How the Coronavirus is Impacting Consumer Behavior and Fraud

By now, it’s clear that COVID-19 and the global effort to combat the virus are changing the way we live. The nightly news is a seemingly never-ending montage of heart-breaking loss and struggle. Add on the economic impact of the pandemic, and the effects are truly unprecedented. Large-scale closures of businesses, stay-at-home orders, and massive layoffs are a downward force on the economy that saw all-time highs just a few weeks ago.

At Sift, we help companies—large and small—protect and grow their business. Through our unrivaled global network, we analyze 35 billion events per month to uncover new fraud signals and trends. At that size, our network is representative of the digital economy as a whole. And what we’ve seen happening in the past month is staggering—drastic drops for certain verticals and wild upswings for others. 

We value our close partnerships with our customers and the larger fraud-fighting community. During these uncertain times, and to help fraud fighters adapt, we are sharing the insights we are seeing in consumer behavior and market trends. 

Some industries are seeing a dramatic decline in traffic

Many verticals are being hit hard by the economic downturn caused by COVID-19. In particular, our data shows the Travel and Ticketing/Events industries especially impacted. Our internal data shows a drastic decline in event volume. To show that decline and eliminate day-to-day fluctuations, we are using a 7-day moving average to illustrate trends.

Travel vertical

Beginning in February, as travel restrictions and bans were enacted, we saw a decline in overall Travel event volume. But it isn’t until mid-March that we saw volume fall off a cliff when the United States and other countries enacted widespread stay-at-home orders. The graph below shows the Travel industry experienced a 27.3% decline in volume March 1st – 23rd, 2020.

When looking at the fraud rate within the Travel vertical for the same time period (March 1st – 23rd, 2020) compared to the average fraud rate for Travel during all of 2019, we saw an increase of 25.3%, meaning even though volume has declined the fraud rate for the Travel vertical has shot up.

A caveat—in some cases, slowdowns in traffic are driving fraud rates higher because the average number of fraud attacks is being calculated against declining transactional volumes. In other words, the ratio of fraudulent-to-legitimate transactions has changed, making each trusted transaction more valuable and each instance of fraud more damaging. The fraud equivalent of a lose-lose situation.

Ticketing/Events vertical

Moving on to the Ticketing/Events vertical, we saw a dramatic decrease in event volume beginning in mid-February and accelerating through March. This could be due to the restrictions on large gatherings of people in response to the coronavirus and the cancellation of many concerts, conferences, and other events. The drop is staggering—the Ticketing/Events industry saw a decline of 81.7% between March 1st and March 23rd.

As for the fraud rate within the Ticketing/Events vertical for the same time period (March 1st – 23rd, 2020) compared to the average fraud rate for Ticketing/Events during all of 2019, we saw an increase of 32.5%.

But business is booming for others

While the pandemic has hurt the Travel and Ticketing/Events industries, it has been a boon for Digital E-commerce, which includes digital goods like iTunes purchases, on-demand video, and online gaming. With widespread shelter-in-place orders in effect, consumers have decidedly turned to the internet for entertainment or purchases they would have otherwise made in person. The result—a big uptick in event volume.

While we saw a steady increase in volume beginning in January, it wasn’t until mid-March when we began to see a dramatic rise in volume. Again, as the reality of social distancing and the seriousness of the pandemic sank in, consumers stayed home and turned to the web to purchase digital products. We saw an event volume increase of 34.4%.

Looking at the fraud rate within the Digital E-commerce vertical for March 1st – 23rd, 2020 compared to the average fraud rate for Digital E-commerce during all of 2019, we saw a decrease of 6.5%.

Physical E-commerce vertical

In the Physical E-commerce vertical, event volume decreased slightly. During the period between March 1st and March 23rd, we saw a 5.5% decrease in event volume. Interestingly,  when we include January and February, we saw a 15.9% increase in volume.

Furthermore, following the 2019 holiday season, the Physical E-commerce event volume never returned to its pre-holiday normal—it stayed elevated and continued to increase until March. That could mean consumers stockpiled supplies leading up to March but found it more difficult to utilize online shopping last month as supply chains were put to the test and delivery windows became harder to come by.

While event volume showed a slight decrease, the fraud rate for Physical E-commerce increased by 12.1% during the first 3 weeks of March.

Food and Beverage vertical

Another industry that saw a massive increase in volume is Food and Beverage, which includes food delivery services and quick-service restaurants (QSRs). Consumers have had to change how they dine, where they shop, and how they pay. With social distancing at play, they’re taking steps to limit physical contact through mobile payments, food and grocery delivery, and BOPIS (buy online, pickup in-store). between March 1st and March 23rd, we saw a 27.3% increase in event volume.

As for the fraud rate during that same time period, we observed a decrease of 16.8%.

The New Normal

We will continue to monitor our data as consumer behavior and fraud evolve during these uncertain times. A key takeaway from this is that the pandemic, and the subsequent shift in consumer behavior, is causing erratic and unforeseen fluctuations in traffic and fraud rates for specific industries; it will continue to be a challenging time for businesses. 

Sift is here to help. Our Trust and Safety Architects are ready and able to help your company weather this storm. For more guidance and information on how to adapt to the new normal, please read our recent blog post, Sift’s Trust and Safety Experts on Fraud Prevention During Economic Unrest.

If you are an existing Sift customer, our goal is to continue to protect your business against fraud and abuse. We will be monitoring your account to ensure the best possible performance as your traffic and user engagement fluctuates.

Our Technical Services team is working hard to make sure you have the information you need to power your fraud-fighting efforts, and we encourage you to stay in contact with us as new trends emerge.