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Electronics retailers need to navigate perfect storm of fraud

by Lev Gal, Data Analyst at Riskified

Ecommerce businesses selling electronics are at the center of a perfect fraud storm. Riskified data shows 2023 risk levels rose far beyond 2022 levels for electronics retailers, and it’s projected the start of 2024 and throughout the year will continue to see this industry as a prime target for online fraud.  

There are three key factors at play in this perfect storm: the worldwide economic recession and slow economy; the rise in availability and sophistication of fraud tools, many powered by generative AI; and the electronics industry itself, including its ‘fraudster-friendly’ items.  

Retailers in this space are under unprecedented levels of pressure in an already competitive industry with slim margins. The reality is that many have limited options other than to face this challenging environment head-on and find ways to get ahead of the rising fraud trends before they compromise approval rates, revenues, or both.  

Fuelling the perfect storm  

The global economic picture in the last two years has been bleak, with many nations dipping in and out of recession. In any financially challenging period fraud levels rise, driven both by heightened individual financial pressure and the rise in opportunities, as individuals and organisations alike are more vulnerable to fraudulent schemes. Many businesses may lower their guard vetting transactions in desperation for revenue or because they have had to make cuts to fraud prevention teams.  

Dark web marketplaces are offering guides and tools that make online fraud online and policy abuse accessible than ever. This includes lists of specific products to target and advice on how to trick returns processes and fraudulently file a chargeback – did you know AirPods weigh as much as a small box of matches, for example?  

The advent of more readily available AI tools has made a phenomenal impact. AI is being used to create fake identities, pose as businesses, and enhance more traditional social engineering methods. For example, deep fake voice recordings can trick victims into thinking that they are speaking to someone they trust, like their CEO approving a big wire transfer.  

Sadly, the very nature of the electronics industry makes it vulnerable to fraud. It’s a highly competitive industry, with increasingly low margins, making the room for error far smaller. Declining too many good customers gives business to the competition, while too much leniency eats into revenues and small margins. Several fraud rings target one or a few specific electronic items, especially given many of these products are high volume and easily re-sellable. Think PlayStation games, headphones, smartphones…  

Data insights: Understanding fraud risks on the horizon in 2024 

Whilst the threat is significant, it is very possible for electronics retailers to tap into the key trends and insights that can help the industry better prepare for the year ahead – for example by understanding the key moments in time and fraud strategies that are increasingly common. 

While we see November peak was more significant in 2023 compared to the previous year, with +87% higher consumer spending compared to monthly average, we also find the month was riskier by more than +25% compared to the previous year. The fraudulent population over the Black Friday/Cyber Monday weekend doubled versus the November daily average, while the total population volume experienced a more significant increase. As a result, the BFCM weekend was less risky vs the month overall by -32% on average.  

Interestingly, the safest day in November was the day after Cyber Monday. This reflects both the general decrease in goods volume and the change in fraudster behaviour, as they rest and reset after a busy weekend and try to mimic good customer behaviour during this time to further deceive retailers.  

Fraudster-friendly products 

What’s especially interesting and challenging are the high revenue-driving categories that are also high fraud risks. Throughout the year, mobile phones and computers were responsible for almost 50% of the total revenue but also accounted for 60% of the fraud attempts dollar scope. This means misidentifying good vs fraudulent behaviour has graver consequences, resulting either in high fraud costs or a high rate of valuable false declines and poor customer experience. Mobile phones and computers are a dream product for fraudsters and are commonly at the center of fraud rings – they are relatively expensive while being easy to resell due to portability and high market demand.  

Gaming was also popular, creating a slightly different challenge. Despite orders generally being lower value, gaming was the most popular in terms of order volume and had the biggest share (36%) out of the fraudulent population. This means merchant websites, customer success and fraud teams – especially those that are working manually – are likely to feel a real crunch from this segment. 

Finally, gift cards are popular among online fraud rings in any industry. They can be more than 10x riskier than physical goods, and 5x riskier in electronics specifically, as well as being the most frequently reported payment method for fraud. They are a prime target for fraudsters as merchants have to make instant decisions, they allow for greater anonymity and once fulfilled, make transactions largely irreversible. In electronics, these are usually bought and immediately used to buy gaming items. However, despite the high risk, the data reveals these currently have a pretty negligible impact overall on the bottom line for electronics because there are no shipping and packing costs and the low value of stock versus its other goods.  

Weathering the storm in 2024  

Electronics retailers are competing to survive. However, taking stock of insights into the riskiest threats from the wider industry can be invaluable, and help identify fraudulent activity elsewhere in the ecosystem before it strikes an individual merchant.   

With this knowledge, retailers are better placed to manage the risk. A sensible place to start is to assess how fraud is currently managed and whether it’s fit for purpose in today’s volatile landscape. Unfortunately, too many retailers are relying on strategies designed for the threats of the past. For example, in the age of advanced AI threats, fighting back with AI itself is the only option for an efficient and effective risk management strategy. Advanced platforms using machine learning allow merchants to detect multiple patterns of risk, even from sophisticated fraud attacks, while also automating a lot of manual work, freeing fraud teams to focus on more challenging and complex decision-making.  

Similarly, businesses need to ensure they are allocating dedicated resources to combat risk, for example, ensuring teams or departments are engaging with the technology available to monitor data related to fraud and identify common patterns. All departments, from marketing to finance to sales, must have some level of awareness of risk of fraud to the business – especially the more ‘grey’ areas related to policy abuse which can come from perfectly good customers but cause huge financial loss.  

By taking proactive steps to manage the risk, businesses within the online electronics industry are in a better position to thrive. Remember: it’s never too late to take steps to weather the rest of the year.