Blog / Account takeover , Policy abuse

​​What are the top fraud & payment challenges for subscriptions?

If you offer a subscription, recurring payments can leave you vulnerable to unique fraud risks. How should you tailor your fraud strategy?

14 July 2022

​​What are the top fraud & payment challenges for subscriptions?

If your business offers subscriptions, chances are you’re thriving. Customers became avid subscribers amid the pandemic. Now, 75% of all consumer brands plan to offer a subscription by 2023. But fraud always follows success. How can you get fraudsters to unsubscribe?

We surveyed 1700+ fraud professionals from online businesses with over $50 million in revenue from a variety of ecommerce industries. The Subscription Merchant Report 2022, focuses on data from entertainment streaming, physical goods and other subscription businesses, like digital media.

You’ll have to read the report for the full global data and insight, but here’s an overview of some of the key findings this year.

Online news and digital media demand is high

According to our survey, 72% of digital media subscription merchants (e.g. online newspapers) say the pandemic boosted business. In 2020, customers needed reliable news about Covid-19 more than ever. But news outlets couldn't print or circulate newspapers, so digital news subscriptions became a lifeline.

In 2022, customers have fully adapted to getting news at their fingertips. Since 2020, subscribers to digital media have grown a whopping 300%. English language publishers now boast more than 23 million digital subscribers. And the New York Times’ digital-only subscribers have increased more than tenfold. The future of news is undoubtedly digital.

The subscription box frenzy continues

Physical goods subscriptions (aka. subscription boxes) were ‘trending’ during lockdowns. In 2020, 68% of customers ordered subscription boxes for household staples like food and cleaning products. And 55% signed up to ‘treat yourself’ deliveries to ease lockdown blues.

Demand for subscription boxes is still high. Around 61% of subscription merchants surveyed say order volumes are up in 2022, proving that increased sales wasn’t just a lockdown fad.

Customers can’t get enough of entertainment streaming

Let’s not forget Entertainment/Streaming subscriptions. Around 65% of the industry said the pandemic had a positive impact on business, as they too offered stay-at-home entertainment. In 2020, the number of streaming subscribers passed 1 billion for the first time.

Streaming subscriptions will go from strength to strength. Industry leader Netflix may have had a setback at the start of the year with the first subscriber loss in its history, but this was likely due to password sharing, not dwindling demand. Video streaming is now thought to make up around 82% of internet traffic - there’s plenty of business to go round.

But fraud always follows success…

Subscriptions are becoming hotter targets for fraudsters. Around 56% of Subscription merchants are seeing new threats emerge. So which specific fraud types and unprofitable behaviors are increasing the most?

Subscription account takeover is on the rise

Almost 60% of Subscription merchants have seen an increase in account takeovers in the past year, and almost a quarter noticed a significant increase.

Subscription customer accounts can be very lucrative targets. For some businesses, credit can build over time, making accounts a goldmine for hackers. And customers often take a while to realize there’s been an attack as they won’t often check their subscription account balance - fraudsters can easily get away with it.

Widespread password sharing fuels streaming hackers in 2022

Entertainment Streaming Subscriptions are under fire from account takeover attacks. They’ve seen 40 high-impact attacks in the past year on average, more than any other Subscription vertical. Why?

Customers want access to their favorite TV shows and movies at a discount. So they might be swayed by hackers offering streaming services for less. Hackers can take over an account and then resell the details online. The fraudster makes a profit, and the customer gets a cheap deal.

These account takeovers are made easier by widespread password sharing. Password sharing involves multiple customers using the same login details to avoid paying or to split the cost of a subscription. Customers often set obvious passwords in this scenario, making the accounts easier to hack.

Should you crack down on password sharing behavior?

So you should just crack down on password sharing, right? Well it might not be so straightforward. If password sharing becomes more difficult, customers might be more likely to buy a fraudulent account to save money. But if you don’t regulate password sharing, breached accounts could get out of control and damage your reputation. It’s a difficult balance.

Big names like Netflix and Disney + are struggling with this issue. Netflix hit headlines earlier this year with an estimate that 100 million of their households use a shared password. And a week after Disney+ launched, thousands of their passwords were sold on the dark web.

Recurring payments open the door to friendly fraud

Friendly fraud is a bigger risk to Subscription merchants than other industries. Over 50% of Physical Goods Subscription merchants have seen friendly fraud rise in 2022.

Recurring payments invite unnecessary disputes. Here are common reasons why your customers might go down the friendly fraud route…

  • Set it and forget it - especially with longer subscription periods, a customer might forget they signed up to an annual subscription a year ago. So when the renewal date comes around, they’re surprised to see the money leave their account and will likely dispute the transaction.

  • It’s the billing date already? - subscribers may intend to cancel the subscription before their next billing date, but forget. Instead of contacting your customer service team and asking for a refund, they’ll likely just file a dispute.

  • Buyers remorse - thought to account for 75% of subscription disputes, a customer might regret signing up if it was an impulse decision, or might need the cash more than they realized.

  • Free stuff! - customers might want to try their luck at getting your product or service for free after use. A dispute is easy for a customer to make and hard for a business to disprove.

All of these are examples of friendly fraud that can increase your chargeback rate and put you at risk of fines.

Promo & refund abuse are increasing concerns

Around 50% of Subscription merchants say policy abuse is a top business risk. And around 60% have noticed a recent increase in activity. Your industry is especially vulnerable as you have to offer generous refunds to avoid disputes, and competitive promotions to win customers.

Subscription businesses are targets for organized promo abuse and reselling schemes. For entertainment and non-physical goods, fraudsters can offer customers online access at a discount. They can make new accounts and continuously sign up to free trials on a customer’s behalf.

Physical Goods Subscriptions saw refund abuse soar amid the pandemic due to doorstep deliveries. Customers could easily claim their box ‘never arrived’ (even though it did) to get a refund and keep the goods for free. If every box is worth $20, that’s a lot of money left on the doorstep! Refund reasons can be difficult to disprove, so abuse can quickly spiral out of control and impact your bottom line.

You could be missing a key tool to defend your business

Our data shows that there may be gaps in your defenses. Take graph networks for example. Only 33% of Subscription businesses are currently using the tool. Why is this a concern?

Graph networks are well-suited to Subscription merchants, as they help you easily uncover suspicious networks of stolen cards or devices, and highlight mass reselling schemes. Large, fast-growing, or high-risk customer networks become clearly visible, enabling teams to take action against them. Without them, it’s harder to spot patterns in your data, so you could be letting fraud slip through the net.

Refine your fraud prevention strategy for success

Business looks good for your industry in 2022. But you can’t get too comfortable. The fraud landscape is constantly changing and online threats are rising. You never know what’s around the corner, so you need to stay agile. For more information, download the full Subscription report.

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