Dany Naigeboren, Head of Analytics, APAC, Forter, tells us the individual nuances of a complex and dynamic market will dictate threats faced.
While digital commerce continues to develop in the region that’s home to more than half the world’s population, a looming economic downturn has given rise to new fraud risks. According to insights gleaned from Forter’s first-party data from January to December 2022, we anticipate the following fraud types to dominate in 2023.
Southeast Asia: Heightened attacks and promo abuse
Despite the ongoing economic slowdown and concerns about inflation, Singapore and the Southeast Asia sub-region enjoy robust digital commerce activity. The latest Southeast Asia digital economy report by Google, Temasek and Bain & Company showed e-Commerce gross merchandise value (GMV) is estimated at US$ 131 billion in 2022.
Sales growth of that magnitude is inextricably linked to a significant increase in social engineering attacks, such as scams and account takeovers (ATOs). The region has also been particularly vulnerable to promo abuse. The region’s diverse online payment ecosystem makes it more vulnerable to a broader range of risks on top of classic credit card fraud.
Consumers across Southeast Asia have access to more than 200 alternative payment systems, including digital currencies, e-wallets, debit cards, bank transfers and PayPal.
Throughout the recent peak shopping season of Black Friday and Cyber Monday, our data shows that fraudsters continue to keep merchants on their toes with ATO increasing 35% compared to the same period in 2021. Many attempted ATO using automated solutions, while others resorted to phishing, baiting and pretexting to trick consumers. We certainly expect these methods to remain common in markets like Singapore.
In Malaysia and Indonesia, we’ve observed a rise in promo abuse, with consumers using different emails to obtain rewards and referral codes (in some instances by using bots). While this is more of a marketing fraud, rather than a classic payment fraud, merchants are beginning to realize the threat this poses to company revenue. With the rising cost of consumer acquisition, we anticipate this to become more of a risk priority for merchants.
As online shoppers from tier-two and tier-three cities across Southeast Asia become more active, fraud solutions will become more important as a means of engaging and protecting digital consumers whose primary method of payment is not credit or debit card use.
Australia: Data breaches and rise in gift card fraud
Australian consumers have increasingly moved online with more than 19% of retail sales turnover taking place online, according to Australia Post’s 2022 e-Commerce Industry Report. The same report indicates Australia has surpassed other countries in terms of the number of consumers making online purchases. Industry experts predict the e-Commerce market in Australia will grow steadily reaching up to US$35 billion by 2025.
However, the sector growth has been accompanied by an increase in data breaches, which cause additional fraudulent activity as bad actors gain greater access to a broader set of data to leverage. Throughout the year, the Australian market has been vulnerable to a number of significant threats, with attacks on telecommunications providers, supermarket loyalty programs and even specialty brands such as direct wine dealers.
In September, one particular telecommunications breach impacted 40% of the national population. Such attacks are having a subsequent impact on digital retailing in the form of account takeovers, as digital credentials and identification are bought and sold on the Dark Web.
Gift card fraud, in particular, is on the rise, with the peak fraud activity occurring from late October through to Black Friday and Cyber Monday. Approximately 25-30% of annual gift card sales take place in this period, so it’s not surprising that fraudsters are busy at this time. According to Research and Markets, Australia’s gift card industry was expected to grow by 11.3% in 2022 to reach US$ 6 billion.
Gift cards are an easy target for fraudsters as they are anonymous, easy to resell, require no address and can be resold. They are essentially ‘free money’. Year on year (YoY) data illustrates an annual spike in gift card purchases around mid-December, with Christmas Eve seeing six to seven times more sales in gift cards. Merchants should anticipate this and be on guard for gift card fraud.
Japan: Growth in cross-border fraud and ongoing reliance on COD
At the end of 2022, industry data showed Japan has emerged as the world’s fourth largest e-Commerce market next to China, the United Kingdom and the United States. Market analyst Mordor Intelligence predicts Japan will register a CAGR of over 14% from 2022 to 2027 fuelled by a considerable rise in online businesses, conducive technology infrastructure and logistics and technology savvy shoppers.
Based on Forter’s market study and first-hand experience, what sets Japan apart from its Asian and Western counterparts is the fact that it has low to even zero domestic e-Commerce fraud rates.
Its unique ecosystem relies predominantly on 3DS, and fraud incidents tend to be ‘cross border’ in nature, meaning that fraudsters outside the country target Japanese consumers remotely. Social media, online apps and email have made it easier for fraudsters to order items online from a Japanese address then reship them to other countries, making it seem that such fraud activity originated in Japan.
Data from the National Consumer Affairs Center of Japan has revealed that in 2021, reports of cross-border fraud increased slightly over the previous year with those aged 40-plus as the key demographic being affected. Credit card and bank transfer payments offer the greater risk, which we expect will continue into 2023. The most common locations of these fraudsters are the US and China (including Hong Kong).
Compared to the rest of the Asia Pacific region, Japanese consumers still prefer cash on delivery (COD) to digital payment. While COD transactions don’t have direct fraud costs there are inherent built-in costs within this payment method, such as shipping and operational processing.
China: Increasingly sophisticated and fond of live commerce
China remains the world’s largest e-Commerce market, with strong growth throughout 2022, which we expect to continue through 2023. Local characteristics will continue to support market growth, including online applications, reliable e-Commerce platforms and consumer confidence in online shopping.
Live commerce will remain a feature of market growth, particularly as its popularity expands in tier-three and tier-four regions where retail infrastructure is limited. Similar to the US home shopping model, live commerce features a livestream hosted by a popular celebrity who features a range of discounted goods from reputable brands and manufacturers.
Chinese merchants and sellers tend to have a more sophisticated understanding of online payment options and conversion strategy as it relates to online sales channels. Unlike Western markets, there is a greater appreciation for the ROI of accurate fraud detection and declined transactions – particularly the impact it has on the entire conversion funnel. The consumer market is also rather advanced in terms of mobile technology, online access and range of payment options. Alipay and WeChat Pay remain the most popular.
Conclusion
APAC remains a complex and dynamic market, with a range of associated challenges and opportunities. Markets across the region will continue to develop at a different pace, dictated by the local consumer demand and the merchants they engage with online.
Digital commerce will remain strong in 2023, particularly those APAC markets with a high population. While regional trends such as cross-border fraud and promo abuse will continue to impact all merchants, it is individual market nuances that will dictate both the threats and opportunities in each country.
The key factors feeding this regional growth in e-Commerce – a diversity of payment options, email and text communication, promo campaigns, engagement with tier-two and tier-three cities, gift cards – will provide the greatest opportunities for fraudsters. Both the strengths and weaknesses of each national market will continue to be exploited by fraudsters who are becoming more and more creative in their approaches.
