Published: July 28, 2023
Reading time: 7 minute read
Written by: Forter Team

By Doriel Abrahams, Head of Risk, U.S.

If you’re dreaming of iced drinks and planning your next vacation, it might not seem like the obvious time to start planning for the 2023 holiday season. But if you’re a fraud or payments professional, that’s precisely what you must do.

Getting the holiday season right — ensuring good customers get the experience they deserve and that your business isn’t turning money away by blocking fraud at the door — takes strategic analysis and planning that can’t be done if you wait until you already need it. The work needs to start now.

Fraud Attacks Will Go Up, So Be Ready

Fraud attacks increase during the holidays compared to the rest of the year. Yet every year, merchants are surprised by it. Don’t let that be you.

Looking at Forter’s data, fraud attacks increase by ~15%-30% compared to the rest of the year. That’s not as much as good business increases, so you won’t see a spike in your attack rate, but it does represent a significant amount more in terms of attacks.

Last year might have been an outlier, but it’s also possible that it was an indicator of what future holidays will look like — so you also need to prepare for the possibility that attacks might be more coordinated, better planned and working at a greater scale than usual.

Your systems, and your policies, need to be ready for not only the increase in fraud attacks and potentially their sophistication but also to ensure that you block fraud without hurting approvals or good customers’ experiences.

Don’t Turn Away Good Customers

Most of the money your company loses in the holiday season isn’t from successful fraud — it’s from preventable lost opportunities. Good customers who get rejected for the wrong reasons usually don’t try again. They leave, and you lose the value of that transaction (and all the future ones they might have made) if they’d had a good experience.

Getting it right is a tough challenge over the holiday season because many things that would be the right reasons at other times of year (because they’re indicators of suspicious behavior) are normal during the holidays. Looking at the historical data of Forter’s merchants, comparing their pre-Forter numbers to current data, you can see that their false decline rate spikes over the holidays. Decline rates reach an average of 30%-75% above where they should be.

Getting it Right is Hard

The holiday season also brings unusual trends in a customer’s shopping behavior. They spend more, buying items they normally wouldn’t, wanting to ship to new locations due to travel or sending gifts, and likely shopping at stores they otherwise wouldn’t.

Many fraud and payment systems focus so much on the attack risk that’s part of the holiday season that they put rigid policies in place that inadvertently end up harming good customers – either adding massive delays into their experiences (which can mean they drop out of the process) or rejecting them outright.

So at this stage of the year, you need to establish thoughtful policies for the holidays that are distinctively different from the rest of the year. Decline rates should be far lower, and usually suspicious signals shouldn’t necessarily be red flags.

Dig into your historical data to see which factors have been most potent in your business in past years. Raise the question with leadership about what kind of risk profile they want to take — what is the right balance for your business this year between avoiding risk and maximizing approvals?

Prepare to Be Agile

This feels a bit like saying, “expect the unexpected,” which doesn’t feel very helpful. But the fact is, your strategy for the holiday season can’t afford to be set in stone. You will be surprised one way or another — and you need to be willing and able to deal with that.

One factor that often throws a wild card is top-selling items. Some are predictable, such as new gaming consoles or new versions of beloved and popular children’s toys. But often, it’s something you don’t predict. It matters, though, because fraudsters are twice as likely to target the season’s most popular items compared to other goods.

To get ahead of this, make sure you’re in tight communication with other departments. Product and marketing teams, for example, will have a tight rein on which items are being advertised most heavily in which markets. They may also be able to give you valuable information about which personas they’re aiming for where and which markets are being emphasized, particularly, if any.

If you start working on this now, by the end of the summer or the start of fall, you’ll be ready to play through potential scenarios in tabletop exercises that can prepare your team not just for what might be coming but also for the ways that they need to work together and with other departments. Such exercises can show where vulnerabilities around processes, systems or relationships might be so that you can fix them before crunch time. Once things kick off, there isn’t time.

Your 2023 Holiday Checklist

Use the summer to analyze past holiday experiences and learn from them, and communicate with other departments to understand what they’re planning for the holidays so you can work out how it will impact your work. Here are some factors to make sure you’ve considered:

  • Tidy up and minimize your rules: We all know that rules build up over time and end up layering on top of one another in ways that can be messy and counterproductive. Now’s the time to take stock and tidy up. As much as possible, make your systems agile and able to tailor to different situations sensitively. Rules can be rigid, reactive and restrictive, so as much as possible, work to minimize this.
  • Manual review: Do you want to increase manual reviews, increase automation rates, or some balance between the two? Either way, you’ll need to consider hiring and training, or model or rule adjustments, now.
  • Approve/decline lists: These age fast. If you’re still relying on approve or decline lists, make sure the ones you’re using are as up-to-date as possible, make sure you have processes and reminders in place to update right before the holidays as well as during and make sure you’ve got accurate sources feeding into them to expand what you know from your information.
  • Dig into your historical data: For customer behaviors, but also to see if there are places where your team could have done better — especially in terms of avoiding false declines. What would have moved the needle for your company’s profits? Use that learning this year.
  • Start the conversation with leadership: Some decisions you must make aren’t wholly your province. What level of risk your business is willing to take, how much they want to prioritize customer experience, and how vital maximizing approvals should be this year — those are all things that should be impacted by broader company policy and priorities.
  • Make sure relationships with other departments are in place: You can’t do this alone. The plans and priorities of other departments will influence the buyer behaviors and personas you need to consider, the products or services you’ll be protecting, and how a customer journey on your site or app looks. Your decisions, in turn, will impact their success. Start the conversations now so that you move forward together instead of pulling in different directions.
  • Have a serious conversation with your solution provider(s): Your own performance is impacted, often significantly, by how your solution providers stand up to the challenge of the holidays. So ask them proactively; what are they doing to prepare? How are they working to ensure the scalability, robustness and agility of their systems on which you rely? What processes do they have to ensure they notice any anomalies or changes in real-time? Will they have 24/7 support available for you?

Forter’s team starts preparing for that most intensive time of year months before the holiday period. We’re starting now, in fact, which is where the idea for this article came from.

I can say, from personal experience, that it’s far easier to handle the challenges that the holiday season brings when you’ve had time to think them through and prepare. The alternative is optimizing sales and the customer experience under the pressure of the holiday rush while battling the rising fraud attacks that have already begun.

Strategy is based on making the right decisions at the right time. The time to start that process is now. Make decisions. Implement them. And when the holidays arrive, you’ll be ready.

7 minute read