It may sound like a broken record, but identity fraud skyrocketed once again in 2024. And as consumers continue to conduct more of their lives digitally—from work to school to banking and transactions—a perfect storm for challenging fraud conditions appeared for multiple industries. Retail and eCommerce are no different: escalating identity fraud, sophisticated fraud tactics, and rising consumer expectations for seamless yet secure transactions combined for a fraud and cybersecurity landscape full of challenges. As the digital economy grows, these businesses are at a critical juncture: a tipping point where proactive measures could either thwart fraud or leave vulnerabilities exposed.
The Growing Scope of Identity Fraud in Retail and eCommerce
Identity fraud in retail and eCommerce is surging. Recent statistics paint a troubling picture. The US Federal Trade Commission (FTC) reported a 30 percent year-over-year increase in identity theft cases related to eCommerce in 2023. This growth will only accelerate. In 2024, over a third of online merchants experienced identity theft. Globally, the cost of eCommerce fraud is expected to exceed $107 billion in 2029. Notably, account takeover (ATO) fraud has risen sharply, with a 24 percent increase in 2024.
This growth in fraud correlates with the rapid expansion of online shopping and payment methods. As consumers engage with digital commerce more and more, fraudsters will follow to chase those opportunities. That’s why it’s crucial for businesses to evolve as quickly as fraud tactics to maintain customer trust and profitability.
Emerging Identity Fraud Threats in Retail and eCommerce
Bad actors are constantly updating their fraud tactics. While there are consistent threats, including aforementioned account takeovers, brand impersonation, chargeback fraud, and more, there are additional techniques that have significantly evolved and/or are gaining more widespread use by bad actors.
- Synthetic Identities: Over the past several years, fraudsters have increasingly relied on the creation of synthetic identities to commit fraud. Synthetic identity fraud is complex and uses real and fake information, bypassing traditional detection systems. These identities often go unnoticed until significant damage is done.
- Bots and Automation: Automation is everywhere, and fraud is no different. Fraud rings increasingly deploy bots to commit large-scale fraud, such as credential stuffing and mass checkout scams, that can often overwhelm human review and/or security protocols and platforms.
- Deepfakes and Advanced Spoofing: Today’s AI-driven tools enable bad actors to generate convincing deepfake videos and voices, bypassing many traditional authentication processes.
- Social Engineering Attacks: Social engineering attacks continue to be a threat across various digital platforms, with new technology allowing fraudsters to make these scams much more convincing. What’s more, with social media integration in retail apps or checkout processes, fraudsters can use social engineering to extract sensitive information, making businesses vulnerable to phishing scams and fake customer service impersonations.
- Omnichannel Fraud: Fraudsters exploit inconsistencies in security protocols across various sales channels, from in-store pickups to online marketplaces.
Navigating the Fraud Tipping Point: Solutions for Retailers
Retail and eCommerce businesses have no easy task: they must combat these continued risks of identity fraud in the digital space all while ensuring a seamless, nearly frictionless customer experience. That’s why it’s critical to prioritize identity verification and fraud prevention strategies.
1. Multi-layered Identity Verification Tools
Cutting-edge, multi-layered identity verification solutions are essential to ward off identity fraud attempts, especially during the account opening and onboarding process. Combining document verification, document liveness detection, and third-party data cross-referencing can verify customer identities in real time without adding transaction time for customers.
2. Biometrics
Biometric verification solutions can include methods such as fingerprint scanning, facial recognition, and behavioral biometrics. In today’s world of sophisticated fraud, they are increasingly not just a “nice to have” feature: they’re reliable necessities to prevent fraud with immutable human characteristics. But as with most cybersecurity and identity verification technology employed for businesses, it’s not enough to use just one method: pair facial biometrics with liveness detection for confirmation that the customer transacting is who they claim to be. These tools can reduce rates of ATO, unauthorized access, and more.
3. AI-Powered Fraud Detection
Bad actors are using AI, and businesses too must match that technology. AI-driven systems can analyze vast data points to identify unusual patterns indicative of fraud, such as erratic purchasing behaviors or IP address mismatches. Machine learning models can adapt quickly to new fraud tactics. What’s more, these methods do not rely on manual review, which not only saves operational expense, but eliminates human bias from the verification and fraud detection process.
4. Step-up Authentication
By assessing your organization’s risk appetite as well as the security needs for a variety of business-related authentication processes, you can adjust the security level based on real-time risk assessments. Low-risk transactions remain seamless, while high-risk scenarios trigger additional verification steps.
5. Tokenization and Encryption
Protecting sensitive customer data through tokenization and end-to-end encryption minimizes the risk of data breaches and the misuse of stolen information.
6. Employee Training and Customer Awareness
Employees are often a first line of defense against fraud- or a weapon bad actors can use to bypass your protocols. That’s why it’s crucial to educate employees on fraud schemes and train them to spot red flags. Simultaneously, informing customers about security best practices—such as recognizing phishing attempts and using strong passwords—reduces vulnerabilities.
The Road Ahead for eCommerce and Retail
As retail and eCommerce businesses grow increasingly digital, identity fraud will continue evolving. Identity fraud in eCommerce is a common issue and new threats will continue to emerge. The tipping point isn’t just about defending against current threats but also about preparing for the continued threats ahead as fraud continues to evolve and become more sophisticated with better technology. Adopting a multi-layered, comprehensive approach with a digital identity-first mindset is key. Integrating technology, processes, and human vigilance is critical for sustainable success.
So, what’s the bottom line for retailers? Inaction is not an option. By implementing advanced identity verification systems, biometric tools, and AI-driven fraud detection, businesses can not only mitigate fraud and protect their revenue, but also build trust and brand reputation, ensuring a secure and seamless shopping experience for their customers.
Now is the time to act—because at the identity fraud tipping point, vigilance and innovation make all the difference.
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AuthenticID is an industry leader in AI and Machine Learning-driven identity verification and fraud prevention. Our signature product, AuthenticID360, combines ID verification, biometric authentication, KYC and KYB data checks, OFAC sanction screening, and advanced fraud watchlists tools – all within a single platform. With AuthenticID your organization can secure its authentication protocols, monitor transactions, track bad actors, and leverage cutting-edge tools to stay ahead of fraudsters. Contact us today for a demo.