Apparel Industry Hit Hard by Fraud Attacks

Forter published in conjunction with the Merchant Risk Council (MRC) its findings from the 2016 Fraud Attack Index. Reflecting an analysis of the period from Jan. 2016 to Dec. 2016 and comparing it to the corresponding period in 2015, the 2017 Fraud Attack Index comprehensively detailed the rate at which online fraud attacks increased throughout traditional retail verticals and provided an in-depth look at the reasons behind the changes over 2016. A key finding of Forter's analysis was the 79 percent increase in risk of fraud for domestic holiday orders when comparing Q4 2015 to Q4 2016. 

Following the Oct. 2015 adoption of EMV (microchip cards) in the United States, Forter's fraud research team was not surprised to have observed a rise in the number of domestic online fraud attacks. Since domestic fraudsters were most adversely affected by not being able to copy physical cards as easily, it makes sense that these criminals have shifted online, boosting domestic CNP (card not present) fraud.

Interestingly, in contrast to this domestic fraud attack growth, the international fraud attack rate decreased by 13 percent as compared to 2015 – a surprise since international orders are well known to carry higher risk. Forter's researchers attribute this decrease to a growth in genuine international orders rather than a decrease in fraud, however, and this may parallel the increasing value many merchants are seeing in the international market. The value of international orders explains the willingness to take a risk which is still not negligible – despite the 13 percent decrease, international orders were found to be 62.4 percent riskier than domestic ones in 2016.

An additional trend was noted in the world of Account Takeover (aka ATO). Fraudsters have shifted from "Merchant ATO" (i.e. breaking into accounts on the merchant's website, in order to pass as returning customers) to "online payment ATO" (i.e. breaking into accounts of online payment services, such as PayPal, Apple Pay, Amazon Payments, etc.). For this reason, "Merchant ATO," which had shot up during 2015, decreased during 2016. However, this was a shift rather than a true decrease: The 2016 Fraud Attack Index shows a 131 percent uptick in the attempts of Account Takeover against online payments accounts.

"The most notable growth in fraud attack rate is within the apparel industry. Comparing the rate in Q4 2016 to that of Q4 2015 shows a significant increase of 69 percent," said Michael Reitblat, CEO of Forter. "This may be related to the new fraudsters who've joined the online criminal community following EMV adoption in the US and are perhaps sticking to a vertical they understand. It may also reflect the increased comfort of genuine shoppers with the idea of buying fashion items online and returning as necessary."

Additionally, examining the breakdown between industries, Forter's data team compiled these statistics on the frequency of fraud attacks within the following key retail verticals:
  • Apparel - 69.9 percent increase
  • Luxury - 8.4 percent decrease
  • Digital Goods - 22.6 percent decrease
  • Electronics - 1.8 percent decrease
  • Travel & Hospitality - 33 percent decrease
  • Food and Beverages - 49.8 percent increase
Last year saw a steady rise in online fraud attack rates, which increased 8.9 percent overall over the course of the year. The frightening "tsunami" of fraud attempts that many merchants experienced at the end of 2015 was not repeated, but the moderate rate of increase was sustained – and since this increase added to the spike of 2015, it is safe to say that the risk of fraud is still a serious concern for online retailers today.
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