Online grocery retailers are grappling with a threefold challenge of fraud amidst the ongoing cost of living crisis, as outlined in a recent report by Ravelin.

This triple challenge encompasses friendly fraud, account takeover and online payment fraud, posing substantial risks to businesses in the sector.

The report underscores that more than a third of finance leaders in the online grocery industry have identified first-party frauds, particularly "friendly fraud," as their primary concern.

Friendly fraud encompasses various deceptive practices such as chargebacks, policy abuse and taking advantage of promotions by the retailers' own customers.

The surge in such customer-specific fraud is closely linked to the economic challenges posed by the cost of living crisis.

Account takeover and online payment fraud

Ravelin's "Global Fraud Trends 2023" report further highlights the significant impact of account takeover (ATO) and online payment fraud on the online grocery retail sector.

ATO attacks are on the rise worldwide, as customers fall victim to scams that compromise their login details on popular websites. In the UK, nearly half of merchants report a notable increase in this type of fraud, with Canada experiencing a staggering 70% surge.

Moreover, the report indicates that almost 60% of online grocery retailers globally have witnessed a rise in online payment fraud over the past year, often involving stolen credit card information.

In the UK, this figure stands at 65%, indicating the widespread nature of the problem.

Industry response and risk mitigation

Ravelin CEO Martin Sweeney commented on the challenges faced by the online grocery industry.

He highlighted that while the sector has experienced remarkable growth, it has also witnessed a concurrent uptick in fraudulent activities. Grocery retailers are constantly navigating a fine line between offering enticing deals to attract customers and safeguarding their businesses.

This delicate balance can lead to surges in fraud and abuse, resulting in avoidable financial losses and increased demands on fraud investigation teams.

To better manage their risk exposure, retailers are encouraged to embrace automation. By integrating the right capabilities into their existing systems, they can swiftly identify and address fraudulent transactions, thereby freeing up human fraud investigators to focus on maximising growth opportunities.

The key, according to Sweeney, is to combat various forms of fraud without negatively impacting customer conversions.

Understanding friendly fraud

The report sheds light on how consumers are drawn into committing friendly fraud through several methods:

• Chargeback Abuse: In this scenario, a customer initiates a legitimate purchase with their credit card and later contacts their bank to dispute the transaction instead of requesting a refund.
• Verification Checks: Many online grocery retailers offer contactless deliveries and the "buy online, pick-up in-store" (BOPIS) option for faster, more convenient service. However, these delivery methods often lack verifications, such as ID checks, making it easier for customers to falsely claim that their orders never arrived.
• Subscription Fraud: The rise of recipe boxes and meal kits has attracted customers with enticing offers and discounts. However, consumers experiencing "buyer's remorse" can complain to their bank, compelling merchants to refund every previous payment, resulting in free products for customers at the retailer's expense.

Ultimately, the online grocery industry faces multifaceted fraud challenges that require vigilant monitoring and robust prevention measures. Retailers must adapt to the evolving landscape to protect their businesses and customer trust in an era of increased digital commerce.