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Why is fraud rising in the US?
Covid-19 and PSD2 affect fraud & payments globally, but is the impact worse for US merchants? Find out why fraudsters are targeting US ecommerce and protect your business...
Fraud is intensifying in the United States. In fact, it’s thought that the US is more prone to credit card fraud than any other country in the world. Since the start of the pandemic, internet crime complaints have soared to new heights. Cases continue to rise in 2021, as the number of digital fraud attempts in Q1 were up 25% YoY. So why is the US such a target?
Let’s take a closer look at the global factors impacting fraud, and how they affect your business…
US ecommerce operations were hard hit by Covid-19
Covid-19 caused ecommerce growth across the world, but the US experienced an especially steep trajectory, experiencing 10 years’ growth in 3 months.
Pre-pandemic, US ecommerce adoption was behind Europe. Even though the US has the world’s second largest ecommerce market, online shopping accounted for just 8.9% of overall retail sales. So when customers were forced to shop online due to covid-restrictions, many merchants were unprepared for the digital shift and its impact on fraud teams.
US online grocery delivery sales jumped 300%
When Covid hit, US online grocery sales jumped 300%. This sales explosion should’ve been positive, but the strain on fulfilment and fraud teams may have outweighed the benefits. According to our recent Retail Report, only 42% of US grocery merchants said the pandemic had a positive impact on fraud operations - a significantly lower percentage than other countries (72% of UK grocers noticed a positive impact.) This means that US grocery fraud teams were likely to have been overwhelmed by the steep increase in transaction volume and fraud attacks.
American online gambling boom attracts account takeovers
Online gambling boomed in the US at the start of the pandemic, as sports betting was legalized in 21 states, and customers spent more time online. This craze is set to continue, as the American Gambling Association expects 7.6 million Americans will bet with online sportsbooks in 2021, up 63% YoY. But, increased popularity comes with a higher risk of fraud...
Amid the 2020 surge, around 60% of US gambling merchants noticed an increase in account takeover fraud. Fraudsters target online gambling sites during major sporting events, as the volatility of traffic enables them to fly under the radar, and hack lucrative customer accounts. In fact, account takeover is the fastest growing fraud for the majority of merchants, as Covid-19 makes accounts more valuable. This is another example of how fraudsters take advantage of the wider factors at play.
Waves of unemployment cause customers to turn to fraud
Fraud is also rising in the US due to economic hardship caused by Covid-19. US unemployment became more volatile amid the pandemic as many businesses were forced to close their doors. Financial struggles can prompt people to turn to friendly fraud and policy abuse (refund and promotion abuse) as easy ways to make or save money. Ex-fraudster Alexander Hall explains:
“There are a lot of desperate people out there who have become unemployed, who have credit cards, and know the power that disputes and chargebacks have. So they will buy something with money they don't necessarily want to spend, and dishonestly file a chargeback...Dishonest consumers don't have a problem exploiting policies in order to get more than they paid for, because desperate times lead to desperate measures.”
Increased social media-use inflates opportunistic fraud
Social media also plays a part in opportunistic fraud in the US. The US has one of the highest social network penetration rates in the world, with over 70% of the US population holding a social media account.
Social media use has been soaring since the pandemic hit, as customers look to connect to distant family and friends online, as well as needing some easy indoor entertainment. Because of this increased use, fraud on social media platforms has risen significantly. From romance scams, to wardrobing, normal customers can jump on the bandwagon if money making/saving schemes are easy to access or even trending...
In June 2020 last year, Donald Trump himself was a victim of widespread credit card fraud after a hacker circulated his details on Twitter. Within hours, hundreds of users had used his card to purchase a range of expensive items. Tweets like “I bought an iPad with your credit card @realDonaldTrump” and “just spent over $3,000 using Donald Trump’s credit card!” went viral.
This social media fraud frenzy highlights how low-level fraud is normalised in the US, and opportunistic customers are confident they won’t face consequences. If credit card fraud can happen to the former president, it can happen to your business…
US organised crime groups became more reliant on fraud amid pandemic
Organised fraud groups are prolific in the US. Ex-fraudster Alexander Hall describes how he successfully led a mass US fraud network that went undetected for 10 years:
“I was successful because no one under my umbrella, employing any of my methods, got busted. And that's close to a decade of operations, involving hundreds of people.”
Organised fraud networks are often concentrated in specific locations in the US, particularly in close proximity to airports. For example, we’ve seen cases of organised freight forwarding fraud. Crime groups use stolen credentials to hire third-party companies, often based in airports, to transport goods across borders.
Plus, it’s thought that cartels and underground groups have started collaborating with hackers more amid the pandemic to replace lost income (illicit economies have suffered the same disruptions in supply chains and distribution as legal ones). Whenever such rings exist, there are always large networks of bad actors. Using graph networks technology can allow you to connect the dots between them and see the full picture behind your fraud.
US payment advances lag behind Europe
The US is a less regulated financial market, so is often slightly behind Europe with payment regulations and technologies. For example, the US took 20 years longer than Europe to adopt chip-and-pin. Adoption of chip-and-pin in the UK caused in-person card fraud rates to fall significantly. But in the US, the less sophisticated forms of fraud stopped by chip-and-pin cards, like card-present counterfeits and skimming, were still prevalent until fairly recently.
When chip-and-pin cards were introduced in the US, fraudsters quickly adapted by stepping up card-not-present fraud, putting merchants on the back foot. This pattern may also play out when the majority of European payments require strong customer authentication, but US payments don’t - fraudsters will target US merchants for an easy win.
US fraud is increasing outside the scope of PSD2
PDS2 implementation across Europe is well underway, and the widespread enforcement of strong customer authentication will help to reduce fraud on EU cards. But sadly, fraudsters won’t just go away (if only!). Online fraud on US cards is expected to increase, as fraudsters will look for the path of least resistance.
In his 2021 outlook earlier this year, Martin Sweeney predicted that “whilst PSD2 and more 3D Secure will reduce fraud on EU cards, fraudsters will adapt and simply switch to international cards.” US merchants need to be prepared for a steady increase in chargeback disputes as fraudsters target the low hanging fruit.
The proportion of US transactions going to 3D Secure is low compared with Europe. The majority of US merchants don’t have the protection of 3D Secure on their transactions, and fraudsters will look to benefit from the lower barriers and easy wins. If you’re selling to US customers, this is why it’s important to look at dynamic authentication using the best available 3D Secure methods now, to prevent losses and maintain high acceptance rates.
Keep your ear to the ground...
It’s important to remember that fraud is increasing globally, as macro-environmental factors like Covid-19 and PSD2 create ripples across the world. But the risk against US merchants is amplified by the vulnerability of their current payments and ecommerce landscape. In the months to come, it’s thought that fraudsters will turn their attention away from Europe-based merchants and towards US ecommerce.
To keep fraud at bay in the US you can:
Keep your ear to the ground when it comes to the wider factors impacting fraud. Engage in the latest global fraud & payments news and data, and stay agile.
For more information or advice, talk to the team.