Mar 21, 2018
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Online beauty and jewelry retailers see rates of e-commerce fraud soar in 2017

Mar 21, 2018

According to a report released by Signifyd on Tuesday, total losses of online retailers due to e-commerce fraud rose 7% in 2017, with the beauty and jewelry industries suffering some of the largest increases along with online department stores.

Beauty and jewelry retailers were particularly hard hit by e-commerce fraud in 2017 - Instagram: @maccosmetics

Signifyd’s “Ecommerce Fraud Index” covers the eight-quarter period from Q1 2016 to Q4 2017 and examined billions of transactions across thousands of merchants worldwide. The report’s findings are organized by eight major e-commerce sectors, including apparel; jewelry, watches and precious metals; cosmetics and perfume; department stores; and consumer electronics.
Overall losses due to e-commerce fraud were found to have increased from 3.80% in 2016 to 4.09% in 2017. The holiday period, in particular, saw a considerable rise in losses, with fraud in Q4 2017 increasing 24% to 3.83%, compared to 3.07% in the fourth quarter of the previous year.

By industry, the beauty sector experienced the highest increase in fraud losses, with online cosmetics and perfume retailers seeing a 102% spike in fraud from 2.52% in 2016 to 5.10% in 2017. Online department stores also saw a considerable increase of 48% in the period, from 1.47% to 2.18%.
Account takeover fraud – where a fraudster uses an existing user’s account on an e-commerce site to make purchases with predefined payment options, usually shipping the items to a new address – has become singularly prevalent, growing 80% from 0.25% in 2016 to 0.45% in 2017.
Among the e-commerce industries hardest hit by this kind of fraud in 2017, online department stores stood out with losses due to account takeover fraud skyrocketing 285% from 0.06% in 2016 to 0.23% in 2017, accounting for over 10% of total fraud losses in the sector.
Retailers selling jewelry and luxury watches also suffered from soaring rates of account takeovers in 2017, seeing an increase of 194%, from 0.42% in 2016 to 1.24%.
The report also highlighted some interesting trends in the fraud prevention strategies of e-commerce retailers, pointing out that online merchants are also suffering losses due to fraud prevention teams developing a delivery address bias over time and rejecting legitimate orders based on their provenance.

Elsewhere, the sheer volume of orders received during events such as flash sales proved to be a particular issue for retailers not using machine learning in their counter-fraud strategies, often leaving them to deal with a backlog of fraudulent orders made during the rush.

Increased marketing efforts around popular items were also found to generate problems, this time because they unintentionally pushed legitimate consumers toward fraudulent merchants seemingly offering the goods on platforms such as Amazon and eBay.
Signifyd is a fraud protection firm based in San Jose, California that uses big data, machine learning and human intelligence to ensure the security of more than 5,000 e-commerce vendors, a number of which have featured on the Fortune 1000 and Internet Retailer Top 500 lists.
Further details concerning the “Ecommerce Fraud Index” can be found on Signifyd’s website.

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