$24 Billion in False Positives Last Holiday Season While More Consumers Admitted to Return Fraud

According to a recent study and estimates from Signifyd, the total cost of eCommerce fraud will reach nearly $207 billion this year, and more of this is coming from schemes other than payment fraud. While payment fraud is rising as well, being more stringent isn’t necessarily the best option to handle it, as it was estimated that wrongly decline orders due to suspected fraud represented $24 billion dollars of missed opportunity for eCommerce retailers during the 2022 holiday shopping season alone.

False positives, also known as sales insults, refer to when a legitimate order attempt is declined by the retailer because of suspected fraud. This is especially challenging during the holiday gift-buying season when order volumes are higher and risk profiles are elevated, as fraudsters intentionally ramp-up their activity during this time and legitimate buyers frequently send gift orders to different addresses.

Signifyd’s estimate of $24 billion worth of good sales turned away by eCommerce retailers during the 2022 holiday season comes from their finding that merchants using rules-based systems or other forms of fraud detection but who do not use Machine Learning (ML) have a high percentage of false positives: as high as 73 percent of declined orders. Extrapolating that to the share of eCommerce merchants, their holiday sales volumes and order declines, Signifyd derived the $24 billion in sales insults estimate.

Signifyd also estimates that non-payment fraud is becoming a bigger problem, underscoring that merchants need to broaden their scope beyond just payment fraud. They found that consumer abuse grew 36 percent in 2022 for eCommerce retailers.

This finding is related to another set of findings in Signifyd’s survey of 1,000 consumers, one-quarter of whom admitted to partaking in some form of return fraud attempt. This included false claims that a product was unsatisfactory, as admitted to by 22 percent of respondents, falsely claiming an order never arrived, admitted to by 21 percent, and 24 percent who did not return the item they were supposed to be returning. In these instances the consumer either returned an empty box or returned counterfeit goods.

Just like payment fraud, these types of return fraud schemes spike during the holiday season. Fraudsters, or consumers behaving dishonestly, hope their attempts will slip through the cracks during a time when merchants and overwhelmed in their fulfillment centers and trying to keep pace with order reviews.