Retail fraud and security risks hamper an otherwise promising season for European retailers. The Q4 peak season is crucial, with some businesses generating up to 30% of their profit during this time, according to The E-Commerce Times. However, FICO reports that card fraud losses across EMEA have increased from €1,493m in 2021 to €1,578m in 2024. UK card fraud grew by 4% to £572.6 million since 2023, and Hungary saw a troubling 22% increase in card losses, with dramatic increases also occurring in Norway and Denmark.
Although retail fraud is a threat all year long, the spike in peak season purchases leads to more losses from fraud at this time. Retailers must educate themselves on common fraud tactics and how to protect their businesses from them so they can maximize their all-important Q4 profits.
How Do Actors Commit Retail Fraud?
Retail fraud occurs on several fronts, and different types can trend in different parts of Europe at various times. However, retailers must be ready to address all schemes, including:
- First-Party or “Friendly” Fraud
This scheme involves an actor claiming that charges that they made to their credit accounts were illegitimate. Fighting this type of fraud takes resources and time, and it’s even more difficult when cross-border payments are involved. According to a Ravelin study, 40% of consumers committed friendly fraud online. However, the rise of phygital retail, which combines both physical and digital shopping, is making friendly fraud more prevalent in brick-and-mortar stores.
- Abuse of Return Policies
Fraud actors may also look for loopholes or security gaps in a retailer’s return policy. Customers may use or wear the item before returning it. They may replace the item in the original packaging with a cheaper or counterfeit product. They may even shoplift a product and attempt to return it with a counterfeit receipt to attempt to get a refund.
- “Shimming”
Before EMV technology, actors used devices for “skimming,” which would capture data from payment cards’ magstripes. Now, actors have devised a new way to attempt to steal that data. “Shimming” uses a device implanted in payment terminals to steal data from a payment card’s chip. Actors most often target unattended payment devices, such as self-service kiosks and vending machines. However, any device that isn’t monitored could be implanted with a shimming device.
How to Fight Back Against Retail Fraud
Although retail fraud is a common challenge, businesses don’t have to consider it as just a cost of doing business. Retailers can take steps that help minimize fraud and maximize profits from holiday sales in Q4. Tips for creating a more effective fraud prevention and security strategy include:
- Monitor Payment Devices
Retailers need visibility into their payment device estate and whether terminals are online and operating as expected. A terminal that unexpectedly goes offline could be a sign that an actor is implanting a shimming device or modifying it in some other way. Payment services that include device monitoring allow retailers to check on terminals when they go offline, and if the reason isn’t clear, to prevent them from reconnecting to the network.
- Authenticate Identity
Proof that an authorized cardholder made a purchase is essential for disputing a chargeback. Countries with digital ID and those that will launch the new Digital Identity Wallet can help to validate identity. Retailers should also stay informed of advancements in biometric payments, such as using a palm vein scan to authenticate a payment, which eliminates any question about who used an account to pay.
- Data Analysis and AI
AI can empower businesses to spot anomalies in behaviors that could signal fraud. Retailers must be careful, however, to comply with regulations, such as the EU Artificial Intelligence Act.
- Take Action
The Ravelin study found that 45% of consumers see loopholes in the law and “believe it’s legitimate” to take advantage of them. Retailers should dispute friendly fraud and push back on fraudulent returns, emphasizing that these activities are forms of theft. Fraud prevention strategies should include strong authentication processes, enforceable returns policies, and employee training and awareness.
Who to Call for Assistance with Secure Payments
Retail fraud is a problem the entire payments industry wants to solve. Ingenico works continually to provide technology that supports secure payments. Contact us for information on device monitoring and advancements in cardholder authentication that can help you operate more profitably while continuing to deliver optimal customer experiences.
