The holiday shopping season begins earlier every year, and many retailers are already facing tough headwinds as 2022 comes to an end. More consumers are tightening their purse strings this year in response to rising inflation and market instability, which could dampen holiday profits and increase the impact of seasonal fraud. 

The NPD found that 29% of consumers cite finances and the economy as reasons for spending less during the upcoming holidays. And more shoppers are starting early to scope out the best deals, with 39% of consumers kicking off their holiday shopping before October. Because of this increased economic tension among shoppers, consumers will likely be more choosy about where they spend their money, opting for merchants with the most competitive prices. 

The holidays are a crucial time for retail, with November and December contributing to nearly a quarter of the annual sales of department stores and specialty retailers. And for fraudsters, this means more opportunities to hide behind increased transaction volumes. Since consumer spending may cool down this year, preventing fraud and enabling a smooth customer experience will be critical in order to get the most out of the holiday bump. Merchants can set themselves up for success this season by staying on top of emerging fraud trends and optimizing their fraud prevention strategy. 

Sift Blog Holiday Fraud


Top fraud trends to watch out for ahead of the holidays

Unlike last year, merchants are no longer held back by supply chain issues, but may face a surplus of supply instead, posing new challenges to profitability. To secure revenue and stand out from competitors, many businesses are starting holiday deals even earlier than Black Friday and Cyber Monday to entice shoppers.

Despite weaker spending projections, merchants will still deal with higher order volumes than normal, and may have fewer employees on staff—especially if their organization recently experienced layoffs or a hiring freeze. Because shopping can be concentrated on individual days and narrow shopping hours, fraudsters know it’s easier for them to skate by undetected. Below are some of the top fraud trends to watch out for leading up to the holidays below.

Reseller abuse

It’s a common tactic among fraudsters to target limited stock, easily resold, and in-demand items during the holidays in the hopes of turning a profit on marketplaces such as eBay. Fraudsters will be scouting out items they know they can flip for more money, such as PS5s in previous years, or the latest iPhone. These cybercriminals may run scripts and purchase large quantities of these items with the intent of reselling them for triple the price. This creates a negative brand experience for trusted consumers, who are likely to be turned off from a site where they know they have no chance of buying the item they want. 

Gift card fraud

Gift cards are already a prime target for social engineering scams, and the holidays are the busiest season for these prepaid cards. The FTC found that gift cards are the #1 payment method of choice for scammers, resulting in a reported $148 million stolen from consumers. Gift card scams are popular among fraudsters because they lack proper security features, and many consumers don’t spend the funds right away—extending the window for potential fraudulent activity. With more businesses offering gift cards as purchase rewards and as reimbursement for returned items, tracking fraudulent funds becomes even more complex. 

Account takeovers

Many businesses are reporting upticks in account takeover (ATO) attacks as fraud tactics become more sophisticated. Fraudsters can now easily turn to nefarious marketplaces like Genesis to purchase stolen account details at astonishing scale, or get similar information from more accessible fraud marketplaces in the Telegram messaging app. Recently, Sift found an alarming 131% rise in ATO attacks in the first half of 2022, a trend that will only accelerate during the holidays. ATO fraud can lead to damaging consequences, including stolen funds, shrinking customer lifetime value, inflated acquisition costs, and ultimately, lower profits. Dealing with an account breach can have a serious impact on brand abandonment—43% of consumers said they would stop using a site or app if their associated accounts were compromised by ATO.

First-party fraud

First-party fraud—in which the purchaser files a dispute due to fraud for a transaction that wasn’t actually fraudulent—rises both in times of economic uncertainty and during the holidays. More consumers may plan on filing disputes on legitimate purchases after the holidays to free up finances if they feel they’ve overspent. And because the card-not-present dispute process favors the consumer over the merchant, this can result in a significant loss for many merchants, costing the businesses the price of the product, chargeback fees, and operational costs.

Tips for preparing for the holiday spending rush

During the holiday shopping season, it’s important to bolster defenses against fraud while also reducing friction for trusted customers. To do so, merchants must have a plan in place for risk thresholds and how to respond in the event of a large-scale fraud attack. Each business should evaluate their security weaknesses and have a clear plan of action to protect customers and prevent losses. See below for tips and tools to more accurately and efficiently fight fraud during the holidays. 

Focus on customer service

In order to attract more customers, many merchants are providing incentives to shop with them, including extended deal windows and longer return windows. This not only gives customers more flexibility and sets the business apart from the competition, but can also help prevent chargebacks. Although returns can result in a loss for the merchant, disputes can be even more costly—piling chargeback fees on top of the cost of the product. 

Automate risk management

For businesses with smaller fraud teams, fighting fraud during this busy shopping period can be overwhelming, and many businesses bring in extra temporary help. Even large teams can find themselves buried in manual review during the holidays. By setting up automation thresholds for blocking and accepting orders, risk teams can better enable smoother transactions for trusted users and take the precautions necessary for anything that looks out of place. For suspicious orders, they can automatically be sent to Review Queues in Sift for manual review. 

Harness the power of workflows

The holiday season predictably drives increases in revenue each year, and the frenzy of online traffic and spending provides cover for fraudsters. Many merchants adapt risk thresholds to ride out the increase in transaction volumes and incentivize spending, but this consequently makes it easier for fraudsters to infiltrate accounts and siphon funds. Businesses should make calculated adjustments to thresholds, depending on their tolerance for risk and review. Using Sift Workflows, analyst teams can block unwanted risk and improve the acceptance rate for legitimate users.

Ensure trustworthy logins

Maintaining trust with customers can be as difficult as building trust. Businesses can build better customer relationships with automatic security notifications within Sift. Risk teams can verify credentials and protect users from ATO without blocking trustworthy logins by configuring and triggering security notifications directly from the Sift Console. This is designed to ensure user trust by notifying them of any suspicious login activity, and proving that your business is committed to keeping their account safe. 

Prepare for chargeback season

Because it’s common to see disputes roll in 2–3 months after an initial transaction, it’s wise to prepare for the January–March chargeback season following the holiday spending rush in advance. Merchants can set themselves up for less first-party fraud in the new year by having clear cancellation and return policies in place for the holidays. It will also be a great time to prepare for the Visa CE3.0 compelling evidence revamp coming in April 2023, which will help merchants better defend against first-party misuse. 

Explore Sift’s Trust & Safety University for more fraud tips. 

Related topics

account takeover

Digital Trust & Safety

first-party fraud

gift card fraud

holiday fraud

holiday shopping

online fraud

return fraud

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