3 Unappetizing CNP Fraud Trends in Food and Beverage eCommerce
Consumers are gorging on online food sales, which are projected to soar 357%, from $42 billion in 2016 to $150 billion by 2025.
What’s fueling this explosive growth? On top of the organic growth that pure-play online food and beverage eCommerce operations are experiencing, two emerging trends are pushing online food and beverage sales:
- Race among restaurants/quick service restaurants (QSRs) to capture curbside pickup and pre-order/pre-pay orders, especially via mobile/mobile apps.
- Increasing competition among traditional brick-and-mortar food and beverage retailers to offer eCommerce benefits to their customers.
Unfortunately, food and beverage “newcomers” to the eCommerce space are entering an online world that is ripe with fraud. Here are a few reasons why fraudsters find card-not-present (CNP) fraud so delicious:
- Data Breaches. Billions of consumer records have been compromised by an unprecedented number of breaches. This has “weaponized” data for fraudsters and made stolen credit card accounts cheaply and widely available on the Dark Web.
Over 1.3 billion records were compromised in 2016, a 94% increase over 2015.
- EMV Mandate/Chip and Pin. The October 2015 mandate requiring chip and pin readers at retail point-of-sale has made card-present fraud much more difficult and costly for fraudsters. This has been driving them out of card-present (in-store) fraud and towards card-not-present (online/mobile) fraud.
Card-not-present (CNP) fraud increased 40% in 2016, with 27% of that increase related to the EMV mandate.
- Mobile Commerce Growth. Mobile commerce is surging and mobile often means higher rates of fraud. In addition, integrating fraud detection services for this new channel is presenting merchants with significant new IT and system challenges.
60% of overall fraud originates on mobile, which is creating big problems for restaurants and QSRs trying to capitalize on curbside pickup and pre-order/pre-pay orders via mobile/mobile apps.
There are many fraud trends that have taken root in the online food and beverage industry. Here are 3 that we find most unappetizing:
- Payment Fraud. This is the most common type of CNP fraud. It comes in two flavors: Criminal Fraud and Friendly Fraud. In Criminal Fraud, fraudsters use stolen credit cards (available for as little as $4 on the Dark Web) to buy everything from gift cards and QSR drive-thru orders to multi-case shipments of expensive wine. Merchants are hit with chargebacks when the authentic cardholder discovers and reports the fraudulent transaction. Friendly Fraud is really not friendly at all. One technique that’s spreading like wildfire involves kids using a parent’s credit card to place a big pizza order for a weekend party. When confronted by the unsuspecting parent, the kids deny the charge, resulting in a friendly fraud chargeback. The next weekend, another kid from the group “borrows” another parent’s card and does the same thing.
- Mobile Fraud. About 1 in 5 online purchases are now mCommerce, up from less than 10% five years ago. The mobile channel creates special challenges in the fraud food fight. For example, the way that mobile networks operate makes it easy for fraudsters to disguise their identity. And if discovered, it costs them very little to abandon the device, pick up a cheap replacement, and start a new mobile account. Finally, “buy online/pick-up in-store” orders are known to have higher fraud rates than shipped orders, creating special challenges for restaurants, QSRs and brick-and-mortar food & beverage retailers offering this service.
- Card Testing. After fraudsters buy stolen credit card info on the Dark Web, they typically make trial purchases to test authorization. By placing small-ticket orders with quick-service restaurants or food and beverage websites (where low-dollar transactions are fairly common and not suspicious), fraudsters minimize the cost of these tests and leave plenty of available credit to make big-ticket purchases elsewhere.
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