Looming threat of fraud this Black Friday and Cyber Monday can be overcome, if issuers act now

Issuers must take action to help merchants avoid being left holding the bill for the approaching Cyber Five fraud fest.

Sales during Cyber Five, the five-day online shopping period over the Thanksgiving weekend, are projected to reach over $39 billion this year, marking a $2 billion dollar increase from the previous year. But much of that growth could be wiped off the table if merchants aren’t adequately protected from the expected spike in online fraud.

TransUnion analysis shows that there was a 12% increase in suspected digital shopping fraud during Cyber Five days compared to the rest of 2023. A significant 2.4% of US e-commerce transactions during this period were flagged as suspected fraud with Thanksgiving Thursday, being the biggest day for online crime.

“Black Friday and Cyber Monday have long been an annual opportunity for fraudsters. This year, as eager shoppers flock to take advantage of exceptional online deals, with some that only last a few hours, many will fall prey to fraudsters waiting to take advantage of distracted buyers. Unfortunately, it is typically the merchants who are liable for fraudulent card-not-present (CNP) transactions. Issuers must look at how they can help protect both merchants and consumers,” says Frank Moreno, Chief Marketing Officer at global authentication specialist, Entersekt.

Moreno says that issuers must take a broad and holistic approach when fighting CNP fraud, including the use of advanced fraud detection with innovations such as artificial intelligence and machine learning.

“Progressive leaders are adding technologies such as biometric authentication, behavioral analytics, and risk-based authentication (RBA), to analyze transaction patterns and customer behavior to identify potentially fraudulent activities. These systems can flag suspicious transactions for further review, helping to prevent fraudulent charges before they occur.”

3-D Secure must form part of the solution

However, without further intervention, the future looks bleak. Datos Insights predicts that CNP fraud losses in the US are expected to jump 13% from $9.20 billion in 2023 to $12.87 billion by 2026.

This is in stark contrast to Europe, which is only seeing a modest 4.8% year-over-year growth after businesses there adopted strong customer authentication (SCA) tools to better contain CNP fraud. One such measure has been 3-D Secure.

In the UK, where 3-D Secure has been used for many years, and where it is now mandatory, CNP fraud has been declining. This differs significantly to the US where many US merchants have been wary of 3-D Secure because of their experiences with version 1.0, which was marred by high rates of cart abandonment and false declines.

“This perception bias has held US merchants back from upscaling CNP fraud-fighting measures, or only submitting transactions deemed high-risk, which in turn attracts a high rate of transaction declines. But issuers can help address these and other security issues to help merchants realize their full profit margins this Cyber Five retail period,” says Moreno.

Supporting merchants works in everyone’s favor

Moreno says a large part of the solution will be for issuers to communicate with merchants and allay misconceptions about 3-D Secure 2.0.

By adopting 3-D Secure additional authentication is required from customers during online transactions. This could involve a one-time passcode (OTP), biometric verification, or security questions, adding an extra layer of security against unauthorized transactions. However, this needn’t detract from the shopping experience.

With the right blend of intelligent, context-aware authentication, along with biometrics, it becomes possible to do away with false declines and friction. That’s because the solution makes use of device signals and behavioral biometrics to better determine whether the transaction is suspicious and needs to be challenged.

“3-D Secure 2.0 makes use of a rich set of data about the cardholder and the transaction, enabling banks to make informed decisions about transactional risk. This reduces false positives and diminishes the need for a challenge, while giving customers a better experience,” Moreno advises.

“The more merchants submit their transactions, the better the issuers can train the risk engine, which means customers are better protected. Issuers have a unique opportunity to help merchants optimize their retail efforts during the coming retail holidays. While online crime will never leave us, there is no reason to sacrifice profits when we have the technology to significantly lower the risk of fraud.”