Friendly fraud, invoice fraud, and supply chain fraud pose special threats during a spike in online crime during Covid-19.
Say what you want about Covid-19’s impact on the legitimate economy, for fraudsters, it’s a gold rush. Higher rates of online buying, and individuals working from home, have created a perfect storm for criminals looking to cash in on fraud during the coronavirus.
On the other side of the coin, increased unemployment and a declining economy have driven some amateur fraudsters into full-time criminal enterprises. Many legitimate consumers facing financial uncertainty into fraudulent behavior.
Together, we’re seeing an increase in all types of online fraud.
To be sure, it’s not all fake credit card usage and identity theft. There are three types of unexpected, sneaky fraud, which you should be keeping an eye out for amidst the COVID-19 pandemic.
Friendly fraud during the coronavirus
Friendly fraud, or first-party fraud, happens when a customer initiates a chargeback claim or requests a refund for a product or service although they received the good in question.
For example, a shopper may order a few needed items online instead of going to the local store. Let’s say he ordered a lamp, a lampshade and some light bulbs. When the package arrived at his home, everything was wrapped and in perfect condition. However, the customer contacted the vendor and said there was no packaging in the box and everything inside was broken. He demanded a full refund and the vendor complied. This customer committed friendly fraud.
Alternatively, a customer ordered a variety of groceries from an online shopping website, including a jar of mayonnaise. Her package arrived but wasn’t wrapped properly, causing the mayonnaise jar to break and spill onto all of her groceries. In contacting the company, she requested a refund only for the mayonnaise and the items that weren’t salvageable – instead of insisting all items be refunded. This is a case of a legitimate customer report, and no fraud was committed.
As you can see by reviewing these two scenarios, friendly fraud is hard to predict, prevent and identify. It’s difficult to distinguish legitimate claims from fraudulent ones. As a result, investigators are often unwilling to flag scenarios as fraud even once they are confirmed.
Friendly Fraud is a multi-billion dollar problem for online businesses, but it’s growing worse amidst Covid-19. It’s hard to know the exact cause-and-effect behind this phenomenon, but we believe that it is due to customers facing financial strain, and using this to justify this relatively risk-free form of fraud.
In some cases, what started out as a one-off activity becomes a regular occurrence as customers realize how easy it is to perpetrate. Fortunately for businesses, and unfortunately for the already-stressed consumers, this greed helps companies with strong fraud prevention technology identify the fraudulent behavior. These consumers will rarely hit the same vendor again and again, but they can be easily identified hitting multiple companies up for fake returns using collective intelligence and machine learning.
Invoice fraud during the coronavirus
Besides friendly fraud, consider how many invoices come into your company’s accounts payable department and how many different department heads may be involved in purchasing. This blizzard of paperwork makes the accounts payable department a ripe target for professional fraudsters — especially when these criminals have taken the time to research vendors and business relationships.
Invoice fraud occurs when a fake invoice is submitted to a company’s accounting department. It’s created to look legitimate, often appearing as though it’s from a vendor you either are currently doing business with or would be likely to hire. These fraudulent invoices include familiar names, domains, amounts and locations, giving them the air of authenticity that often fools the savviest accounts payable department.
Invoice fraud is becoming more common during the COVID-19 pandemic, when employees working from home offices may be less likely to engage with check-ins with their coworkers in the case of something suspicious.
Even the savviest business people have fallen prey to this type of fraud. Barbara Corcoran, real estate mogul and star of the popular television show “Shark Tank,” was the victim of an invoice scam recently, which nearly cost her almost $400,000. In her case, the invoice that came to her bookkeeper appeared to be a legitimate bill from a company Corcoran was likely to do business with, and upon her inquiry for more details, they answered questions to her satisfaction. It wasn’t until after the invoice had been paid that they realized it was all a scam.
Supply chain fraud during the coronavirus
Supply chain fraud is another type that has become more frequent during the pandemic. This is simply when a supplier leverages a trusted intermediary (like an online marketplace), or the desperation of the buyer to rip off businesses.
One of the most common supply chain fraud types is in the sale of subpar or counterfeit goods. As everyone is feeling the stress of a global emergency, some people are just trying to make money wherever possible. These fraudsters lure in legitimate buyers and they do actually ship the item ordered, but the quality of what the buyer receives is subpar.
Another type of supply chain fraud involves the online sale of a product that’s simply not delivered. One textbook, coronavirus-related example of this happened in March when German health authorities attempted to buy face masks, and were ripped off for millions of Euros, and came up short on millions of protective masks for health workers.
As the global economy faces shortages on several critical items for consumers, business, and government, we will only see more of this type of heartless fraud.
Protect Yourself from fraud during the coronavirus
In a world where sophisticated, hard-to-detect fraud types are on the rise, rules-based fraud prevention systems are not enough.
To protect yourself in a way that moves beyond rules, you need a technology that includes:
- Consortium Data A consortium data partnership has multiple merchants, partners, and payment processors sharing anonymous data about bad actors in their systems. This ensures that habitual offenders are flagged, even before they have tried to run their first scam with a particular business.
- Deep Learning Tracking hundreds of pieces of entity data across billions of potential transactions is a job too complex even for a team of experienced fraud prevention specialists. Deep learning models are now a requirement to to detect the sometimes subtle patterns of fraud.
- Entity Analysis Fraudsters rarely act alone when tapping a fraud-related exploit. They often share critical information with other fraudsters or broader criminal enterprises. Identifying relationships between compromised pieces of data, fraudsters, and broader criminal organizations can make the difference between a single bad transaction, and fraudsters turning your business into a giant pinata.
Learn more about Fraud.net’s sophisticated technology for fraud detection, prevention, and analysis by clicking the links above, or contact us for a free consultation or trial.