The Commerce Department released their quarterly retail e-commerce sales report last week.

The report reflects increased growth in online retail sales. E-commerce sales via websites increased 3.5 percent in the first three months of 2015, up from the previous quarter. A record $80 billion worth of purchases were made, according to the seasonally-adjusted figures. Online purchases increased an impressive 14.5 percent on a year-over-year basis, compared to a 1.6 percent increase for total sales.

Of course, in the fraud prevention business, we know that industry leaders aren’t the only ones paying attention to these numbers. Unfortunately, fraudsters will take note as well and as digital transaction volumes increase, so will fraud.

This recent report points to a perfect storm that’s forming between e-commerce sales growth and Europay, Mastercard, and Visa (EMV) adoption. By October 2015, most card-present businesses will make the switch from magnetic stripe credit cards to EMV. This is due to a shift in liability that will make retailers and banks liable for losses from the fraudulent use of the current magnetic stripe cards.

EMV, or chip and pin, cards encode account information when used for an in-person transaction. These cards also create dynamic, unique information so that any captured data can’t be used for new transactions. This technology makes it much more difficult for fraudsters to commit card present fraud. Fraudsters will turn their attention to online and mobile transactions as in-person fraud becomes more challenging.

It’s very clear that:

  • Online purchase volumes are increasing and that trend will continue
  • Every country that’s adopted EMV has seen a corresponding increase in online fraud

If this wave of fraud about to hit online retailers hasn’t been on their radar before, it needs to be now. Online and mobile retailers should be either instituting a solid fraud prevention strategy or re-evaluating their current approach to stopping fraud. In 2014, iovation risk-checked approximately 500 million retail transactions in real-time. The number one fraud type our retail clients stop is credit card fraud.

Other top fraud types include:

  • Policy license agreement violations
  • Promotion abuse
  • Shipping fraud

At the core of iovation’s multi-layered approach to fraud is strong device recognition. This technology provides vital information to fraud prevention managers about the devices visiting their site. It lets retailers understand whether a device has a known history for fraud and answers questions like:

  • Is the transaction coming from a proxy or Tor network?
  • Did the device try to open multiple accounts in a short timeframe?
  • Has this device been associated with fraud?
  • Does the time zone presented match the actual local time zone of the device?
  • Is this device related to other accounts or devices with known records of fraud?
  • How long have we known this device?

Having the right tools in place to answer these questions, and then being able to take action, is important to stemming the tide of fraud expected to hit later this year. Fraudsters will continue to test the limits of fraud prevention and the retail industry needs flexible and effective technology like device recognition in place to protect their business and customers.

Additional Resources

Get Ready for EMV and Card Not Present Fraud
Online Retailer Reduces Fraudulent Orders by 25 Percent