Risk & Fraud

Holiday Fraud — Expect the Unexpected in 2020

By: David Ver Eecke, Sr. Fraud Product Manager, PSCU

2020 is the year of the unexpected — and this holiday shopping season will be no different. The pandemic has changed our world in so many ways, especially when it comes to how we shop and pay for goods and services. Consumer spending has shifted to e-commerce channels to limit contact with others, and many merchants have ramped up their online efforts to make sure they’re reaching customers, offering curbside pickup and delivery options to meet today’s new social distancing requirements. It’s no surprise that this holiday season will be like none other and could redefine holiday shopping for years to come.

What to Expect This Holiday Shopping Season

In the wake of the pandemic and economic uncertainty, merchants are testing the holiday shopping waters by offering early deals. This is designed to gauge consumers’ willingness to spend money this holiday season and reduce the mad dash to stores that could make responsible social distancing impossible. No merchant wants to see their store featured on the news as the newest super-spreader event.

However, overall holiday spending is still expected to be strong this year, and the shopping will look more like Cyber Monday than Black Friday. E-commerce activity has skyrocketed since the onset of the pandemic and will drive a surge in online holiday spending. Card-present activity will be significantly less this year as a result.

In-store deals will be offered as well, but to help manage social distancing and limit contact at the store, merchants are planning to time the release of sales and offer tickets to consumers to pick up items in person.

Preparing for Holiday Fraudsters

The increased willingness of consumers to shop this time of year provides fraudsters many opportunities to target and profit from your members. Here’s what your credit union and members can expect this holiday season.

  • Fraudsters will target card-not-present channels this year. Many merchants have hastily developed e-commerce strategies because of the pandemic, and fraudsters will capitalize on any gaps in these new systems.
  • Merchants might relax their fraud controls to accommodate first-time e-commerce shoppers who typically shop in store. This will make online shopping easier for customers, but allow fraudsters to exploit the gaps here as well.
  • Merchants will utilize the 3D Secure protocol even more to increase sales and shift fraud liability to the issuer.
  • Chargeback fraud, also known as friendly fraud, will also increase this season. This type of fraud can be difficult to detect and contain because the fraudster is a member, which leads to difficult decisions for credit unions. An estimated 70% of card-not-present fraud is actually friendly fraud.
  • Fraudsters will use P2P (peer-to-peer) payments to scam your members with too-good-to-be-true holiday offers.

Holiday Fraud Prevention Tips

In this rollercoaster year, many of us have felt like 2020 has been one elongated holiday season with all of the major shifts in consumer spending and increased fraud alerts. Here are some tips to help keep your credit union and members alert to holiday fraud threats.

  • Continue to educate your members about common online scams and threats. Fraudsters often monetize scams with a gift card or P2P payment app. Reminding your members about this can help stop a scam in its tracks.
  • P2P payments are a major avenue for fraudsters, so it’s important to remind members not to send funds to someone if they’ve never met the requester in person. P2P payments have limited fraud protection and members may not realize this.
  • Check with your credit union’s payments processor about enrolling in a 3D Secure solution. 3D Secure protects your credit union from fraudulent e-commerce transactions. Issuers are typically liable for any fraudulent transactions processed via 3D Secure, so it’s important for your credit union to be protected online.
  • Also work with your payments processor to identify fraud trends and implement strategies to mitigate fraud losses for your credit union. The more information they have, the better they can protect your credit union and members.

As with many of the fraud challenges credit unions are faced with today, a multi-layered approach to preparedness, detection and responsiveness will help to prevent and mitigate losses and sustain member satisfaction this holiday season.

David Ver Eecke is a senior fraud product manager at PSCU. Ver Eecke knows that the cooperative nature of credit unions provides a unique advantage when it comes to stopping fraud. When he isn’t working on products to increase payment security for credit unions and wage war against fraudsters, he finds time to write about topics on risk and fraud. He has worked in the financial services industry focusing on fraud and risk for over seven years.