A global pandemic disrupts the economy on a global scale. Right now, merchants are facing unprecedented pressure as they struggle to adapt to newly virtual (or depleted) workforces and fluid market landscapes. What tomorrow holds is almost as big of a question mark as what things will look like in two months, leaving business leaders everywhere with a shared anxiety over the choices they make today. 

Sift’s Trust and Safety Architects—Kevin Lee, Jeff Sakasegawa, and Brittany Allen—came together to discuss what merchants need to watch out for, and how to stay proactive about protecting customers and growth during an era of unpredictability.  

1. Economic disruption is a major concern for merchants and a big opportunity for fraudsters. What vulnerabilities will emerge?

[Jeff Sakasegawa]Similar to the holiday season, or any time of year when customer bases fluctuate, I’d expect fraudsters to focus on merchants that are seeing the greatest increases in business. It can be easier for fraudsters to hide within larger volumes, especially if the affected trust and safety team is overwhelmed with a large uptick in manual reviews, or is unable to change their processes and infrastructure quickly.

[Kevin Lee] Donation fraud is already cropping up around COVID-19, and I expect the same to happen on two-sided marketplaces with independent or individual buyers and sellers. Unfortunately, situations like this leave the door open for fraudsters to exploit people’s collective emotional vulnerability—something that’s even easier when those same platforms are seeing an increase in legitimate users and campaigns. 

[Brittany Allen] Companies without well-developed e-commerce presences, such as those that have traditionally relied on brick-and-mortar sales, may rush to go digital to preserve the bottom line. Discount stores, off-price department stores, and independent small businesses may be unfamiliar with online fraud, and will therefore be attractive targets for seasoned fraudsters. Merchants may not realize that they have a fraud problem until at least some damage has already been done.

KEY ADVICE

  • Communicate out, up, and down about the changes being seen throughout the business each day—between company leaders and fraud prevention teams, as well as throughout the larger workforce for a 360° view into any impact the pandemic is having on the organization. Fraud managers should set expectations with leaders on what to expect, such as higher chargeback rates, and should have daily virtual standups with their teams. When possible, use support centers and in-app messaging to let your customers know if they’ll experience things like shipping delays or limited inventory.
  • Stick to the data. While predictability is no longer a given and short-term data is in flux, fraud prevention teams need to shift focus away from normal expectations and consider the events at hand. Even so, looking at last year’s seasonal trends, coupled with pre-disruption data, can provide a baseline to help you better assess emerging fraud patterns in the coming weeks. Surprises will still happen, and frequently—but an educated guess is better than having nowhere to start.    
  • Be on the lookout for increased decision fatigue. Trust and safety leaders can consider redistributing work to better support overwhelmed analysts. It may also be worth revisiting processes that don’t lend themselves to the current environment. 
  • Focus on the short-term, be grateful in the long-term. While it will be impossible to tell if you did too much to adapt to the current situation, it’ll be very obvious if you did too little. Consider changing your policies and procedures to account for pandemic-related disruptions, pull data on fraud trends more often, and sync more frequently with internal stakeholders to stay ahead of economic uncertainty and the fraud that comes with it.

2. How are different verticals likely to be impacted? 

[Jeff Sakasegawa] We’ve already seen travel, hospitality, and restaurants take a significant hit in terms of dollars and volume. The silver lining is that there is, and will continue to be, an expanding market for on-demand delivery, wellness products, camping and outdoor goods, health-related and personal items like thermometers and ibuprofen, and enterprise tools that enable remote work and teleconferencing. 

[Kevin Lee]Events and tourism will see more fraud attempts. And because there are going to be fewer orders or transactions coming through overall in those verticals, it’s worth noting that fraud ratios are going to spike even if the total number of fraudulent orders stays the same. With each transaction now having higher value, false positives are going to start costing more. That said, entertainment and streaming services, as well as online education and fundraising platforms, are seeing a much higher rate of usage and sometimes, of new users—which can be a magnet for fraud, too. Merchants can also expect friendly fraud rates to go up, so it’s a good time to make sure that refund policies are up-to-date, clear, and easily accessible.

