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Education

Nourish sales and exfoliate fraud:

Combatting beauty fraud

By Don Bush High-impact fraud trends
Kount Inc. While merchants in the health and beauty industries might
not have prioritized fraud prevention in the past due to
hen it comes to online fraud, many think the lower cost of merchandise, it's important to realize
high-ticket industries, such as electronics, the true costs involved in CNP fraud, which include the
are most affected by criminal activity. But costs of everything from chargeback fees and fines to lost
W don't underestimate the price of beauty: shipping expenses to wasted labor. Following are several
double digit growth in the online health and beauty mar- fraud trends impacting this industry the most:
ket is attracting the attention of online criminals.
• Payment fraud: Multiple sources of fraud can gener-
Driving this growth is the recent trend of natural products, ate chargebacks, including:
which, according to Natural Products Insider, saw a 1. Criminal fraud: Fraudsters and criminal gangs
30 percent increase in sales on Amazon alone in 2016. use stolen credit card accounts to steal high-
BigCommerce reported that online sales for the booming value health and beauty goods that can be easily
cosmetics industry have been rising 17 percent year over converted to cash. For example, a single bottle of
year. And the cosmetics industry has experienced an perfume or container of supplements can fetch
influx of online-only and niche beauty brands that have upwards of a hundred dollars or more on resale
surged in popularity on social media (thanks, Instagram!). marketplaces or swap sites.
This, combined with consumers' preference for the ease
of purchasing their favorite makeup without leaving the 2. Friendly fraud: Legitimate customers file illegiti-
house, has left the industry open to fraud. mate chargebacks instead of requesting exchang-
es or refunds. For example, a lipstick order is not
Industry-specific challenges quite the right color, or charges on a statement
aren't recognized, and so a chargeback is filed.
Health and beauty businesses face many of the same
challenges that other ecommerce operations do: friendly 3. Egift card fraud: egift card sales are growing at
fraud, card-not-present (CNP) fraud, account takeover, a 200 percent annual rate and are popular in the
and fraudulent account creation, among others. However, health and beauty world because they give re-
they also encounter challenges that are unique to the cipients freedom of choice. However, egift cards
industry. Some industry-specific issues include: are prime targets for fraud because they're easy
to purchase, easy to convert to cash and virtually
• Subscription billing: According to Business Insider, untraceable.
38 percent of U.S. consumers who regularly pur-
chase health and beauty products online utilize sub- • Account takeover (ATO): Compromised accounts are
scription billing, which tends to have higher charge- sold on the Dark Web or used repeatedly to acquire
back rates due to friendly fraud and other factors. large quantities of merchandise. The high percentage
of subscription accounts within the online health and
• Social buying: While Forbes called Instagram "the beauty segment (38 percent) makes ATO a particular-
world's most powerful selling tool," the dramatic in- ly attractive tactic for fraudsters. Fraud software tools
crease in recent years of account takeover crime and are available on the Dark Web to search and combine
fraudulent account creation means higher risk for multiple sources of stolen data to make it easier for
social selling and buying. criminals to find accounts that can be compromised.
• Commission fraud: As businesses seek more ways Login information is often intercepted through fake
to drive revenue, organizations driven by direct sign-up forms or phishing scams. The stolen creden-
sales or affiliate channels face new and unexpected tials can then be used to take over accounts across
risks, including reliance on antifraud solutions not multiple sites since consumers often re-use user-
suited for commission and consultant fraud. names and passwords.
• Omnichannel: Click-and-collect sales are increas- • Mobile fraud: Mobile commerce continues to soar,
ingly popular with customers, yet they have higher accounting for more than 23 percent of online rev-
rates of fraud than card-present or traditional ecom- enue in the third quarter of 2017. However, at the
merce sales. same time mobile commerce is taking off, so is mo-

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