6/28/07

Not every last-minute holiday order is from Santa Claus

Many of the hot items that online retailers promoted as last-minute gift ideas were purchased by criminals who knew they could easily convert them to cash. Also rampant last holiday season was gift card fraud.

As online retailers tune up their payments systems in preparation for the upcoming holiday season, they can benefit from recognizing some current fraud trends, says Carl Clump, CEO of Retail Decisions, which provides fraud prevention, payments processing and card-issuing services to retailers.

Fraud is more common, he says, when the customer uses a free e-mail address, purchases goods for shipment with 24 hours or makes a purchase that is significantly higher than the retailer’s average sale. Criminals also like to ship goods to populous states. About 51% of fraudulent purchases are shipped to California, New York, Florida, Texas or New Jersey, although those states only make up about 35% of the U.S. population.

Among the most popular items purchased fraudulently are digital cameras, laptop computers, iPods, computer memory cards and team merchandise from the Boston Red Sox and New York Yankees baseball teams.

A trend that emerged in the last holiday season was an uptick in fraudulent purchases of last-minute gift items, including Moet & Chandon Brut champagne and the popular Star Wars Mr. Potato Head toy.

“These are desirable items that can be quickly resold and converted into cash,” Clump says. “Last-minute gifts or purchases made with next day or less than average shipping periods don’t give e-retailers with inferior fraud prevention services time to catch every fraudulent transaction. E-retailers can also let their guard down on fraud detection in their desire to complete as many last-minute sales as possible.”

Criminals continued working on Christmas Day, Clump says. He says fraud actually peaked between 2 p.m. and 3 p.m. on Christmas, when 62% of fraud was traced to IP addresses outside the United States, compared with 39% on a normal day. IP addresses in Ghana alone accounted for 15% of that day’s fraud.

Clump says some retailers have introduced gift cards without implementing adequate fraud protection systems, making gift cards an inviting target for fraud. He says 27% of attempted gift card transactions during the 2006 holiday season were fraudulent. “Criminals are able to get hold of the algorithms for gift card approvals and use them to load value on actual and virtual cards,” Clump says.