Consumer making an online purchase during the holidays
Risk & Fraud

Holiday Fraud – Longer Holiday Shopping Period Means More Time for Fraud in 2021

By: David Ver Eecke, Senior Fraud Product Manager, PSCU

At this time last year, many people were wishfully hoping that the world would be back to normal by the 2021 holiday season. Nearly 20 months into the pandemic, consumers and the U.S. economy are still feeling the impact of COVID-19. Consumer spending trends that were born out of necessity in 2020, such as the sudden shift to e-commerce to avoid contact and remain socially distanced, have remained despite a cautious return to pre-pandemic activities. Supply chain issues and the accompanying global trade slowdown further add to another unpredictable holiday shopping season.

What to Expect This Holiday Shopping Season

Due to these supply chain issues, merchants have been encouraging consumers to start their holiday shopping earlier than ever. Many are rolling out “Black Friday-worthy deals” now – before Halloween. These sales are designed to persuade consumers to purchase their holiday gifts as soon as possible in the hopes that their gift will still be able to be delivered on time. Last holiday season, we did see the emergence of early and long windows for deals, which were designed to test consumer demand and discourage physical gatherings in stores. Despite the supply chain slowdown, Mastercard anticipates 2021 to be the strongest holiday retail season on record.

In the past, financial institutions could expect certain timeframes for heavy periods of transaction activity – including the holidays, with a spike the weekend after Thanksgiving from Black Friday and Cyber Monday, as well as the week of Christmas as last-minute shoppers make final gift purchases. However, due to continued spending via e-commerce, combined with the supply chain issues, financial institutions should be on the lookout as soon as trick-or-treating is over, as this extended shopping timeframe provides fraudsters with even more opportunities.

Preparing for Holiday Fraudsters

Fraudsters also have holiday gift lists – except they want your financial institution to foot the bill. Here’s what you and your cardholders can expect this holiday season.

  • Fraudsters will continue to target card-not-present channels again this year. While many merchants have had time to hone their e-commerce strategies, fraudsters will capitalize on any gaps remaining in these systems.
  • Merchants may relax their fraud controls to accommodate first-time ecommerce shoppers who typically shop in-store. Consumers have gained confidence ordering online over the last 18 months, but merchants will want to ensure as seamless an experience as possible.
  • Merchants will utilize the 3-D Secure (3DS) protocol even more to increase sales and shift fraud liability to the issuer. With sunset dates for 3DS 1.0 around the corner in 2022, merchants will be using 3DS 2.0 more than ever.
  • Chargeback fraud, also known as friendly fraud, will also increase throughout the holiday season. This type of fraud can be difficult to detect and contain because the fraudster is a cardholder, which leads to difficult decisions for financial institutions. An estimated 70% of card-not-present fraud is actually friendly fraud.
  • Fraudsters will use P2P (peer-to-peer) payments to scam your cardholders with too-good-to-be-true holiday offers.

Holiday Fraud Prevention Tips

The longer holiday shopping time frame of 2021 only gives fraudsters more time and opportunities to scam your cardholders. Here are some tips to help keep your credit union and members alert to various holiday fraud threats.

  • 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 financial institution and your cardholders.
  • Check with your payments processor to see if they will be making adjustments for the holiday shopping season to reduce the impact on legitimate transactions. Many fraud scoring models make adjustments to limit impact during the holidays.
  • Continue to educate your cardholders about common online scams and threats. Fraudsters often monetize scams with a gift card or P2P payment app. Reminding your cardholders about this can help stop a scam in its tracks.
  • P2P payments are a major avenue for fraudsters, so it’s important to remind cardholders not to send funds to someone if they’ve never met the requester in person. P2P payments have limited fraud protection and cardholders may not realize this.
  • Check with your financial institution’s payments processor about enrolling in a 3D Secure solution. 3D Secure protects your financial institution from fraudulent e-commerce transactions. Issuers are typically liable for any fraudulent transactions processed via 3D Secure, so it’s important to be protected online.

Financial institutions are faced with many fraud challenges year-round and must balance combatting risk with providing a positive cardholder experience. By continuing to take a multi-layered approach to preparedness, detection and responsiveness, financial institutions can help prevent and mitigate losses and sustain cardholder satisfaction during this extended 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 waging 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.