Report: E-commerce fraud declining overall, but not for department stores

Dive Brief:

E-commerce fraud decreased almost 35% from the start of 2016 to the beginning of 2017 across several industries, but did not decline in the department store sector during that period, according to the PYMNTS’ Q1 2017 Global Fraud Index from PYMNTS.com and anti-fraud technology firm Signifyd.
The companies noted that increasing adoption of fraud-mitigating machine learning technologies largely were responsible for the multi-industry decline. However, fraud losses still accounts for billions of dollars, and perhaps even more due to transactions incorrectly declined because of fear of fraud, the report indicated.
The index, produced on a quarterly basis monitors fraud attempts across more than 5,000 global e-commerce merchant web sites, the companies said. The eight main sectors reviewed include: alcohol, tobacco and cannabis; apparel; consumer electronics; cosmetics and perfumes; department stores; furniture, appliance and home improvements; health, leisure and hobbies; jewelry and precious metals. Fraud in each industry is examined across three key categories: Friendly Fraud, Account Takeover and Stolen Financials.

Dive Insight:

This study doesn't bode well for security for department stores, which have been victims of fraud and security attacks on a recurring basis in recent years. The Target data breach in late 2013, for which the company recently agreed to pay $18.5 million to settle with states, was one of the earliest and biggest examples of this, but there have been many others. One could come away from this report with the final assessment that those retailers have failed to use those episodes as cause to improve their defenses.

The good news — and it might be great news — is that other kinds of merchants and retailers appear to be doing much better battling e-commerce fraud. During much of 2016, numerous studies showed that the e-commerce fraud problem was growing out of control, but the situation might be better than we thought. Although this study's assessment should not be taken as gospel until other study findings reinforce it to some degree, it seems quite possible that many merchants have very quickly embraced the fraud-fighting capabilities of artificial intelligence and machine learning.

It could be argued that department stores have been too busy worrying about their future prospects and cultivating survival strategies to prioritize security efforts on the e-commerce side of their businesses. Several department stores, like Macy's and Sears, for example, have suffered massive financial setbacks in recent years, and even those that haven't, like Nordstrom, for example still have had to pursue radical organizational and strategic changes in an effort to revamp their approach to brick-and-mortar selling for a new era.

Now that AI and machine learning are making a difference against fraud, it is time for department stores to get with the program. If they don't, it will become increasingly clear to criminals which retailers they should continue to target with their attack schemes — if it's not already.