The evolution of payments and fraud will combine to add to the pressure of high inflation and the war in Ukraine.

The coming holiday shopping season promises to present retailers with challenges beyond the typical stressors associated with the industry’s busiest and potentially most profitable period of the year.

The list is daunting: Sky-high inflation is diminishing consumer spending while driving operational costs up for retailers. Nearly two-thirds of UK consumers said they have cut back spending this year, according to a survey conducted for Signifyd by OnePoll.

The war in Ukraine is adding to fuel costs, supply chain disruptions and general uncertainty. And retailers in the UK are facing their first holiday season with SCA regulation in full force.

It all means holiday spending is projected to be down 4% in Europe from last year, according to a Signifyd analysis of recent growth trends and seasonality factors derived from our Commerce Network.

The direct complications brought about by the enforcement of Strong Customer Authentication have been well documented. In fact, 36% of UK shoppers in a Signifyd survey said they’d abandoned a purchase because of frustration caused by SCA. More ominous for retailers, 68% said they’d turn to another merchant if they encountered a bad experience with their first choice.

In addition, the measure, meant to make online transactions more secure, is changing the behavior of fraud rings and even some everyday consumers who’ve decided to take advantage of retailers.

Stymied by SCA, fraudsters are probing the shopping journey for other vulnerabilities. They found one at the account stage, where fraud rings are now successfully taking over consumer accounts, allowing them to buy using the consumer’s credit card and cash in on any loyalty points or other perks the consumer has earned.

Account takeover fraud — known as ATO — was up 229% in the first half of 2022, according to Signifyd global data.

Meantime, consumers facing financial stress due to dramatically higher prices are exploring their dark sides. Online returns are up dramatically, with ASOS saying return logistics cost was significantly diminishing profits and retailers like Boohoo and Zara instituting fees for returns.

While customers are within their rights to return products that don’t work out for them, there is evidence that refund fraud is also on the rise. Faced with constrained household budgets, some consumers are making false claims about online purchases to keep the product and receive a refund.

In a recent Signifyd/OnePoll survey, 32% of UK consumers surveyed said they had falsely claimed that an online order arrived damaged or in otherwise unsatisfactory condition. More than a quarter — 26% — said a package that did arrive, never arrived.

And so what does this gloomy picture mean for retailers and the holiday season, which is essentially upon us? In short, a decline in ecommerce spending matched with an increase in attempts at fraud and policy abuse, means retailers can’t afford to leave any conversion behind this holiday season.

The usual preparation needs to be in place — beautiful site design, compelling email and digital advertising campaigns, clever social media outreach, wise merchandising and a strategic promotions plan that is attractive enough to drive sales, but disciplined enough to preserve margins.

One other essential: A future-focused fraud and abuse prevention strategy needs to be in place, too. Ideally, the strategy should include a process for understanding the identity and intent behind every transaction — meaning purchases and refund requests. Some elements to consider:

• The pressure of holiday order spikes calls for an automated machine-learning system that can scale rapidly while sorting fraudulent from legitimate orders. It needs to include the intelligence to spot mischief at the account stage of the buying journey — the place where account takeover is launched.

• Returns will start as a trickle during the holiday season and turn to a flood immediately after. Retailers need a system in place that can assess the risk involved in a refund request. Is this a frequent returner? A loyal customer? A new customer that the individual merchant has no track record with? With an intelligent system in place, a merchant can decide how to respond based on the level of risk involved. Should this customer receive an immediate refund? Should the refund be held until the returned product is received and inspected? Should the request be challenged as illegitimate?

• As important as any of it, these decisions need to be made instantly. It is never a good time to delay an order while attempting to determine whether it is legitimate or not. It’s especially not good to slow orders — or incorrectly decline orders for fear of fraud — in the holiday season, when merchants attract new customers and when emotions are high and memories are long. A bad experience could mean a first-time customer becomes a last-time customer. The same holds for returns. There are few better ways to lose a customer than to delay a refund for a legitimate return. In Signifyd’s survey, 63% of consumers said they agreed or strongly agreed that a bad return experience would be enough to cause them to stop patronizing an online brand.

The holiday season is always a challenge. And many retailers are, of course, up to the task. But there is no reason to make this all harder than it needs to be. Some quick action now can save months of headaches later.

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.

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