[Brittany Allen] With the unemployment rate rising sharply and projected to hit record highs, consumers will prioritize needs over wants. I anticipate that industries that rely on discretionary spending, such as certain areas of the clothing industry, jewelry, and luxury goods, will see a drop-off in customers and an increase in fraud ratios, given the lack of social events, like weddings and proms, taking place. Additionally, even verticals that seem more stable, such as tech companies and start-ups, will be affected if they serve weakened industries.

KEY ADVICE:

  • Stay vigilant, even as volumes rise. An unexpected flood of new customers or orders can be daunting, but as much as possible, trust and safety teams should keep a closer-than-usual eye on the manual rules and machine learning models in place. Fraudsters go where the consumers go, and will be counting on the influx of users as cover.
  • Share several possible business scenarios between teams. It’s a good idea to increase the frequency of cross-team communication during ambiguous times, especially between leadership and fraud prevention. That said, the entire organization should be aware of any potential strategy changes and short-term decisions that are on the table, which enables the entire business to function more cohesively and react more quickly.

3. What types of fraud are most likely to increase, and how can merchants curb the reach of these trends? 

[Jeff Sakasegawa] When something exists between the customer and their ability to obtain those things, like a website, content scams have a chance to take root. More fraudulent content can lead to customer churn, increased disputes, increased customer support needs, and even cash loss, should you decide to reimburse impacted customers. Whenever possible, work with web hosting or social media companies to get problematic content taken down. 

[Kevin Lee] TIME recently covered the big uptick in spam and scams resulting from COVID-19. Beyond the financial and emotional harm fraudy content can cause, people will lose trust in the businesses connected with it. Trust is earned in drops and lost in buckets; when people get scammed and they know it, that trust is very difficult to get back. From a financial perspective, the lifetime value of those customers is severely hurt, too. The most effective way to surface and stop spam content from getting onto your website or platform is with machine learning; when you can train models off of all of the signals on your site, and understand how content is posted (in addition to what is posted), you’ll have a significantly better chance of getting ahead of spam. 

[Brittany Allen] Scams and spam content are always present online, but what’s different right now is that fraudsters have fear and uncertainty about the pandemic to capitalize on. Otherwise, the FTC would not have found it necessary to announce that “there currently are no vaccines, pills, potions, lotions, lozenges or other prescription or over-the-counter products available to treat or cure coronavirus disease 2019 (COVID-19)—online or in stores.” Numerous other officials and groups have also been compelled to warn consumers. That’s truly a representation of the magnitude of these scams.

Sift’s Trust and Safety Architects (TASAs) also advise merchants to be aware of climbing customer insult rates and increased chargebacks, which could be a byproduct of lower overall order volumes and financially strapped users.

KEY ADVICE:

  • Don’t sweep scams under the rug. Before spam happens, merchants should proactively provide insights for customers on how to protect themselves, and assure them that your business is doing everything possible to keep them secure. When it comes to spammy content, customers can also be a merchant’s best ally, on the ground where scams crop up first—make sure they have an easy way to report them. And, when you discover that fraudy content has made it onto your site, tell your user base as soon as you know about it. 
  • Business is always a balancing act, but when people and patterns behave unexpectedly, it can feel more like a freefall. Acknowledge that your company and customers are at an increased risk of fraud right now, and act accordingly—seek out more powerful platforms and tools, be willing to adjust processes, and communicate frequently, internally and externally. Help users understand what they can do to stay safe when interacting with your brand. When fraud happens, do what you can to make it right. Customers are going to remember how different companies reacted and responded to the pandemic, so it’s more important than ever to lead with empathy, learn from mistakes, and stay agile.  

Hear more from Sift’s Trust and Safety team by reading our recent blog on fighting fraud during COVID-19, or checking out our virtual event session, 2020 Fraud Trends and What to Expect.

Related topics

card-not-present fraud

coronavirus

covid-19

digital fraud

digital transactions

Digital Trust and Safety

dynamic friction

fraud

fraud management

fraud prevention

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