The apparel and accessories retail sector is increasingly at risk of fraud, a new study found, creating tension between the twin goals of providing elevated customer service and protecting a business from bad actors.
Between the second half of 2018 and the second half of 2019, overall online fraud attacks increased by 19 percent while the dollar value of these attacks nearly tripled, according to the Eighth Edition of Forter’s Fraud Attack Index.
The study encompassed more than $150 billion in e-commerce transactions, according to the e-commerce fraud prevention firm.
“A rising level of sophistication in attacks and fraud and abuse methods comes at a time when user experience is key to overall business success,” the company wrote. “There can be a tension between a merchant’s need to manage risk and their customers’ expectation of seamless interactions throughout their path to purchase and fulfillment.”
This has given rise to a new trend of fraud that is committed instead by legitimate customers who take advantage of customer-friendly services like lenient return policies and BOPIS, the industry acronym for buy online, pickup in store.
Online apparel and accessories industry fraud has increased by 9 percent, Forster found, with much of the increased fraud coming in the form of returns abuse, shipping fraud, loyalty fraud and even coupon abuse.
As clothing is always in demand, fraudsters have little problem reselling their ill-gotten goods, Forster said.
“Typically, fraudsters buy this merchandise and turn a profit by reselling the items for near retail price to shoppers looking for the best bargains,” the report found. “Online criminals also tend to select items such as purses or accessories (sunglasses, eyewear, scarves, etc.) that do not require exact sizing to augment their ability to resell items.”
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Return policies can have an outsized effect on a customer’s experience and, according to the firm’s data, 23 percent of consumers have abandoned a shopping cart due to poor return policies. Another 38 percent said return policies have a major impact on their likelihood to make a purchase.
At the same time, return abuse has increased by 33 percent, highlighting the need to strike a balance between security and customer experience. Customers receiving refunds while also initiating a chargeback, a tactic referred to as Item Not Received abuse, has increased by 8 percent, as well.
Fraud and abuse concerning returns executed in-store together grew by 33 percent as retailers lowered the barriers on their return policies. Merchants are likely to err on the side of caution, Forster said, accepting returns without much question in order to salvage the customer experience. The cost of this mindset is high, leading to an estimated $24 billion in returns abuse costs annually.
Shipping fraud, on the other hand, has decreased in riskiness since 2017, according to Forster. In 2017, premium shipping incurred fraud at five times the rate of standard shipping—now the risk is only three times higher. Express shipping remains about two times as risky.
BOPIS, fraud rates have skyrocketed as the practice becomes more widely used. Year over year, BOPIS fraud rose 62 percent, Forster found. Fraudsters will often use a victim’s personal financial details to register for in-store pickup and then present a fake ID or simply talk clerks into giving them the items, Forster said.
Identity manipulation, however, fell by 37 percent in favor of instrument manipulation, a practice in which individuals committing fraud will mask their identity using a “burner” phone or another temporary device.
Promotional initiatives like loyalty programs and coupons are increasingly at risk for fraud as well, Forster found. Virtual currencies rarely have the same protections as mainstream fiat currencies, resulting in a fraud attack rate increase of 115 percent during the course of the study.
Coupon abuse fraud grew by 133 percent over the same time frame, which Forster credited to an increase in coupon oversharing by both users and merchants. These codes are often extended to lure in new or loyal shoppers, Forster said, putting a company at risk of absorbing a portion of the $300 million to $600 million lost every year to coupon misuse.
Unfortunately, it’s also possible the culture of growing fraud in the retail industry may be having a snowball effect. According to Forster data, repeat fraud rose by 29 percent as legacy systems are tested and newer, more vulnerable services are exploited.