Interviews, insight & analysis on digital media & marketing

How ecommerce merchants can prepare for Christmas – and prevent fraud

BPeter Elmgren, Chief Revenue Officer at Riskified  

As the holiday season approaches, the volatility of the market makes it even more challenging to predict the future, and with the ongoing global supply chain crisis, the rising risk of fraud, and fears that Covid-19 restrictions could be reimposed, ecommerce merchants’ should prepare in advance for the holiday season.  

Under normal conditions, merchants can use previous holiday seasons to forecast demand. However, 2021 was a watershed year for global eCommerce: the pandemic caused an online shopping boom and led to changes to consumer behaviours which are even more difficult for retailers to predict.  

Here are some observations based on trend analysis of consumer behaviour and fraud levels from 2020’s holiday period.   

What can we learn when it comes to the products most at risk of fraudulent attempts?  

Looking worldwide, the industries that experienced the biggest growth in sales were food and beverages, health and fitness, and home improvement; meanwhile, apparel, footwear, and electronics made up around a fifth of all eCommerce sales.  

In the run-up to Christmas, ecommerce channels were flooded by more customers making genuine purchases, so the share of fraud attempts out of all orders fluctuated significantly.   

As a result, certain product verticals experienced a tremendous drop in the percentage of fraud attempts during the 2020 holiday season compared to January of that year: electronics fraud was down 46%, jewellery & watches by 41%, and gift cards by 32%.  

However, other product categories saw increases in fraudulent activity: cosmetics was the most impacted, with online fraud attempts growing by 47% since January 2020, followed by children’s products (15%) and digital services (12%).    

What can we learn from last year about the consumer’s preferred shopping methods?   

Last year there was a huge increase in demand for digital gift cards and we expect this to rise again this season, due to supply chain issues causing physical product shortages.   

However, most merchants still consider gift cards risky due to their digital fulfilment. The significant decrease (by a third) in the rate of fraud attempts last year may indicate that these orders are being over-declined because of risk aversion and reactive fraud analysis.  

In terms of shopping devices, smartphones have also become the go-to device for holiday shopping. Looking specifically at the UK during last year’s holiday season, we saw a dramatic increase in volumes of online orders, especially through mobile. Based on 2020, merchants should expect mobile traffic to increase by three times the average.  

However, there are risks. In the UK, mobile apps were the riskiest platform for merchants during 2020. Also, 70% of mobile customers abandon their cart during checkout because of friction according to Digital Commerce 360, so merchants must consider how they can streamline the checkout funnel to minimize friction for legitimate customers and help prevent cart abandonment and revenue loss.  

What about payments?  

Merchants must offer alternative payment methods (APMs), as these are becoming more dominant as eCommerce adoption continues. In addition, options such as buy-now-pay-later (BNPL) and eWallets give customers more ways to pay and greater convenience, which also benefits retailers: according to our eCommerce fashion report, conversion rates are higher at websites offering more APMs. However, fraud and risk can vary between these payment methods.  

Looking at our data for 2021, direct payments have shown a marked decrease in risk levels, as did BNPL. The risk level of credit cards has remained stable. eWallets have achieved growing adoption but, contrary to common belief, they are not fraud-proof and their risk level has grown by almost 50% since January of this year.  

In terms of fulfilment, consumers worldwide increasingly prefer to pick up themselves using Buy Online, Pick-Up in Store (BOPIS). Given the ongoing supply chain crisis, in-person fulfilment is considered as the most effective way to prevent delivery delays.    

However, BOPIS fraud attempts were more than four times more frequent in December 2020 than in January 2020. This means that it was up to 70% more risky than all other methods of fulfilment.   

BOPIS is challenging because these orders require instant decisions, rendering manual fraud reviews impractical. Not having to supply a shipping address also removes a significant data point from the fraud review process.   

Merchants who want to capitalise on the popularity of BOPIS must understand the behaviour patterns of both consumers and fraudsters to reduce this risk. But it is also important to avoid overzealous fraud review, which can lead to false declines and push good customers towards the competition.  

What are the key takeaways for merchants?   

First, provide flexible and safe payment options to cater to your customer.   

Second, expect more shoppers to choose in-store and curbside pickup. This means merchants will need to balance online and in-store inventory. To overcome the BOPIS risks, merchants will need a fraud solution capable of integrating myriad data points.   

Finally, merchants need to build their confidence and fight fraud efficiently. Adding too much friction to the shopping journey will push away legitimate customers, so look for a data-driven fraud prevention solution that can establish customer identity invisibly and without adding friction.