As the UAE retail sector gears up for another peak shopping season, businesses face a heightened risk of fraudulent activities that could undermine their success.
We recently conducted a local study in the UAE to analyse and understand the trends and challenges businesses face in the retail sector, and one of the interesting insights we discovered was the significant rise in fraudulent activities during peak shopping seasons. Another interesting finding is that 59 per cent of UAE businesses reported a spike in cyberattacks during these periods, undermining their efforts to fully capitalise on major retail events like White/Black Friday, Single’s Day, Cyber Monday and Christmas.
The e-commerce and retail sectors are particularly hard-hit, with fraud costing UAE retailers losses of approximately Dhs11.3m last year alone. While this trend isn’t unique to the UAE and is a global issue, it remains a key challenge that local businesses need to consider as they strategize and prepare for these busy shopping periods.
Understanding the nature of fraud is the first step to minimising its impact. In the UAE, 27 per cent of financial losses due to fraud were attributed to chargebacks fraud, a type of fraud where customers falsely claim a legitimate transaction as unauthorized to get their money back.
In light of this, 69 per cent of businesses are considering partnering with a payment provider to tackle this issue and combat other fraudulent activities such as credit card and refund fraud.
Recognising the inevitability of fraud, 57 per cent of UAE businesses are contemplating doubling their headcount in fraud and risk teams to strengthen their defences. However, before considering taking such steps, several risk management tools would be worth exploring as alternatives.
The latest tools can offer a seamless and reliable solution to combat fraud, particularly during these highly lucrative shopping seasons, without the need for additional manpower.
Let’s dive into three common types of fraud that become more prevalent during peak periods and the measures businesses can take to mitigate them.
1: Chargebacks
During busy shopping periods, when businesses experience a high volume of transactions, managing fraud disputes involving chargeback claims can be particularly challenging and resource-draining due to the time required for each investigation.
Fraudsters exploit the chaos of the busy season, knowing that businesses may struggle to keep up with the influx of disputes.
Chargeback fraud can significantly impact a business’s bottom line, leading to financial losses, increased operational costs, and potential damage to their reputation. High chargeback rates can also result in penalties from payment networks or even the termination of merchant accounts.
The solution: When looking for the best functionality to combat chargebacks, think of solutions that can offer real-time alerts when a chargeback is initiated, allowing businesses to respond quickly and efficiently. Also, consider a tool that offers automated dispute management to help streamline the process of challenging chargebacks, thus reducing the burden on your team.
The top solutions are now powered by advanced machine learning algorithms that analyse transaction data to detect suspicious activity before it leads to a chargeback. By identifying potential fraud early, businesses can take proactive measures to prevent disputes and protect their revenue.
2. Credit card fraud
Fraudsters often target businesses during busy periods, when the sheer volume of transactions makes it harder to detect fraudulent activity in real-time. Credit card fraud can result in significant financial losses and may lead to fines and penalties from payment networks if businesses are found to have insufficient fraud prevention measures in place.
The solution: There are currently several tools designed to combat credit card fraud effectively that should be on every business’s radar. For example, 3D Secure (3DS) is an additional layer of authentication that helps verify the identity of the cardholder before a transaction is completed.
3DS significantly reduces the risk of fraud by requiring customers to authenticate their purchase through a one-time password or biometric verification.
Meanwhile, strong customer authentication (SCA) is needed to meet regulatory requirements and enhance security.
SCA mandates that customers provide two or more forms of authentication, such as a password and a fingerprint, ensuring that transactions are legitimate and authorised by the rightful cardholder.
3: Data breach
We see a significant increase in data breaches during high transactional seasons, where cybercriminals exploit the surge in online activities to access customers’ data. Many businesses fail to invest adequately in their security systems, putting both their information and their customers’ details at risk.
While data breaches can occur at any time, they become more prevalent during peak seasons when security measures are stretched thin, making it challenging to detect breaches in real time.
The solution: Businesses should implement tokenization as a key security measure to protect their data. Tokenisation involves replacing sensitive data, such as credit card numbers, with a unique identifier or “token”, which is meaningless to anyone who gains unauthorized access.
This makes the data nearly impossible to exploit if it falls into the wrong hands. By deploying this technology, businesses can significantly reduce the impact of a data breach, even if fraudsters manage to infiltrate their systems.
Machine learning can be a valuable tool in these situations. Some businesses have implemented machine learning-powered fraud detection systems that can analyse vast amounts of transaction data to identify patterns and anomalies indicative of abuse, such as frequent refund requests from the same account or suspicious return behaviours.
By leveraging this functionality, businesses can detect and flag potentially fraudulent refund activities in real time, allowing for timely investigation and prevention.
Together, these three issues have the potential to cause significant harm to businesses, but they can also be mitigated with highly attainable solutions in the payments industry. We live in a time when innovative thinking isn’t just a defence against financial loss; it’s also a path to greater cost efficiency.
As fraud becomes increasingly sophisticated, risk management tools must evolve to match these challenges. Leveraging advanced, intelligent solutions allows businesses to protect their income while also streamlining operations, ensuring they remain competitive in a rapidly changing landscape.
The writer is the head of Middle East at Adyen.
