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AI and synthetic identity fraud: a
Seasonal peaks are great for merchants
On This Page
As the holiday season approaches, merchants are busy dusting off their payment strategies to prepare for the annual sales surge. ACI’s latest holiday report, Unwrapping Checkout Trends, provides crucial insights that should have merchants rethinking their priorities – especially regarding intelligent payments and fraud orchestration. Here’s a quick snapshot of the findings.
AI and synthetic identity fraud: a
growing threat
The holiday season, or the “golden quarter,” is packed with celebrations, promotions, and sales opportunities from Diwali, Thanksgiving, Black Friday, Cyber Monday, Christmas, and Hanukkah. However, this period also sees a spike in criminal activities, particularly the use of AI to create synthetic identities – this year’s report shows a 26% growth year-over-year in synthetic ID fraud. Fraudsters are leveraging advanced AI tools to bypass traditional security measures, making it imperative for merchants to enhance their fraud detection systems.
BNPL: a double-edged sword
Buy Now, Pay Later (BNPL) services have surged in popularity, with a 237% increase in global volumes. While this payment method offers flexibility to consumers, it also presents new challenges for fraud prevention. The report highlights the need for merchants to balance the convenience of BNPL with robust fraud management strategies to protect their bottom lines.
Distinguishing this year’s report
Unlike previous years, the 2024 report delves deeper into the impact of AI-driven fraud and the rise of BNPL. These trends are reshaping the retail landscape, making it crucial for merchants to stay ahead of the curve. By focusing on these emerging threats and opportunities, ACI’s insights provide a roadmap for a successful and secure holiday season
Getting ready to shine
Retailers across digital, physical, and omnichannels are eager to attract new customers and encourage existing ones to spend more. This spike in sales is vital for hitting revenue targets, securing future investment, and clearing inventory – creating a perfect hunting ground for fraudsters.
Seasonal peaks are great for merchants
and fraudsters
Despite economic challenges, transaction volumes in the first half of 2024 have shown an overall 7% growth, with sectors like travel and entertainment back to pre-pandemic levels.
However, retailers also face the pressure of a discount-driven market, leading to competitive cost-cutting strategies that reduce basket values. The result? Merchants need a healthy holiday season more than ever.
With the pressure to maximize conversions, merchants might be tempted to relax their fraud detection rules to keep acceptance rates high. This creates vulnerabilities that fraudsters are all too eager to exploit. Armed with sophisticated tools, they use synthetic identities and AI-powered bots to bypass traditional security measures.
ACI’s report indicates merchants must work harder than ever to secure sales during this peak season
As we head into the holiday season, fraud continues to plague merchants. Our report highlights a 3% increase in fraud valuesin the first half of 2024, driven by more sophisticated attack methods. Traditional card fraud is becoming less lucrative due to enhanced security measures like two-factor authentication. Meanwhile, friendly fraud moves beyond chargebacks as legitimate customers take advantage of retailers’ “no-quibble” returns and refund processes.
Synthetic ID, a year-round threat, is on many fraudsters’ holiday wish lists, targeting even higher values, which makes a bigger dent into merchants’ bottom lines. At the same time, freely available generative AI technology, the rapid dissemination of tactics, and stolen data on the dark web are escalating ever more sophisticated and automated scams. Merchants can’t afford to overlook these challenges as they strive for a successful holiday season.
Forecasts for the 2024 holiday season
ACI’s Unwrapping Checkout Trends holiday report forecasts a promising 12% increase in sales volume and a 16% uplift in transaction value compared to 2023. Merchants must remain cautious, because many consumers delay their purchases for competitive discounts. While acceptance rates are critical, relaxing anti-fraud measures could open the floodgates for fraud during peak shopping days.
Strategic recommendations for success
What can merchants and their acquirers do to prepare their sales channels for the approaching peaks? It’s imperative to start now and implement smart strategies that combine payments and fraud prevention. Here are some essential action points:
- Leverage AI for predictive modeling. Use AI to enhance precision and eliminate behaviors that could lead to false positives.
- Implement intelligent fraud strategies. Boost acceptance rates with advanced signals that strengthen fraud defenses.
- Employ comprehensive orchestration solutions. Achieve optimal acquirer acceptance rates while minimizing illegitimate transactions and chargebacks.
- Elevate customer experience. Personalize shopping experiences and verify digital identities for a seamless process.
- Educate staff on fraud awareness. Equip employees with insights and tools to recognize and reduce risk.
- Automate fraud prevention. Utilize AI to improve routing access and deliver intelligence across multiple functions.
- Adopt ACI’s full-circle fraud prevention solutions. Protect holiday sales while mitigating fraud and chargebacks with comprehensive insights.
Conclusion: wrapping up results
As merchants gear up for the most lucrative time of the year, optimizing payment processes and fortifying fraud prevention strategies will be key to securing their share of the festive wallet. By focusing on intelligent decision-making and leveraging data insights, retailers can build seamless, personalized experiences while safeguarding against fraud – ensuring a profitable and secure holiday season for all. Read ACI’s Unwrapping Checkout Trends holiday report for more seasonal insights based on real-world transaction trends.
ACI Fraud Management for Merchants 
Cleber Martins joined ACI Worldwide in 2001 and has 20 years of experience in implementing industry-leading enterprise fraud prevention solutions and anti-money laundering strategies. Cleber’s enthusiasm for driving innovation in fraud prevention stems from the pride he takes in protecting both his banking customers, and the people and communities they serve. Throughout his career Cleber has been at the forefront of the evolution of machine learning: from a focus on inputting human experience into machines, to its modern form that empowers fraud experts to combine their real intelligence with AI. Cleber calls this trend toward business users wielding new models, the democratization of machine learning. Cleber’s key areas of expertise include helping payments leaders to develop multi-faceted fraud prevention strategies that combat modern threats, as well as creating actionable intelligence in payments data, and the evolution of fraud prevention into a Customer Experience differentiator for organizations.