Fraud Wars: How Tech, Shifting Attitudes, and Organized Crime Are Redefining Online Retail Security

Recent Surge in Bot Attacks

The rise of bot attacks has become a pressing concern for online retailers. These automated assaults are designed to exploit vulnerabilities in payment processes, evade detection mechanisms, and deplete valuable resources. Over the past year, there has reportedly been a dramatic increase in the frequency and intensity of these attacks.¹

33% of member merchants surveyed by the Merchant Risk Council (MRC) described experiencing bot attacks in the past twelve months.² What’s driving their growth?

1. Advanced Techniques: Fraudsters are leveraging increasingly complex techniques, including automation tools that mimic legitimate customer behavior. These methods enable them to bypass traditional fraud detection systems, making it harder for merchants to identify and block malicious activities.^{3, 4}
2. Systemic and Organized Sharing: Evidence suggests that fraudsters are using online fraud-as-a-service platforms to share information and coordinate their efforts. This systemic approach amplifies the impact of bot attacks, making them more challenging to counter.⁵
3. Broad Impact Across Merchants: Bot attacks are not limited to specific types of businesses or transaction types. They affect a wide range of industries, card types, and customer demographics – a reflection of the indiscriminate nature of these attacks.

Justin Staskiewicz, Director of Fraud Solutions at CMSPI, noted that, “Savvy enterprise merchants are combating these bot attacks by leveraging their industry partnerships with fraud detection tools. As these cyberattacks continue to grow, harnessing expert knowledge and industry-wide data proves increasingly valuable.”

Rise in Return and Refund Abuse

In addition to the surge in bot attacks, return and refund abuse have also emerged as significant concerns. This form of fraud involves exploiting loopholes in return/refund and chargeback processes, leading to substantial financial and operational losses for online retailers. See the recent CMSPI article on the basics of fraudulent refunds and chargebacks⁶ for more information.

The MRC’s 2024 Global Ecommerce Payments and Fraud Report indicates that just under half of merchants globally experienced refund/policy abuse in 2023.⁷ In addition to this report, recent developments in return abuse include:

1. Increases in Targeted Returns and Dispute Abuse: There has been a notable increase in organized efforts to abuse return and chargeback processes. This includes exploiting gaps in return policies to achieve higher volumes of fraudulent returns and disputes.
2. Lack of a Unique Profile: Return abuse is widespread across various card types, customer demographics, and merchandise categories. This lack of a specific profile complicates efforts to identify and mitigate fraudulent return activities.
3. Falsified Evidence and Manipulation: Fraudsters are employing advanced techniques such as falsifying documents to support illegitimate claims. For instance, they may use doctored photographs to falsely claim that goods arrived damaged or were not received, leading merchants to issue unwarranted refunds or replacements under false pretenses.

In response, retailers are tightening return policies to curb fraudulent activity.⁸ Staskiewicz continues to emphasize the need for a strategic approach in developing policies that block bad actors without negatively impacting genuine customers. To achieve this balance, many retailers now use factors like account history and loyalty status to tailor their policies on a customer-by-customer basis.⁹

The Influence of Gen Z in Fraud

Adding a new layer of complexity to this issue, reports have surfaced that Gen Z – born between 1997 and 2012 – express more willingness to commit digital fraud than any other generation. According to a report by Sift, 42% of Gen Zers admit willingness to engage in first-party fraud—where they dispute a legitimate purchase with their payment provider despite having received the goods or services to their expectations in Q4 2023.¹⁰ This concerning statistic reflects a broader trend of economic dissatisfaction and an increased sense of entitlement to financial redress. The frequency of first-party fraud may grow as Gen Zers encapsulate a wider share of ecommerce sales over time. According to Staskiewicz, “As Gen Z’s purchasing power increases, their greater tolerance for friendly fraud could place a heavier burden on merchants. To stay ahead of this trend, merchants who implement specialized policies based on knowledge of their customers are more likely to succeed.”

Industry Insights Merchants Need

For merchants, staying ahead of the latest fraud trends is essential. CMSPI’s team, led by industry veteran Justin Staskiewicz, brings expertise and industry-wide knowledge on these evolving threats. With CMSPI, merchants are not just getting information; they’re gaining a strategic partner committed to helping them navigate these complex payment challenges. CMSPI’s industry insights equip retailers with the tools and knowledge needed to optimize every aspect of payments ecosystem, including best practices in the fraud prevention space.