Why Black Friday is good for fraudsters and how to stop them

By Shawn Hall, VP of Global Business Intelligence at Pindrop

The period between Black Friday and Christmas is a bonanza for U.S. retailers as it contributes over 13 percent of all retail sales. Shoppers spent $9 billion online during Black Friday in 2022. However, this growth in online retailing hides two challenges; high volume of returns and growing fraud. Ecommerce returns are believed to be in the range of 20 percent to 30 percent (2-3x of traditional retail returns) with a whopping 14 percent of those returns estimated to be fraudulent. Estimates from the National Retailers Federation reveal that ecommerce return fraud may be costing U.S. retailers $23 billion annually. Black Friday alone sees an almost 22 percent increase in fraud activity. Amazon, one of the largest ecommerce retailers in the world, is advising its shoppers to be wary of scams ahead of the major Thanksgiving shopping weekend as they are seeing an uptick in fraud in 2023 through text, call, or email.

The fraudsters’ MO

Fraud in retail is not new. But as e-commerce has grown, so has the competition amongst retailers to offer more customer friendly policies such as fast and flexible returns. But fraudsters have realized that they can exploit these return policies to their advantage. Some common methods used by fraudsters include:

Account takeover

Taking full control of a target’s account through manipulating call center agents or using a customer’s data against them

Opening and nesting accounts

Opening 100s of accounts and normalizing them over a period of time before they will be used for fraud

Buying accounts

Offering to purchase good accounts from good customers in exchange for money or a cut of the fraud loss

Promo and policy abuse

Taking advantage of a deeply discounted sales promotion or a seamless return policy

Gift card abuse and washing

Obtaining gift card numbers front the dark web and making frequent claims to extract value from the gift cards

Missing package claims/Refunds abuse

• “I never got what I ordered”
• “I didn’t get the right item”
• “I got the box but it was empty or was filled with a brick, rocks etc.”
• Got the right expensive items but returned a much cheaper knockoff

Around 264 U.S. retailers from various categories ranging from electronics, clothing, home decor and even pet foods are on the target lists of these fraudsters who have a good understanding of their return policies and are equipped with tactics to exploit them.

Common theme across all frauds

The contact center is a common thread that runs across these fraud tactics. It is usually the final stage in the execution phase of the returns fraud as the fraudster calls in to verify the transaction or to manipulate the call center agents into processing their claims. Agents do their best to put some friction into the process but on the phone channel they have less time to respond making it harder to spot unusual behavior or patterns. Fraudsters can more effectively manipulate the agents with social engineering without tripping any flags.

As a result, we observe a significantly high fraud rate in retail contact centers. According to research from Pindrop Labs, 1 in 99 calls at a large U.S. retailer are fraudulent. In comparison, the fraud rate across all of Pindrop’s customer base is 1 in 600 calls. Fraud is almost 6-7 times more prevalent in retail than in other verticals.

How to stop fraud

Pindrop helped one of the largest retailers in the world to solve the problem of ecommerce fraud. The retailer was challenged with returns fraud taking place through the contact center. A majority of this fraud was committed by a few repeat offenders who were working in close coordination with underground service providers. The retailer needed a reliable and effective way to identify the voices of these repeat fraudsters and to respond to these fraud attempts in real-time by shutting down the targeted accounts.

Pindrop’s multi-factor fraud detection approach which leverages voice analysis, device and behavior analysis in conjunction with caller ID and risk intelligence was instrumental in identifying the risk levels of all the calls coming into the contact center. With the ability to detect and cluster the voice samples of prolific fraudsters and providing real-time guidance to the fraud investigation teams, Pindrop was able to uncover a lot more fraud activity than the retailer was aware of and saved millions of dollars in fraud losses.

What should the retailers do?

Retailers are aware of how vulnerable their ecommerce activity is to returns fraud. To solve this problem retailers need to ensure that they perform a holistic assessment of their contact center authentication and fraud detection tools and processes. It is important to implement a solution that provides real-time, multi-factor risk assessment without compromising the main goal of ecommerce which is to optimize customer satisfaction. An ideal solution should be able to reduce the burden on risk management teams by highlighting the most prolific and high value fraud attempts for immediate action and work closely within the context of the retailers’ policies and processes.

The holiday season is of crucial importance to retailers and consumers alike. Let’s stop the fraudsters and make the holidays safe and prosperous for everyone.

About the author

Prior to working with Pindrop, Shawn Hall was the Director of Global Fraud Operations at E*TRADE Clearing for 10 years and has more than 20 years of experience in the fields of financial services and retail operations, with the past 14 years dedicated to authentication, fraud and risk detection, prevention and mitigation at E*TRADE and Pindrop. Hall has extensive experience related to the development, implementation and modeling of effective online, call center and transactional fraud applications and solutions. He is an active participant in the NCFTA, ACFE and RSA forums.

DISCLAIMER: Biometric Update’s Industry Insights are submitted content. The views expressed in this post are that of the author, and don’t necessarily reflect the views of Biometric Update.

Article Topics

behavioral analysis  |  biometrics  |  ecommerce  |  fraud prevention  |  Pindrop  |  voice analysis  |  voice biometrics