Retailers Beware: Omnichannel Fraud is on the Rise
As omnichannel adoption grows, and the number of customer touchpoints increases across all channels, the opportunities for fraud will continue to increase.
Omnichannel refers to retailers creating different touchpoints to reach customers at different points of their journey – to increase sales, and improve the customer experience. Omnichannel strategies are being adopted more frequently by merchants of all sizes, as businesses scramble to maximize opportunities and meet customer demands for a consistent, harmonized experience across all touchpoints.
Omnichannel retail can have a significant impact on business outcomes. Studies1 have found that companies with omnichannel strategies have 23x higher customer satisfaction, 89% customer retention, and a 30% increase in customer lifetime value.
However, as more businesses incorporate omnichannel strategies, the opportunities for malicious actors to commit omnichannel fraud increase as well.
Omnichannel fraud occurs when a malicious actor mixes different types of goods, services, ordering or delivery to commit fraud. Recent research2 shows that while 90% of retailers have incorporated omnichannel into their strategies, only 46% are using fraud management solutions across all channels. And fraudsters are taking advantage of these security vulnerabilities in ever-more sophisticated ways.
Omnichannel fraud may include:
1. Physical/digital mixed cart.
In this case, the fraudster uses credentials from an actual customer, and places an order of physical goods to be shipped to their home, but then adds a digital component to the order – for example, a gift card. The customer receives unwanted goods delivered to their home, while the fraudster gets a gift card that the actual customer has paid for.
This type of fraud is difficult to detect, as the order leverages antiquated shipping fraud rules used by legacy systems. A retailer may not be aware that there is an issue, because the shipping address and payment match the information on file.
To detect this type of fraud: Enable mixed-cart purchases to be subject to rules that scrutinize the threat level of the riskiest items. Red flags would include a recent email change – as the digital goods would be delivered to the fraudster’s email. Or, if device-level data is available, the use of a new device or IP address could indicate that a new player is involved, other than the customer.
2. Delivery methods mix.
Also known as ‘click-and-collect’, a fraudster orders items to be delivered to an actual customer’s home, mixed with buy-online, pickup-in-store (or BOPIS) items. The deliver-to-home items provide legitimacy to the purchase, as they have all of the characteristics of prior, actual orders. Additional BOPIS merchandise can then be picked up by the fraudster, and either kept or sold for an illegal profit.
For some retailers, BOPIS fraud has increased3 by more than 250% in the past year alone. To protect yourself from mixed delivery fraud, a retailer can add an additional review to orders that are placed with mixed delivery methods. Again, a fraud solution that incorporates device intelligence or IP tracking can indicate that fraudsters may be at work.
3. Returns fraud.
With omnichannel returns fraud, fraudsters purchase items with a stolen credit card or stolen credentials online, then make returns in the store. Or, they can order products to be delivered to an existing customer and then steal the physical goods from the customer, ‘porch pirate’ style. The theft would be unlikely to be reported, as the customer didn’t actually place the order and therefore, would not be aware that they were missing.
While ideally, the merchandise would be exchanged for cash; even returns for store credit can be monetized. Fraudsters can take store credit in the form of gift cards, and resell them for cash through a number of online channels.
Related reading: 3 Ecommerce Fraud Prevention Best Practices for Retailers
Like any other type of omnichannel fraud, returns fraud is difficult to detect. Creating and enforcing strict identification checks at your returns desk is important, as is tracking suspicious activity to identify possible fraud and repeat offenders. A fraud solution that incorporates behavioral analytics can be extremely beneficial, in identifying and tracking suspicious behaviors before a transaction occurs.
As omnichannel adoption grows, and the number of customer touchpoints increases across all channels, the opportunities for fraud will increase as well. Most companies are focused on omnichannel strategizing and implementation, to improve the customer experience. Few have prioritized the increasing vulnerabilities to fraud that omnichannel commerce presents.
If your business uses multiple channels for purchases, deliveries, and returns, or if you allow mixed-cart purchases, you may be vulnerable to omnichannel fraud. If you have concerns about the prevalence of fraud at your company, consider reducing the need for manual review of purchases with a comprehensive, multi-layered fraud detection and prevention solution.