher than they were last year.
  
• Fluctuating food and beverage orders (and fraud). The food and beverage industry saw a massive uptick in online orders at the onset of the pandemic, and fraudsters quickly followed suit—using the increased order volume to hide their fraudulent activity. However, the data shows a 19% overall decrease in fraud from March through the end of June. This is likely due to shifting demand impacting volume-to-fraud ratios, as opposed to any significant difference in fraud attempts.
  
• The education space is rife with fraud. Educators and students had to quickly adjust to homeschooling and online teaching, making it easy for fraudsters to hide among the flurry of activity. Online learning platforms saw exponential increases in enrollments as homebound workers, the newly un/underemployed, and others looked to uplevel their skills. And almost on cue, fraudsters are now setting their sights on those very businesses, hoping to take advantage of the newly booming industry, with fraud rates staying above 10% since shelter in place restrictions went into effect.
  
• Ticketing and events are riding a fraud wave. Unfortunately, ticketing and events companies saw a sharp decline in transactions from March to May, with an initial 48% decrease in fraud. Fraud rates then spiked 33% in June when compared to 2019, likely due to parts of the economy opening back up. However, we’ve already seen a downturn in fraud as we enter July and reinstated lockdown orders.

Where fraud is headed 

Although there is uncertainty surrounding when and how the economy will reopen, it’s still possible to make assumptions about fraud patterns. Based on historical economic data and what we know about typical fraudulent behavior, we expect to see the following trends:

• Fraud rates will remain unpredictable: As transaction volumes pick back up and merchants consider re-opening, we anticipate that fraud rates will level off to pre-COVID levels. However, where the money goes, fraud will follow. Considering the recent spike in cases across the U.S. and in other parts of the world, it’s expected that consumers and fraudsters will continue to spend the majority of their time online.
  
• Shifting consumer behaviors will further impact fraud: While some behaviors will normalize and go back to pre-COVID levels, many won’t. Multitudes of people will remain cautious and order food online, and more businesses will be accepting of online orders—permanently elevating e-commerce transactions. As a result, fraudsters will have more opportunities to defraud businesses that have only recently started accepting online orders.
  
• BOPIS is here to stay: BOPIS is rapidly becoming a top transaction choice for consumers, with nearly 70% of US consumers making click-and-collect purchases in the past six months. Even as restrictions are lifted, some consumers will continue to rely on e-commerce—challenging e-commerce merchants to frequently vet and prepare same-day orders, when they’d typically have a couple of days. As a result, we predict BOPIS fraud is going to become a major vector.
  
• Friendly fraud is on the rise: As Sift initially predicted, friendly fraud has continued to climb, with an initial 23% increase in chargebacks recorded, and will be a mainstay for as long as consumers are uncertain about their economic and financial stability. Further impacting merchants’ bottom line, fraudsters are finding ways to take advantage of this uncertainty, offering their services as professional refunders and gaming refund policies—while charging consumers for their ‘help’.
  
• The Gaming industry is ripe for fraud: The gaming industry saw a 63% increase in sales as the pandemic took off, and droves of people turned to video games for entertainment while sheltering in place. With this increased usage, and the fact that fraud typically spikes when new devices/consoles are released—including the upcoming Playstation 5—we can expect to see fraudsters targeting this sector over the next several months. In fact, the popular, free-to-play Stalker Online MMO game was just hit with a data breach, giving further credence to the idea that fraudsters are eyeing the online gaming space and its rapid growth to make a quick buck.

With this in mind, merchants should continue paying close attention to trends in consumer behavior and analyze all transactions, with a particular focus on friendly fraud and BOPIS. As the impact of COVID-19 continues to ebb and flow over the next year and possibly beyond, it’ll be imperative for businesses to work with their trust and safety teams on an ongoing basis, and continuously tweak their fraud prevention models and rules to align with the “new normal.”

*Beginning July 20, 2020, Sift will update the COVID-19 and E-Commerce Fraud page monthly. To be notified when new data and insights are available, please subscribe to our newsletter at https://sift.com/covid-19.