“How eCommerce Merchants Fight Fraud for the Holiday Shopping Season” is the fourth edition of the Identity Verification Series, a collaboration between PYMNTS Intelligence and Intellicheck. It explores fraud and verification issues in the eCommerce industry, details current and future technologies, and looks into merchants’ upcoming fraud-prevention efforts. This brief focuses on how eCommerce retailers address the alarming growth of identity-related fraud as the holiday shopping season rapidly approaches.
The eCommerce Sector Grapples With Fraud
The holiday shopping season is good for businesses and a five-star alarm for eCommerce fraud.
Merchants are gearing up for the holiday shopping season. Consumers are ready to spend, but can they shop knowing their data and finances are safe? Holiday retail sales are set to grow by 2.3% and 3.3% in 2024, according to Deloitte’s annual holiday retail forecast. To realize this opportunity, merchants will need to not only stock their shelves but also be ready to address the growth in retail fraud. The influx of customers shopping for the holidays can place extra pressure on retailers. Under time constraints, retailers may turn a blind eye to steps they would take to detect fraud, such as verifying a shopper’s mailing address.
Small issues can quickly add up for merchants. An estimated 3% of their total eCommerce revenue is lost to fraud each year, and a similar share of total eCommerce orders turn out to be fraudulent. Globally, the value of eCommerce fraud is expected to rise from $44.3 billion in 2024 to $107 billion in 2029 — an increase of 141%.
From a regional perspective, North America accounts for the largest part of global eCommerce fraud by value, at 42%. For comparison, western Europe is in second place, at 26%. In North America, the reality of encountering fraud is stark for merchants who will need to increase their awareness of identity-related fraud — and combat it with effective tools.
Consumers’ Financial Losses to eCommerce Fraud
Consumers relying on online platforms for holiday shopping would pay more for better fraud protection.
While merchants deal with identity-related fraud operationally, consumers can also grapple with financial losses and frustrations. Online shopping is fraught with challenges. Financial fraud has impacted 75% of consumers, for example, and delays and payment glitches impede smooth online shopping journeys. Among consumers, 61% have had delays in deliveries and 55% lost payments due to glitches in the purchasing process.
Data shows that many shoppers are willing to pay a premium to prevent eCommerce fraud. Nearly one-third of consumers (32%) say they are willing to pay up to 5% of the total cost of their transactions for relevant insurance coverage. Similarly, 70% of consumers say having greater insurance protection would increase their confidence in making online purchases. Today, insurance protection is available from roughly half of eCommerce merchants.
Ultimately, unhappy customer experiences harm merchants in the crossfire. Among eCommerce merchants, 68% report diminished customer satisfaction from fraudulent events. For merchants, fighting fraud and keeping customers should go hand in hand.
Merchants’ Readiness to Fight eCommerce Fraud
eCommerce merchants are challenged by a lack of resources, tools and know-how in their fraud battle.
Merchants know they need to do more. The question many ask is how. Some key concerns merchants face include limited resources and a lack of fraud tools. Globally, 30% to 40% of merchants report gaps in tool capabilities and a lack of internal fraud management resources. Merchants’ own limitations in tracking data that could help them prevent fraud represent another potent stressor.
Nonetheless, eCommerce firms are investing in dealing with fraud, particularly identity-related attacks. AI technologies are fueling more sophisticated strikes across eCommerce sites, enabling deepfakes that can realistically imitate an individual and defeat some legacy verification systems.
Merchants with resources to spend are expecting to fight fraud with them. Roughly half plan to increase spending on fraud management technologies and add knowledgeable staff over the next two years. Meanwhile, other retailers are focusing on efficiency, aiming to do more with existing budgets or reducing costs while maintaining or enhancing performance. Could eCommerce retailers be doing even more to combat fraud?
Investing in Identity-Verification and AI Tools
eCommerce merchants are arming themselves with new tools and technologies to thwart fraud efforts.
Merchants may find some relief from third-party providers of cybersecurity and identity verification tools, including those using AI. Conversely, bad actors can use AI to defeat some identity-related security measures. AI can now bypass Google’s reCAPTCHAv2 with 100% accuracy, potentially making a critical online security measure obsolete. eCommerce merchants may be forced to rethink user authentication altogether.
As verifying a customer’s identity is a key first step in fighting fraud, merchants are optimistic about the positive impact these innovations can bring. Nearly every eCommerce business surveyed (93%) agreed that security innovations would enhance the customer experience. Merchants have seen success with certain tools, such as two-factor authentication (2FA) for fraud prevention and reducing failed payments. Currently, 53% of merchants use some form of 2FA as part of every transaction to combat fraud.
New tools are emerging, such as tap-to-authenticate cards — physical debit or credit cards issued by a financial institution with embedded chips. The user can then authenticate themselves, typically by tapping the card on the back of a smartphone. Further, cloud-based platforms specifically designed to detect eCommerce fraud are popular security tools, with 63% of businesses surveyed using these platforms.
Ultimately, eCommerce retailers may benefit from simply increasing their awareness of fraud threats and using the tools at their disposal to ensure the safest and most secure shopping season for their businesses.
The identity effectiveness framework
Figure 1
The identity effectiveness framework
Relative importance of specific aspects of identity verification processes in the real estate and title, automotive, FinTech and eCommerce industries
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Real Estate/Title |
Automotive |
FinTech |
Retail |
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Fraud detection
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| Postal address verification |
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| Email verification |
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| KYC compliance regulations |
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| Photo ID bar code verification |
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| Passport scanning |
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| Criminal screening |
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| NIST certified facial biometrics |
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| PAD level liveness detection |
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| OCR document comparison |
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| Fraud and risk scoring |
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| Global watchlist data screening |
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| Proxy detection and IP address reputation scoring |
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| OFAC, sanctions, PEP and criminal screening |
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| Email validation and verification of email digital footprints |
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| Bot, Tor, emulator and GPS spoofing detections |
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| Adverse media monitoring |
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| Phone carrier lookup |
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| Device ID fingerprinting |
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Account onboarding
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| Postal address verification |
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| Email verification |
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| KYC compliance regulations |
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| Photo ID bar code verification |
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| Passport scanning |
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| Criminal screening |
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| NIST certified facial biometrics |
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| PAD level liveness detection |
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| OCR document comparison |
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| Fraud and risk scoring |
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| Global watchlist data screening |
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| Proxy detection and IP address reputation scoring |
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| OFAC, sanctions, PEP and criminal screening |
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| Email validation and verification of email digital footprints |
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| Bot, Tor, emulator and GPS spoofing detections |
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| Adverse media monitoring |
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| Phone carrier lookup |
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| Device ID fingerprinting |
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ID validation: Age verification
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| Photo ID bar code verification |
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| Passport scanning |
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Read More
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