The digital transformation of organised crime

How fraudsters are outsmarting merchant tech and what retailers can do to stay ahead

Gone are the days when fraudsters were tech-geeks in hoodies launching attacks and committing crimes from the comfort of their darkened garages.

Today, crime is organised.

By leveraging technology strategically, fraudsters are now able to launch multiple attacks with the click of a single button. To execute different forms of fraud, fraudsters can even automate many attacks.

A worrisome example we’ve seen over the past year is the rise of a Southeast Asian fraud ring which quickly scaled up after testing the waters under fraud radars. This has hit the industry extremely hard and fraud prevention professionals have been working tirelessly to combat their evolving patterns and tactics.

What this ultimately means is simple yet two-fold: fraud has become a form of organised crime, and it’s going through a digital transformation. For merchants, this means they will have to keep ahead of the game through intelligence, investment, and innovation to outsmart these types of increasingly intelligent criminal networks.

All of this while many merchants are stepping up their omnichannel offering. That means merchants need to look at three core areas:

Risk Intelligence

One increasingly common example of automated attacks that Signifyd’s risk intelligence team observes is card testing attacks, where fraudsters can test thousands of stolen cards on a retailer’s platform through automated scripts, all in a matter of seconds. While the values per order may seem low, losses can be dramatic if these attacks aren’t identified and stopped.

In fact, card testing was the second most prevalent form of organised fraud impacting retailers in 2022, according to Experian, and is expected to remain a threat alongside phishing, chargeback fraud, and identity theft in 2023. As these tactics become increasingly advanced, fraudsters are identifying more opportunities to exploit weaknesses in merchants’ operations.

Any retailer can be a target when it comes to these automated attacks. However, in using a fraud prevention solution that taps into a large network – Signifyd’s for example is the largest outside Amazon – merchants can pull from trends in wider retail data to identify, flag, and stop these types of attacks before they wreak havoc.

Investing in smart technologies

In Europe, Strong Customer Authentication (SCA) regulations have been put in place to stop fraud, but doing so has placed strain on merchants who now not only have to grapple with fraud prevention but also have to work even harder to ensure a smooth customer experience. Our 2023 Annual State of UK Commerce Report found that 36% of shoppers in the UK have had to abandon purchases because of trouble with SCA while checking out, and nearly 7 in 10 (68%) said they’d opt to move to a large retailer over a smaller one if having a bad experience. Furthermore, 71% said they would rank SCA problems a 5 or higher on the frustration metre (scale of 1-10) when shopping online.

The challenge for retailers is apparent, but by using advanced SCA tools, merchants can avoid unnecessary losses in customers and revenue. Technology like analytics tools and exemption management validate transactions seamlessly in the background. That means retailers are better able to identify transactions which do not need to be authenticated. This will then lead to increased conversions while promoting better, more seamless customer experiences, leaving less money on the table and building on customer loyalty.

Innovating in operations

Beyond investing in a strong tech stack, it’s also important for merchants to feel empowered to innovate for customers. Drivers of this innovation are simple: provide quick, easy, and effortless journeys without allowing friction to get in the way. In an era of increasing regulatory pressure, this is mainly focused on enabling payments and risk screening to happen in the background without end users ever feeling disruption.

Retailers have to contend with changes to consumers’ shifting behaviour - treating online shopping flexibly, buying on the go while traveling, and sending direct to end destinations or gifts to friends and family. Nearly 9 in 10 UK shoppers (87%) said they shop cross-border when online given the ease of delivery, and as they browse online aisles on a mobile or in-app, these variables need to be accounted for within a merchant’s tech stack. If not properly set up, huge amounts of friction can be introduced to the customer experience, opening up opportunities for fraudsters and wreaking havoc on a retailer’s back-end.  

The right technology – whether it’s dynamic exemption management, risk analysis, or payment optimisation – means that retailers can verify whether purchases made in various circumstances like the above are suspect, or alternatively of very low risk based on previous consumer behaviour and data. As fraud becomes increasingly intelligent, having these capabilities built-in could be the difference between the life and death of a business.

In conclusion, according to the ONS, online fraud has increased 25% since 2020 despite other forms of crime decreasing. As criminals cotton on to the opportunity provided with online fraud, we can only expect that crime rings will continue to evolve.

As fraudsters are building out their new roadmaps, attacking faster, harder and smarter will be on top of their mission statement. It is therefore essential that retailers invest, investigate, and innovate to adopt a machine-learning solution that can detect and stop fraud in real-time.

---

To find out more about Signifyd and the services they provide to the retail industry, click here.

This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.

VIEW THE RETAILER