The Season of Taking

With the rush of holiday shoppers heading to the malls and their keyboards, Black Friday marks the start of the holiday shoplifting period. This year, online merchants are not exempt.

Friday is the much-cited Black Friday, where merchants hope the rush of holiday shoppers will push their financials into the black. But retailers know that, among those online and offline crowds, there will be thieves, taking advantage of the anonymity of crowds and the less-trained eye of seasonal workers.

The retail world today provides a textbook example of the escalation in the fight against fraud. Both sides in this battle have invested significantly in technology and personnel, and yet the percentage of successful fraud has remained roughly the same, hovering at about 1 percent of transactions, according to Gartner estimates.

When looking at fraudulent activity, there are two numbers to consider: the number of attempted frauds and the number of successful frauds. The number of attempted frauds has recently increased sharply, indicating that criminals are trying harder than ever to steal. The fact that the percentage of revenue represented by successful frauds has remained steady would at first glance seem to be a win for the retailers.

But the fact that retailers are spending so much additional money and time on fighting fraud without seeing any material reduction in its occurrence would suggest that they are losing the fight.

/zimages/5/28571.gifSecuring and managing payment has been a retail challenge in every sector, but perhaps no more so than with convenience stores. To read about the Wawa CIO’s payment pain, click here.

“The attacks are definitely on the way up. Those attacks have roughly tripled in the last year,” said Avivah Litan, Gartner’s vice president and research director for payments and fraud. “Certainly merchants are spending a lot more time than they should be combating fraud. Fraud should be going down with all the money being spent, but here we are, like a treadmill. The fraud detection systems can’t keep up with the new scams going on out there. The [criminals] have complete information now on how to beat the fraud systems.”

One survey saw the number of attempted frauds soaring from about 12 percent last year to about 73 percent this year, Litan said, adding that Gartner’s figures are similar. “It’s really escalated in the last year,” she said.

The Merchant Risk Council—a non-profit organization of about 7,500 merchants, vendors, financial institutions and law enforcement agencies—this week released the results of their annual fraud survey and found a double-digit increase in what retailers are spending on software to fight fraud.

The group reported that retailers spent about 13 percent more than last year for fraud detection software, but—in keeping with Gartner’s findings—their efforts seemed to have been matched precisely by renewed efforts by criminals. Some 60 percent of retailers polled dubbed fraudsters “more sophisticated” and most—77 percent—said that they had “experienced a fraud spike in the past 12 months” and a little more than one-fifth of those—21 percent—characterized it as “a significant fraud spike.”

Next Page: The latest recommended tools for fighting online fraud.