As the holiday season approaches, merchants should be aware that as overall sales increase, so will fraud. In fact, the holiday season is an opportune time for fraudsters to strike. And merchants need to plan accordingly so that they are not overwhelmed. Fortunately, certain strategies and tools can help merchants adjust their fraud procedures. They can adjust in ways that avoid the need to hire additional staff to process holiday season fraud claims.
This fall Kount conducted a survey about anticipated consumer behavior this holiday season. It is to better understand how merchants should focus their fraud strategy. To learn more about the survey and how merchants and acquirers can optimize their fraud management this holiday season, PaymentsJournal sat with Casey Zenner, Vice President of Global Sales at Kount, Brady Harrison, Director of Customer Analytics Solution Delivery at Kount, and Daniel Keyes, Senior Research Analyst at Mercator Advisory Group.
Equipping Merchants to Combat Holiday Fraud
According to Kount, holiday fraud tends to peak during the year-end consumer buying season. And it continues to persist after the big holiday rush with returns, refunds, and charge-backs. Many fraudsters tend to target this period in the hopes that a merchant’s fraud defenses are overwhelmed. And it’s critical that merchants are prepared and fully equipped to respond to any potential attacks.
“It’s such a double-edged sword for many businesses working to try and capture revenue during their busiest time of the year — because the holiday season, for many merchants, can really make or break their business,” said Zenner.
“During the holiday season, levels of fraud do peak, just because we have more transaction volume in terms of dollars lost,” added Harrison. “But you really need to sift through those events where it makes sense and not overwhelm your existing operational footprint — that’s what we hear a lot from the fraud space.”
Adaptive Friction
“The other option is to dial down your fraud strategy and just say, ‘Hey, we’re just going to take this on the chin, minimize the level of friction for all customers, and then deal with the holiday hangover in January of charge-backs,” he added.
With a reactive approach to fraud, businesses gather information about customers after they make a purchase. But merchants that prepare well will move some of that identification process further upstream. “This creates a better customer experience for 99% of your good customers,” Zenner said. “The idea is to leverage data to put up adaptive friction where necessary.”
“Adaptive friction is the idea of not really setting a line in the sand for all customers, but rather setting that line in the sand for approve or decline or approve based on a variety of data, such as customer information, physical location, and season of the year,” added Harrison.
But adaptive friction can’t come at the expense of customer service. “There’s a huge loyalty opportunity with each customer,” Keyes said. “It’s important that their experience with returns, refunds, and chargebacks is positive because it could lead to a continuing relationship and more sales beyond the holidays.”
Survey of Customer Holiday Predictions
In a recent survey, Kount polled 2,000 people living in the U.S., the UK, Canada, Australia, and Mexico. They were surveyed about their online shopping plans for the upcoming holiday season. By and large, Kount anticipates strong holiday sales and consumers starting their shopping earlier than usual. “Some of this is a reaction to what they’re hearing about supply chain issues. Some of it is just the extreme attention to the holiday season as a whole,” said Harrison.
Peak Planning Season
Traditionally, Christmas shopping took place in December, but with the proliferation of big shopping days including Black Friday and Cyber Monday, consumers haven’t been waiting till the last minute to get their holiday shopping done. “Some people are early shoppers and they want to get it done and deal with some of these shipping, logistics, and supply chain issues,” said Harrison. “What this really means for your business is the peak planning season is well underway in September.”
For fraud management, the there is an upshot of these findings. It is that policy changes for the holiday season should be implemented earlier in the year.
“If you’re having a policy change that you think will start the week of Black Friday, that policy or risk adjustment of adaptive friction for peak period might need to start November 1 rather than Thanksgiving,” said Harrison. “It’s a bit of a paradigm shift in fraud strategy that the season is moving earlier.”
Gift Cards and Alternative Payments
According to Kount, gift cards will be a big purchase this year. In fact, 83% of consumers are preparing to buy gift cards for the 2022 holiday season. As a result, during those months, fraud strategies need to relax their scrutiny of such purchases because they’re so common during this time of year.
“Another big insight we’re seeing is in the alternative payments space,” said Harrison. “While we’re seeing growth in buy now, pay later [BNPL], it still [makes up] a minority of transactions. Many consumers said they would engage with some purchases using BNPL, and that said, around 80% of transactions will still be through credit and debit cards.”
For merchants looking at their fraud strategy this holiday season, there are a few key takeaways. Fraud will be rampant this holiday season. And merchants should consider adaptive friction that is customized, based on a variety of customer information. Merchants should also consider focusing on riskier cases of fraud. So with the increase in transactions they don’t have to hire additional fraud investigators. In any case, the policies that they adopt should be put into place in early November. As the Kount survey shows customers are starting their holiday shopping earlier and earlier.
