Fraud in Fashion: Distinguishing Friend from Foe
( This article first appeared as a guest post on the I Love Fashion Retail blog )
Fashion retailers, especially those selling luxury and high-end goods, are often targeted by fraudsters. While the rollout of pin-and-chip credit cards is expected to reduce fraud rates in brick-and-mortar stores across the US, this technology is not effective in online transactions. As they are liable for fraud, eCommerce merchants naturally strive to avoid accepting fraudulent transactions and incurring the related chargebacks. Regrettably, this leads to risk-averse policies that result in good customers being rejected along with fraudsters. We have seen many cases of retailers missing out on expansion opportunities due to fear of fraud.
Riskified has the pleasure of partnering with some great fashion brands and retailers, including Ssense, Far Fetch, Vestiaire Collective, Burton, Portero Luxury, and Ghurka, to name a few. In this post, we share best practices for online fashion retailers looking to avoid fraud without turning away good customers.
How To Keep Fraud Rates Down
Identify Your High Risk Items
It’s common to think that items selling for the highest price are the riskiest. While it’s true that fraudsters gravitate towards expensive clothes and accessories, the fact is that not all items are equally at risk. Certain items are “high-risk” – meaning they are more likely to be targeted by fraudsters either for personal use or for resale value. Classic examples of items with a high resale value and a high risk of being purchased fraudulently are GoPro cameras, tickets to NFL games, iPads, gift cards, and diamond rings.
In the fashion vertical, designer handbags and hi-top sneakers tend to be most targeted by fraudsters. The following illustration shows fraud rates associated with various fashion items sold by two online luxury fashion retailers:
Of course, these stats differ between businesses. Every store has a unique selection of items, and it may be that for your store a certain bag, or even a specific brand you carry, is targeted by fraudsters. That’s why it’s imperative to track all the chargebacks you incur, especially chargebacks related to fraud, such as unauthorized card use. Once you identify the high-risk items or brands it will be easier to know which orders should be reviewed with more care.
Pay Attention to the Shopping Cart
Shopper behavior is another key factor to consider when thinking about preventing fraud. Unlike in a physical retail location, there’s no way to interact with eCommerce customers in person – no magnetic security tags, no cameras in the fitting rooms. However, a shopper’s browsing history and online behavior can provide great insight and help determine whether a transaction is legitimate.
One indication of shopper behavior is the item mix within their shopping cart. Many merchants track customer behavior around the shopping cart for purposes other than fraud – such as recommending items to “complete the look” or for retargeting ads in case of abandoned carts at checkout, but this same data can be used to prevent fraud. Does the item combination within the cart “make sense” given the identity of the customer or is it suspicious?
While it’s easy to imagine why a customer would purchase the same blouse in three different colors, a cart with several tops in a wide variety of sizes might seem “fishy”. Similarly, purchasing one designer handbag is more common than buying a dozen designer handbags at once. Every rule has an exception, and we have seen cases of orders with seemingly bizarre shopping carts that actually were perfectly legitimate. For example, an order for 10 vintage coats placed by the celebrity wife of a Hollywood star, or the time a movie production company ordered clothes for the entire cast in a single order.
Track and Analyze Browsing Patterns
Another great indication of online behavior is browsing patterns. Overwhelmingly, a regular customer will take time to browse your site, look at several products, check which colors are available and view the item photos from various angles. When purchasing a high value product, legitimate shoppers are likely to check your store’s returns and guarantee policies.
Fraudsters, on the other hand, often have very different online behavior. For example, a fraudster might sort items by price – from the highest to the lowest price, immediately add the most expensive item to the shopping cart, and proceed to checkout without browsing any further.
Good customer browsing behavior – illustration:
Fraudulent browsing behavior – illustration:
The visuals above illustrate the difference between the online browsing behavior of legitimate and fraudulent customers. Legitimate shoppers will likely visit your site more than once before placing an order. To correctly analyze shoppers’ on-site behavior, you should consider all of their browsing sessions. We recommend collecting this data, as it will allow you to get a full picture of user behavior on your site.
How to Avoid Turning Away Good Customers
The online fashion merchants with whom we work have low chargeback and decline rates. But given the fact that Riskified approves 2 of every 3 orders merchants typically decline, the average fashion e-tailer is probably rejecting more orders than necessary. False positive declines, meaning good customers having their order wrongly rejected due to fear of fraud, is a much more significant problem than most retailers realize.
In fact, research conducted by Javelin Strategy shows that 1 in 6 US consumers (equivalent to 15%) experienced a false decline in 2014! This research also highlighted the price merchants pay for false declines – with 66% of cardholders who had their eCommerce order declined reduced or entirely stopped their patronage of the merchant.
When an order is rejected, you lose not only the revenue from the declined transaction, but also the acquisition cost goes down the drain – the advertising budget and all of the effort invested in bringing the customer to the site and having them place the order only to have it declined. When you take into account the lost lifetime revenue from clients whose order is wrongly rejected – you start getting an idea of the true cost of declines, and realize why accurate fraud detection is crucial.
Especially over the holiday season, it’s crucial to avoid rejecting legitimate consumers, many of whom may be first time customers. Watch out for the following shopping behaviors – which some may consider to be indicative of fraud, but that are actually common in orders placed by legitimate customers in the fashion vertical:
Reshippers, also known as package forwarding services, receive a parcel on the customer’s behalf, and ship it to its final destination. It’s clear why such services are attractive to anyone committing fraud. Much like a proxy server, a package forwarding service allows a fraudster to conceal his or her true location and identity.
However, in online fashion sales, and especially in cross-border transactions, plenty of legitimate shoppers use reshippers. In some countries, such as Nigeria and island nations in the Caribbean, package forwarding services significantly reduce the shipping price, or allow shoppers to receive items from retailers that don’t ship to their country.
As mentioned above, high-cost orders of multiple items or a strange mix of items within a shopping cart may raise red flags. However, in the online fashion vertical this may sometimes be due to ‘corporate shopping’. It is not uncommon for fashion boutiques, model agencies, and movie production companies to place an order for many dozens of clothes and accessories. Fashion resellers based in China and Japan often place high ticket orders as well.
Since these orders can be worth a lot of money, it’s important to understand who the buyer is. Even a quick online search can help clarify whether you are dealing with a corporate buyer to ensure you don’t miss out on the revenue.
If you’re in luxury, vintage, or high-end fashion retail, it’s crucial to remember that everyone shops, including celebrities. With more disposable income than the average consumer and with a unique sense of style, celebrities are more likely to purchase extravagant designer clothes and pricey accessories.
The last thing you want to do is unwittingly turn away a high-profile customer who can help generate buzz around your store. Unsure about an order of designer clothes or ultra trendy sneakers? Try searching the customer’s name online. You might find that a celebrity from a foreign country is shopping on your site!
Online fashion retail is a booming industry, but it’s not an easy business, and fraudsters don’t make it any easier. Hopefully, we have provided some ideas for ways to protect your business from fraud. We love talking about fraud prevention and online risk management, so if you have any questions please reach out! If you’re interested in learning more about fraud prevention, check out Riskified’s resource center.