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Eat, Drink and Be Wary: How Fraudsters Are Feeding Off the New Food Boom

In the last several weeks, food and beverage companies have seen their transaction volumes increase significantly. Consumers are cooking at home, ordering groceries online, and purchasing alcohol in record numbers. Our latest COVID-19 report shows that, when benchmarked against the median volume of transactions during the weeks between January 6 and February 8 of this year, online transactions in the food & beverage industry are up 160 percent, grocery delivery transactions are up 270 percent and liquor transactions have more than tripled at 335 percent.

In the midst of these increased transaction volumes, fraud and abuse are shifting to exploit new weaknesses. As food and beverage companies turn their attention to the increased demand for their products and services, they face new challenges, from fraudsters who reroute grocery deliveries after placing an order to service chargebacks made by legitimate customers whose expectations may not have been met. These issues provide a particular challenge at a time when many food and beverage companies are struggling to maintain their supply chain and meet those customer expectations.

Do you want friction with that?

The challenge that every online company faces is how to deliver a consistent experience in a digital environment. Making customers—particularly new customers—jump through endless authentication hoops or blocking otherwise legitimate transactions because of insufficient information is no one’s idea of a great experience. These methods, while good for stopping fraud and abuse, are bad for transaction completion and customer retention. Too much friction into the online experience is a sure-fire way to send customer running back to the brands they’re already familiar with.

But the reverse is equally dangerous: too little attention allows fraudsters and abusers to slip through the cracks. Take the example of loyalty account fraud. Loyalty programs are increasingly being targeted by fraudsters for both the information and rewards they contain, as well as the relatively weak security measures in place around them. Last year, the number of loyalty fraud cases across all industries more than doubled, rising by 115 percent year over year.

In a pandemic, fraud and abuse pivot

COVID-19 has dramatically changed the market dynamics of the food and beverage industry. From strained supply chains to a surge in new customers, food and beverage companies are finding themselves challenged to scale. 

An uptick in service chargebacks, while not necessarily fraud, can be attributed to several recent changes in the market:

  • Fulfillment delays, as well as pressure to complete orders quickly, results in delayed, incomplete, and incorrect orders;
  • Unmet (and, in some cases, unrealistic) customer expectations from an influx of new customers that, by some estimates, now make up 75% of customer volume, compared to 5-7% pre-COVID-19;

The recent development of contactless delivery, created in response to COVID-19 concerns, has also presented a new opportunity for fraud and abuse in the food and beverage industry.

When good customers turn bad

The rise in e-commerce has also made it easier for legitimate customers to abuse policies around coupon codes and promotional offers. Creating large quantities of fake accounts in order to reap the rewards from “new user” discount codes is one way of exploiting the system. Friend referral bonuses is another. Some consumers will spam users they know or even turn to social media to broadcast refer-a-friend codes in an attempt to earn more rewards for these referrals, often in direct violation of program policies. Some individuals may view these as the clever workarounds of a savvy shopper. But they are, in reality, forms of policy abuse that collectively can cost food and beverage companies real revenue.

Fighting fraud, a recipe for success

Food and beverage companies have an unprecedented opportunity to create new and long-lasting customer relationships, provided they get the customer experience piece right. This includes a frictionless online experience that matches the expectations of consumers who have become accustomed to one-click shopping platforms such as Amazon. Food and beverage companies, however, need to provide these experiences securely and at scale, which is nearly impossible to do with multi-vendor fraud detection solutions and manually driven processes. A single, integrated fraud prevention platform is better equipped to protect the entire customer journey and reduce friction, from login to checkout, even as companies experience a surge in demand.

Food and beverage companies, after all, should be focused on feeding the world right now. Let Forter focus on fraud. To learn more about the latest fraud trends, request your free copy of Forter’s Fraud Attack Index, Eighth Edition.

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