The modern retail industry is changing at a pace that many didn’t anticipate. Alongside this rapid evolution comes an uncomfortable truth. Fraud is scaling just as fast!
What once took months of social engineering can now happen in seconds. Achieved effortlessly through bots and spoofed identities. Or the cunning manipulation of your e-commerce systems. Retailers are now navigating a complex ecosystem of coordinated threats. Especially those that exploit vulnerabilities in checkout flows and return policies. It’s become a minefield of risks.
A recent Mastercard report shows global e-commerce fraud losses hit a phenomenal $41 billion in 2022. It also revealed that we are on track to surpass a staggering $48 billion this year.
Every breach erodes your customers' trust in your company and truly damages your brand reputation. Therefore, it is essential to implement fraud prevention for your long‑term success.
Why is fraud escalating in the digital economy?
Retail fraud takes many shapes and sizes in the modern digital universe. The vast range includes:
- identity theft at checkout
- refund scams
- triangulation schemes
- gift card laundering
Nowadays, most businesses operate with omnichannel sales points. This will, of course, introduce new risks into your business. Most modern consumers now shop:
- online
- mobile apps
- in‑store kiosks
- through third‑party marketplaces
This is where fraudsters will exploit gaps in your security across these channels. Many fraud attempts today are committed by groups of individuals. Acting as a cohesive team. They are often executed using automated scripts via a coordinated network team.
Naturally, these groups exploit outdated security rules and poorly configured APIs. You need to make double sure that your business does not fall prey to these traps. Cutting-edge modern financial solutions are showing up as the solution to these problems. These include:
- digital wallets
- express checkout
- Buy Now, Pay Later (BNPL) services
However, these come with an extra vulnerability. They have reduced the time for fraud checks to catch suspicious behavior. Without a unified strategy across your payment gateways, it will leave gaps wide open for attack.
Common types of retail fraud
As a business owner, you always need to be prepared against these attacks. These are the most popular schemes being used in the industry at the moment.
- Card‑not‑present (CNP): this one tops the list. It is driven by stolen credentials used for online purchases.
- Chargeback abuse: follows as a close second. This is when fraudsters buy an item and then dispute the transaction. Their goal is to get both the product and their money returned to them.
- Return fraud: is another heavy hitter. When a criminal exploits lenient return policies. They return used or stolen items for refunds. A variation of this con is when they falsely claim that they did not receive their goods.
- Triangulation schemes: these lure shoppers to fake marketplaces where their card data is harvested.
- Synthetic identity attack: this is also rising in prevalence. This happens when fraudsters combine real data with fake personal information to create a new, believable identity.
It is your responsibility to research this fraud, and how to safeguard your business. As SEON mentions, you need to stay one step ahead of these common tactics to succeed in the modern digital economy.
Solutions for mitigating fraud in your business
These days the level of fraud is so complex that it’s tough to stay up to date with everything. To effectively combat this, you need to take a comprehensive approach. One that integrates multiple modern strategies.
Device fingerprinting
One foundational method is known as device fingerprinting. This involves collecting unique attributes from a user's device to create a distinctive profile. These include:
- browser configurations
- installed plugins
- screen resolution
This technique helps identify repeat offenders and to detect anomalies. For example, when criminals use emulators or create spoofed environments.
Velocity checks
Velocity checks add another critical layer of protection. They achieve this by monitoring the frequency of specific actions within set timeframes.
It flags actions like multiple failed payment attempts from the same IP address in a short period. These can indicate card testing activities. Therefore, you will need to set thresholds for the software to work at an optimum.
Then you can ensure that it will automatically flag or block any suspicious behavior. Ultimately, this will significantly reduce the risk of fraudulent transactions in your organization.
Fraud scoring systems
We also recommend that you use platforms with fraud scoring systems. These groundbreaking systems aggregate multiple data points together. Then they assess the risk level of each transaction. During the process they consider factors like:
- device reputation
- user behavior
- historical data
These systems assign a risk score that helps you make the best decisions for the safety of your company.
How cybersecurity can strengthen your defences
Cybersecurity covers the tools and practices that guard your systems from unauthorized access. In a retail setting, it starts with segmented network zones for point‑of‑sale (POS) terminals.
Each POS in this system station should sit behind a dedicated firewall. One specialized to block suspicious or unknown traffic. When using these tools we always recommend that you encrypt your data. Data in transit must use end‑to‑end encryption so that your customers card details cannot be intercepted.
This also applies to your backend databases. They too need to use transparent data encryption to protect any stored payment records. Meanwhile the endpoint protection on every device will stop any malware dead in its tracks. Never even giving it a chance to work.
On the whole these combined methods will form a defensive mesh around your e-commerce platform. As well as your in store operations.
Detecting sophisticated fraud attempts
Modern cybercriminals are so sophisticated. Their threats appear to blend into normal consumer traffic. This is where you need a decent Security Information and Event Management platform. These tools centralize logs from:
- firewalls
- web servers
- POS systems
They smoothly correlate events instantly to spot odd behaviors. Always be on the lookout for an unexpected spike in authorization failures. When they frequently occur across multiple payment methods, it indicates card‑testing campaigns.
Most wise organizations now employ Endpoint Detection and Response agents. As they sit quietly on each device. They monitor processes and files for malicious code signatures. When they detect a problem, they isolate the device to stop lateral movement. Then alert your security team for containment.
Passkey authentication for fraud prevention
Passkey authentication is a fairly new process within the security industry. It places knowledge‑based passwords with cryptographic credentials. They are then bound to a user device.
State-of-the-art platforms use public‑key cryptography. This generates a key pair on a specific device. In addition to storing the private key out of reach of any servers.
We suggest that you use modern platforms that employ built-in biometric sensors. These types of sensors completely eliminate phishing attack vectors and credential stuffing attempts. That’s how effective they are!
You will also need to adhere to the normal FIDO2 regulations. As they are not replacing the outdated traditional methods of authentication. FIDO will greatly help you as it replaces the reliance on traditional passwords. Instead, it makes use of passwordless authentication methods.
Using this revolutionary system, you can secure your customer accounts. All without forcing them to remember complex passwords.
How passkeys stop fraud
Passkeys are setting the new standard in security. They tie the authentication procedure to a physical device. When your customer logs into an online store, their device must present its private key for access.
These credentials are one of the best strategies to prevent session hijacking. Attackers cannot intercept a private key during transit.
In POS systems, FIDO2 security keys can easily replace PIN pads to verify the user's identity. Now, the only way that customers can unlock their passkeys is by using biometrics or their device PIN. This will provide peace of mind like no other for you and your customers.
This advanced process cuts out the need for SMS and email codes. As often, fraudsters can easily spoof these. Passkeys always force origin checks. Thus, a login attempt from an unauthorized domain will fail automatically.
Turn threats into opportunities
Every transaction in your retail ecosystem carries potential risk. However, it also offers an opportunity to reinforce trust. Armed with the correct information, you can elevate security for your business. Expertly handled by weaving together advanced checks, passkey, and endpoint encryption.
These all work in symbiotic harmony to create a seamless defence for your digital operations. On top of this, you should educate your team to spot any such fraud attempts. With a particular focus on social engineering attempts. As these are so prevalent.