Digital Christmas shopping: Where the fraud is, and isn't

Radial, the King of Prussia firm whose 20,000+ seasonal workers help Toys R Us, Dick's Sporting Goods and hundreds more retailers manage online/smartphone sales and compete with Amazon.com, today posted a Holiday Fraud Index listing the worst times and sectors for Internet shopping fraud. Among Radial's findings:

- Online fraud attempts using card numbers over a phone or Internet device are up 30% in the past year, Radial calculates, comparing "same-store" sales in its client base.

"It's crazy," said Michael  Graff, risk analytics manager at Raidal. Chip and pin (the new MasterCard and Visa standard) "has been forcing fraud to migrate from credit card sales to online."

- More than 1 percent of attempted "Card-N0t-Present" jewelry sales are to buyers using stolen or phony numbers, making it the most fraud-prone sector for retailers. Electronics is almost as bad. Sporting-goods and home-goods attract the least fraud.

- 1 in 6 cross-border e-commerce sales to Venezuela is "attacked" by online fraudsters, causing stores to reject the sale. Ghana and Nigeria -- in English-speaking West Africa -- also show high attack rates. Turkey and the United Arab Emirates are among the lowest-fraud countries.

Within the U.S., Delaware and Oregon remain particular fraud centers. Both are no-sales-tax states, with plenty of warehousing, close to ports.

Mexico and Colombia attract high proportions of fraudulent buyers when the attempted purchase uses a gift card number. "Digital gift cards are practically cash; they are fulfilled almost instantly; you need a strong fraud strategy," Graff told me. The U.S. Virgin Islands is the safest online-retail gift-card location, with less than 0.25% of orders rejected, below the mainland rate.

- Digital gift card fraud -- thieves manipulating card accounts to get online sale approval when the cards are no longer attached to actual cash -- goes up "10 times" the usual level during the holiday-shopping season, and is 25 times more likely than usual in the week before Christmas. By contrast, almost 98% of cards presented Christmas Day are legit, making it the lowest-gift-card-fraud day of the year.  

- Less than 2% of cross-border (international) ecommerce sales on "Cyber Monday" (after Thanksgiving) turn out to be from fraudulent buyers, a lower rate than during the rest of the holiday season. "Maybe they're worried their orders won't fill as quickly" as a day well-known for high sales volumes, Graff volunteered.  

- Discover Card and Outlook.com attract the highest proportion of fraudulent gift card orders. "The fraudsters go for the path of weak resistance," and have for now identified those two organizations, Graff said. 

Not all systems have yet adopted basic techniques like matching buyers' and user accounts' domain addresses, or online searches to confirm a users' digital presence, he told me. Of course, such strategies only work "in combination," he told me.

"We are investing heavily in data science, finding patterns that may not have been readily identifiable with analytics techniques," he concluded. "You need a layered approach."