Are High-Security Checks Worth It?

by Gellért Nacsa
As the days grow shorter and festivities draw nearer, SEON’s data scientists worked hard as Christmas elves to find, consolidate, analyze and put in context the fraud activity observed over the previous holidays so we can identify and share the trends and types of malicious activity to expect and guard against this year.
Our findings will shed light on Christmas fraud trends, as well as consumer trends, and advise on what to watch out for.
First off, we consulted our internal data across the 2021 Christmas period to see just how much fraud there has been among our customers. SEON’s fraud fighting figures confirm that the holidays are not just a time of mirth and jolly for the everyday person but for criminals too.
Overall, 9.68% of user actions monitored by SEON over Christmas were suspicious. By this, we refer to transactions that were deemed to be high risk enough to block or to flag for review.
Meanwhile, the average rate of fraudulent transactions for 2022 so far is 3.85%. From January 1 to December 5, 2022, SEON’s flexible, modular APIs conducted over 851 million checks of user transactions. Of those, 32.75 million were ultimately declined as fraudulent – preventing losses to revenue, customer loyalty, reputation and growth – out of 9.03% initially flagged as suspicious.
Another thing to keep in mind is that there are noticeable differences based on the industry.
As you’ll see below, the online retailers we protect were on the receiving end of a lot of fraud in the week before Christmas and New Year’s. Meanwhile, the highest fraud activity for our iGaming partners was between the 10th and 17th of December, with attempts dropping somewhat later in the month.
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Overall, SEON caught and declined 2,781,668 fraudulent Christmas transactions from November 30, 2021 to January 6, 2022, protecting our customers’ bottom line – and their own customers as well.
Remember that this is internal SEON data only. Once you start considering how many companies do not monitor for fraud using software at all, and the fact others may choose different fraud prevention software to do so, the numbers become dizzying. Christmas fraud is massive.
Such transactions are flagged as fraudulent right away or deemed suspicious – a grey area for the company. In the latter case, some of SEON’s customers choose to funnel the traffic to additional automated verification, to gather more data for further analysis. Others will choose or combine this with manual reviews by fraud analysts and fraud managers.
Following our traffic lights system, any customer action the business wants to monitor goes through a series of customizable risk rules to provide a fraud score. This means everything from a log-on to a payment, account creation, etc., depending on your industry and risk appetite.
Based on the fraud score generated, such activity will be labeled as:
According to SEON data, the rise in all consumer activity as well as the web search trends we’ve looked at correlate with the peak of fraudulent activity: between December 11 and December 16. That is when most online criminals set in motion their most mischievous schemes for holiday fraud.
Overall, SEON caught and declined 2,781,668 fraudulent Christmas transactions from November 30, 2021 to January 6, 2022, protecting our customers’ bottom line – and their own customers as well.
Another interesting point to keep in mind is exactly when fraudsters are more active and make up more of your customer activity.
In other words, we are referring to those days when the ratio of fraudulent to legitimate customer activity is particularly high.
The highest risk dates for fraud rates in December are the 5th, 12th, 13th, 14th, and 15th. Merchants and other online companies may want to increase their fraud protection and even employ more fraud analysts on these days, for maximum efficiency.
Specifically, let’s look at some key dates when we’ve seen almost twice the fraud we normally expect:
Dec 01 2021 | 3.38% of transactions were fraudulent |
Dec 12 2021 | 6.90% of transactions were fraudulent |
Dec 13 2021 | 6.48% of transactions were fraudulent |
Dec 14 2021 | 6.60% of transactions were fraudulent |
Dec 15 2021 | 6.15% of transactions were fraudulent |
Dec 25 2021 | 3.65% of transactions were fraudulent |
Jan 01 2022 | 3.02% of transactions were fraudulent |
2022 average | 3.85% of transactions were fraudulent |
To understand the top fraud trends for the holiday period, we looked at the types of rules that were triggered as suspicious during the same period last year. There was a clear pattern identified, all to do with the browser the customer is connecting with.
Back during Black Friday weekend, the fraud trends we observed had to do with fake accounts and freshly created email addresses.
This time round, it’s all about browser data. Old (5+ years) and suspicious browsers (bots, high-risk or privacy browsers) are trending.
The increased volume in overall online purchases made during the gift-giving season can make catching fraud a needle-in-a-haystack proposition. Fraudsters will take advantage of the massive numbers of transactions to hide in plain sight over Christmas.
Here are some common but decidedly un-festive holiday fraud trends:
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According to the volume of customer activity among our ecommerce partners, it seems like most people do their gift shopping 1–2 weeks before Christmas Eve. During the Christmas season, you will notice both a huge spike in overall sales volumes as well as a spike in chargebacks.
Specifically, the peak is between December 6 and 16. Online, the 21st and 22nd of December have also proved to be popular days for all online consumer activity, with SEON monitoring around 2 million user actions each.
Interestingly, the very lowest levels of online consumer activity were observed on Christmas day, with just over 1.43 million customer actions. New Year’s Day comes second-lowest, at 1.57 million user actions regardless of the type of organization. This was observed across the various sectors that SEON serves as an industry-agnostic fraud prevention solution.
The observations align with the Google Trends data for Christmas-themed searches – for instance, for “Christmas gift” below. Fun fact: The correlation between declines in the SEON system and Google searches for this festive keyword is huge – 0.8021!
To handle increased holiday transaction volumes, ecommerce marketplaces of all sizes need to increase the resources they assign to stopping fraud. An effective golden quarter prevention program will also be multi-faceted.
Fraudsters will be approaching their victims from different angles. To address the aforementioned holiday fraud trends, consider implementing these strategies:
With a well-thought-out strategy and sophisticated fraud fighting software on their side, merchants can prevent holiday fraud without negatively affecting legitimate Christmas shoppers.
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