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Keep your holiday cheer: Protecting your business from seasonal fraud

christmas tree in a shopping mall
Merchants can expect as much as a 30% year-over-year jump in omnichannel fraud during the holidays.3

The attempted fraud average ticket value tends to increase yearly as fraudsters target pricier items. Because fraudsters like immediacy, buying online, picking up in store, and next-day shipment are popular methods for fraud attacks.4

Research from Riskified suggests that online shopping fraud attempts are highest on December 24 and 25.5 Riskified explains that on these two days, fraudsters focus on phone and chat orders that require human assistance, knowing that customer service teams are exhausted by late December.

Also, mobile commerce — widely known as “m-commerce” — peaks during the holidays. A little under half of holiday global e-commerce sales are placed via mobile device, with the strongest mobile shopping day of the year being Christmas Day.6 M-commerce is expected to surpass desktop e-commerce spending by 2021.7

For digital goods like gift cards, fraud is highest in the Christmas and post-Christmas period. Sometimes fraudsters will target physical merchants with “mixed cart” fraud, where they’ll order and send a few physical goods using the victim’s shipping address, then add a digital gift card sent to the fraudster’s own email address.

Of course, “returns abuse” is especially popular in the post-holiday months. Returns abuse costs retailers in the U.S. more than $17 billion every year.8

3. Occupational Fraud

All fraud doesn’t originate with customers. Organizations lose an estimated five percent of their revenues each year to employee-related fraud,9 which seems to spike during the holidays.

Employee embezzlement is believed to be the type of occupational fraud most likely to increase late in the year. The Association of Certified Fraud Examiners estimates an increase of about 20% in this type of crime during the holiday period.10

 

Fraud is alarmingly expensive.

To say that fraud is harmful to the bottom line is an understatement. Fraud costs are enormous. The ACFE estimates that businesses around the world lost $3.6 billion to fraud last year.11

Every dollar of fraudulent transactions costs merchants $3.36 in chargebacks, fees, merchandise redistribution, investigation labor, legal prosecution and IT software and security.12

 

COVID-19 fraud and the holidays are the perfect mix for unmerry mayhem.

Criminologist Donald Cressey describes the factors that cause people to commit fraud as a “Fraud Triangle.” Together, these three components — perceived opportunity, financial need and rationalization — lead to fraudulent behavior. The pressure of these factors has shown to be especially strong during the pandemic and are always heightened during the holidays.

Opportunity. In terms of physical theft, holiday retailers are especially busy and distracted. They may have more goods on display than usual, so thieves have an easier time stealing what they want.

Financial need. Normally law-abiding citizens may be motivated to commit crimes because they are desperate for cash during the holidays. Given the financial stress caused by the pandemic, more desperation in 2020 might be expected.

Rationalization. Similarly, in stressful times, people can more easily adjust their self-conceptions, rationalizing fraud under what they consider to be the “right circumstances.”

It’s no surprise that fraud seems to have increased during the pandemic. According to LexisNexis, select retail segments appear to experience spikes in fraud during the last few months. These retailers include those who sell products and services that are in demand as people require more personal protective equipment (PPE) and have moved to working from home. For example, general merchandise, hardware, housewares, home furnishings, office furniture, telecom/utilities, and clothing and accessories have all seen significantly higher fraud attempts during the shutdown.13

The biggest difference reflecting pre-COVID and COVID-related fraud seems to be among retailers offering m-commerce transactions, which appear to be experiencing significantly higher than average fraud volumes during the shutdown.14

With physical locations shuttered, the mobile channel accounts for one-quarter of fraud costs during the shutdown period.15

 

COVID-19 fraud affects consumers too.

As a point of reference, consumers have also been affected by COVID-related fraud, including schemes regarding unapproved coronavirus tests, fake federal stimulus payments and charity solicitations, and fake PPE and coronavirus “cures.”

The New York Times reports that the Federal Trade Commission has fielded more than 200,000 complaints from consumers about fraud related to the coronavirus through September, costing American consumers more than $145 million.16

 

Awareness is key to protecting your business during the holidays and always.

There’s one critical key to protecting your business from criminal activity during the holidays: awareness.

