With the holiday season upon us, eCommerce sales are expected to grow by 15.8% during this period. It’s the time of year that many people let go of their spending inhibitions in favour of embracing the holiday spirit.
Unfortunately, it also means that the festive period is when fraudsters sharpen their tools as they prepare to take advantage of holiday shopper’s relaxed approach to online purchases.
Chargeback rates increase by as much as 50% during busy shopping periods and more than half of fraud losses happen from September to December.
If you operate in one of the top 5 industries most affected by card-not-present fraud, it’s a good time to review your payment processing security measures to protect your customers, and yourself, over this busy period.
In 1974, 421 million people flew with commercial airlines. By 2014, that figure increased to 3.21 billion people with another 22% increase expected by the end of 2017.
It’s become very easy to compare airfares and book tickets over the internet with online travel sales expected to reach $630 billion in 2017. The holiday season is especially busy as people travel to spend time with family members in different parts of the world.
Card-not-present (CNP) fraud in online airfare sales has been identified as one of the most affected industries as more than 90% of airfares are booked through online channels.
Airlines lose around $1 billion per annum as result of fraudulent online ticket purchases but the actual rejection rates due to high-risk payments are as high as 25%. Also known as false positives, CNP rejected transactions totalled $43 billion in 2014 for online travel bookings.
Furthermore, nearly half of all eCommerce fraud attacks in 2015 were directed at online travel bookings.
These statistics speak volumes. It shows us how vulnerable airlines can be in CNP fraud attacks and how lucrative cybercriminals deem this market to be.
As with most markets, the internet has revolutionised the gambling industry.
The online gambling industry is expected to almost double in size from $44 billion in 2016 to $81 billion by 2022.
There are various reasons why online gambling has become so popular:
- It’s much easier for players to sit in the comfort of their home and play online than having to go to a physical casino.
- Online casinos are open 24hrs a day.
- The advent of widely available mobile gambling applications has made online gambling readily accessible.
- Social threat of online gambling is seen as less severe than physical casinos and therefore jurisdictions are more likely to grant online gambling licenses.
According to a report by ThreatMetrix, losses as a result of CNP attacks total up to $82 billion per year and as much as 3.5% of all online card payments are fraudulent.
A big reason for this is the fact that, in order to make billing easier, many gambling platforms are moving to more advanced systems that enable users to save card details and other personal information to their accounts.
This has, however, made it a very tempting target for cybercriminals.
Online retail is one of the biggest market segments available today. The global industry sales were $1.86 trillion in 2016.
This is expected to increase by more than 240% to $4.48 trillion by 2021.
Online retail is also heavily affected by seasonal trends, which normally experience huge spikes during the holiday season.
The graph below illustrates just how dramatic this spike has been over the last couple of years in the US.
Black Friday to Cyber Monday this year saw 62% of all sales come from mobile devices, an increase of 55% from the previous year. And although CNP fraud saw a slight decrease, it still accounted for 42% of the total fraud figure during this holiday period.
It does show that shoppers are becoming more aware of the security measures they have to take when using their card for online retail, but the battle is not quite won just yet.
10% of all CNP fraud can be attributed to general online retail, which will amount to $7.1 billion over the next 5 years.
Online gaming might be a surprise entry on this list but the industry generates well over a $100 billion in revenue annually. A big percentage of this revenue relates to in-game purchases, especially on mobile devices, which account for over 40% of gaming transactions.
Due to the fact that players will often store their card information on the gaming platforms for quick and easy purchases, fraudsters have started to target the industry.
It’s also a largely unregulated market which can make it an even easier target.
Online gaming operators further have the benefit of a much larger international customer base than most other industries. Many gaming companies make as much as 50% of their revenue from sales outside of their local market.
But, international payments are seen as riskier, with fraudulent rejection rates 75% higher than those for domestic payments.
We spend a lot of our money on entertainment. According to Entertainment & Media Outlook by PwC, the media and entertainment market reached $1.9 trillion in revenue during 2016. It is expected to increase past $2 trillion by the end of 2017.
Buying tickets online for festivals, sporting events, concerts, even the movies, has never been easier or more convenient.
However, with this convenience comes a growth in CNP payment fraud. This is due to many of the same reasons as we see in other industries, such as the internet’s ability to mask a shopper’s identity and the ease with which a purchase can be made in a short space of time.
But with online ticket sales, there is an additional factor that makes it a very lucrative industry for card fraud, which is a readily available secondary market for ticket sales, often at an increased price.
That means cybercriminals can get rid of their fraudulent merchandise quickly and make an additional profit on top.
There are, however, a number of clear patterns merchants can look out for when it comes to online ticket purchases and fraudulent rejections:
- The transaction rejection rate for online purchases made more than two months in advance is around 4%. This rate gets higher as the event gets closer and is around 7% for purchases made on the day of the event.
- The more expensive the orders, the riskier it gets. Online ticket purchases above $1,000 have a rejection rate of almost 20%, while it’s only 4% for purchases below $200.
- The type of event also makes a difference. Almost a quarter of music festival online purchases get rejected as fraudulent while sporting events, for example, are deemed much safer with a rejection rate of 5%.
The occurrence of CNP fraud is only set to increase in the coming years as the internet takes a more dominant position in our lives and we spend an increasing amount of our time, and money, in online marketplaces.
In the US alone, CNP fraud losses are expected to reach $6.4 billion during 2018, making up 70% of all payment card fraud losses.
Unfortunately, the threat of CNP fraud is not going away anytime soon and it can be expensive as well as time-consuming for companies to implement the right systems to help protect online consumers.
What’s worse is that the merchants that provide the online services and products that we consume will often get stuck with footing the bill for fraudulent chargebacks.
The good news is that there are technologies, such as 3D Secure, that provide additional layers of security, making it easier and more cost-effective for merchants, and issuers alike, to protect their customers in the fight against online payment fraud.
And with the 3D Secure protocol incorporating protection mechanisms, such as liability shift, merchants won’t have to face the burden entirely on their own.