5 fraud schemes retailers need to guard against during the holidays

• Friendly Fraud
  One trending and potentially very damaging retail fraud scheme is “friendly fraud.” It involves shoppers disputing their own purchases. They’ll claim they didn’t purchase an item, alleging that an unauthorized person used their payment card or that they never received the item purchased online. They could falsely claim the product was damaged or that it didn’t live up to the online description to get their money back. Often, they’ll request a chargeback from a bank rather than trying to get a refund from the retailer. Keep in mind that excessive chargebacks can result in retailers being required to pay higher fees to process payment cards. Working with a company that monitors transactions can help identify patterns and flag suspicious activity. This will enable merchants using your solutions to identify and prevent high-risk activity.

• Return Fraud
  Shoplifting items and then returning them for cash is another form of retail fraud that merchants must be on guard against. Fraudsters may attempt to use counterfeit receipts or claim that they have lost their original receipts. Beyond creating a secure environment with a security system and where sales associates can monitor shoppers’ activity, retailers can combat this type of fraud with strong return policies. They should insist on receipts or keep digital receipts and require authentication to complete a return. Additionally, advertising return policies in-store, online, and on receipts will inform shoppers that the retailer will never offer cash for returns.

• Price Tag Switching
  Some fraudsters will remove the tag from a low-priced item and apply it to a higher-value item. This scam is usually only effective with self-checkout, where a cashier or sales associate cannot verify that the name displayed on the screen matches the item purchased. You can help retailers eliminate this type of fraud with tamperproof labels that can’t be switched. You can also offer an AI-powered product ID at checkout that recognizes products and flags discrepancies when a shopper scans them at the self-checkout.

• Insider Threats
  Employee theft of cash or inventory can be a difficult form of retail fraud or theft to combat. Sweetheart deals, where employees charge less for friends and family, avoid scanning the barcode, manually override the price, or open the drawer with voids or returns, can lead to significant losses. Employees could also defraud their employers by purchasing gift cards without paying for them or their friends. A robust point of sale (POS) system can help retailers combat this by restricting high-risk actions to authorized employees only. Integrating cameras with the POS system enables retailers to match POS data with video footage of transactions, providing a deterrent and aiding in investigations if the worst happens.

• Credit Card Fraud
  This is the most familiar of the fraud schemes, but it appears in different forms each year. Skimmers were used in the past on in-store card readers that could steal data from a card’s magstripe. With EMV payments, it’s less common now. However, fraudsters are now using a technique called “shimming,” where a device is implanted in a card terminal slot to record data from a card’s microchip. The biggest potential for shimming lies with unattended payments in devices such as parking meters, ATMs, gas pumps, and vending machines.

Because fraudsters use or sell stolen card data for online purchases, the most effective way to counter this retail fraud scheme is for merchants to authenticate each transaction with additional factors, like CVV and ZIP code.