Assessing your risk for theft, cybercrime and occupational fraud makes you aware of weak spots and vulnerabilities and allows you to create systems and processes to protect your assets. Of course, different channels require different solutions, and layers of solutions often work best. Depending on your type of business, here are a few tactical best practices to consider.

1. Immediately report suspicious activity.

If you experience application pop-ups, error messages, unfamiliar login screens, suspicious emails or other unusual activity, report them to your security team right away. Do not click on suspicious links. The FBI hosts a comprehensive cybercrime site, where you’ll find tips to protect your business, news, and instructions for reporting a claim if you believe you’ve been a victim.

2. Staff up.

If you have brick-and-mortar locations, be sure you are staffed at an appropriate level to pay attention to what’s going on in the store. This year, finding seasonal employees will likely be easier due to pandemic-related unemployment. In addition, you might actually deter theft by limiting the number of customers in the store at any one time due to distancing requirements. For online retailers, staffing up your customer service team can alleviate holiday fatigue and make it easier to deter fraudsters using chat and phone channels. No matter how you do business, ensure that your employees are properly trained to quickly identify, escalate and mitigate fraud attempts.

3. Establish consistent processes.

Consistency illuminates anomalies. If your team follows the same processes every time, with every transaction, the result is that unexpected, non-standard actions stand out.

Insist on training that drives home standardized practices, despite holiday chaos. Regardless of channel, your team needs to take uniform actions so that they’re more likely to recognize the inconsistencies that point toward fraud and cost you money.

4. Stay on top of technology.

Fraudsters are innovative. It is their business to steal from yours. For this reason, they change their techniques and technologies often, seeking new vulnerabilities to exploit your systems and processes.

If you connect it, protect it. You can’t keep up using outdated methodologies. Old school “if-then” logic programs recognize patterns that are already identifiable. Newer technologies with machine learning recognize data associated with fraud patterns and automatically react to new outcomes and patterns via a feedback loop.

5. Ask for help.

Every industry has unique fraud challenges. Seek the advice of professional advisors who can help you identify and reduce fraud risk for your specific business circumstances.

6. Balance the customer experience.

Whatever fraud mitigation steps you take, keep in mind that you don’t want to create additional “friction” that will make your customer experience slower or unpleasant. For example, regarding retail returns, Forter recommends looking at metrics and analytics to differentiate a returns abuser from a legitimate customer who needs to make several returns in a short period of time.17

 

Beware — and be aware

Fraud and crime against businesses do lasting damage during the holidays, stealing profits from business owners at a time when many are counting on their biggest sales of the year.

With so much at stake, business owners and executives can’t afford to neglect holiday fraud. Beware of fraudsters — and be aware of the steps you can take to thwart their schemes.

Synovus is on your side in the fight against holiday fraud. Let us help you protect, manage and grow your business. For more information, contact your Relationship Manager.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Dr. Janet Lauritsen, U.S. Department of Justice, “Seasonal Patterns in Criminal Victimization Trends,” 2014 Back
  2. Forter, 2019 Fraud Attack Index Back
  3. ACI Universal Payments, “Fraud Attempts Expected to Increase 30% During Peak Holiday Season,” 2017 Back
  4. ibid Back
  5. Riskified, “Unwrapping Holiday Fraud,” 2019 Back
  6. ibid Back
  7. Riskified, “Unwrapping Holiday Fraud,” 2019 Back
  8. Forter, 2019 Fraud Attack Index Back
  9. Association of Certified Fraud Examiners, “Report to the Nations,” 2020 Back
  10. Association of Fraud Examiners Survey, 2012 Back
  11. LexisNexis Risk Solutions, “True Cost of Fraud” Retail Study, 2020 Back
  12. ibid Back
  13. LexisNexis Risk Solutions, “True Cost of Fraud” Retail Study, 2020 Back
  14. ibid Back
  15. LexisNexis Risk Solutions, “True Cost of Fraud” Retail Study, 2020 Back
  16. Christina Morales and Christine Hauser, “Americans Have Lost $145 Million to Coronavirus Fraud,” New York Times, September 23, 2020 Back
  17. Forter, 2019 Fraud Attack Index Back