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Combatting Fraud During an Economic Downturn

Authored by Monica Eaton, Founder and CEO, Chargebacks911.

Could we be headed into a recession?

At time of writing, there is a very strong possibility (, and that is something that will have major effects on every aspect of the economy. As a merchant, you will already be worried that your customers will have less to spend, and therefore your income will decrease, but there is another more insidious problem that can significantly damage a company’s bottom line.

Fraud always increases during economic downturns: people turn to fraud to make up for a loss of income, companies cut back on fraud protection and desperate people are more likely to fall for scams. Any upcoming fraud surge is going to be different, and far more damaging, than any that has come before it due to the synergistic effects of the rise of eCommerce, inflation causing goods to become more expensive, and the effects of the previous economic downturn during the COVID-19 pandemic. In short, more people are doing business online than ever before and criminals have developed sophisticated tools for separating them from their money.

The Evolution of Fraud (from 2020 Onwards)

The COVID-19 pandemic had a significant impact on eCommerce, leading to a surge in online shopping. Consumers turned to online retail for their purchasing needs due to lockdowns and social distancing measures. In fact, in the US, the U.S. Department of Commerce determined that eCommerce sales increased by 32.4% ( in 2020 compared to the previous year, accounting for 14% of total retail sales.

Of the services that emerged in the wake of the pandemic, food and grocery delivery services were vital, giving socially isolated people a way to get basic necessities, or even treat themselves. While we have arrived at a point where there are no lockdowns and social distancing is scarce, money for most people is spread thin due to spiralling inflation.

One major trend was the growth of mobile commerce, or “m-commerce.” The pandemic accelerated the adoption of mobile devices for online shopping, with consumers increasingly using their smartphones and tablets to browse and purchase products. According to eMarketer, mobile commerce sales in the U.S. increased by 31.4% in 2020 (, reaching $314 billion. Another trend was the rise of online marketplaces. Consumers flocked to marketplaces like Amazon, Walmart, and eBay, which offered a wide range of products and convenient delivery options. We also saw services like Doordash (, grow extremely rapidly during this time, and their use has yet to abate.

Fraud also evolved during the pandemic as cybercriminals sought to exploit the surge in eCommerce activity. Fraudsters used various tactics, such as phishing scams, fake websites, and account takeover attacks, to steal personal and financial information from unsuspecting consumers.

During the pandemic, some of the most prevalent types of criminal third-party fraud included:

1. Imposter scams – where fraudsters impersonate government agencies, healthcare providers, or other trusted organisations to steal personal information or money.
2. Online shopping scams – where fraudsters create fake websites or marketplaces to trick consumers into making purchases or sharing personal information.
3. Account takeover attacks – where fraudsters gain access to a consumer or business’s online account and use it to make fraudulent purchases or steal personal information.

We also saw a surge in fraud involving cryptocurrencies and affinity frauds ( that targeted particular races, religions, political inclinations, age groups and so on. Although the former has only declined because of a similar decline in overall cryptocurrency use, they are still common.

Chargeback fraud, also known as “first-party fraud,” also continued to surge, and remains a major factor in lost revenue for merchants. So-called “friendly fraud” has the advantage of being extremely easy to carry out – anyone can call their bank and say that an order didn’t arrive. This can result in chargeback fees for the merchant, as well as damage to their reputation and potential loss of revenue. According to our own research, chargebacks and disputes are expected to increase by 22% in 2023, with eCommerce merchants bearing the majority of the cost.

What Can Be Done Today?

It is difficult to predict with certainty what online fraud and chargeback fraud will look like this year, as the landscape of fraud is constantly evolving. However, based on current trends and potential economic conditions, it is possible for companies to make some predictions.

In terms of online fraud, it is likely that fraudsters will continue to target eCommerce merchants and consumers, particularly during times of economic uncertainty. Payment fraud, account takeover, and phishing scams are expected to remain prevalent, and new forms of fraud may emerge as fraudsters adapt their tactics.

In addition, chargeback fraud is likely to continue to be a challenge for merchants. Chargeback fraud occurs when a customer disputes a legitimate transaction and requests a refund from their bank, rather than contacting the merchant directly. This can result in chargeback fees for the merchant, as well as damage to their reputation and potential loss of revenue. Chargebacks are expected to increase in 2023, as more consumers turn to eCommerce and online fraud becomes more prevalent.

To address, prevent, and fight back against both third-party online fraud and first-party chargeback fraud, merchants will need to take a multi-faceted approach that includes a combination of technology, policies, and procedures. Some potential strategies include:

1. Implementing fraud detection and prevention technology: Merchants can use tools such as AI-powered fraud detection software and device fingerprinting to identify and prevent fraudulent transactions.

2. Establishing clear policies and procedures: Merchants can establish policies and procedures for verifying orders, monitoring for suspicious activity, and responding to chargebacks.

3. Educating employees and customers: Merchants can educate employees and customers about fraud risks and how to identify and prevent fraud.

4. Collaborating with other merchants and industry organisations: Merchants can work together to share information and best practices for preventing fraud.

5. Investing in customer service: Merchants can improve customer service and communication to reduce the likelihood of chargebacks resulting from customer disputes.

Overall, combating online fraud and chargeback fraud will require a multi-faceted approach that includes technology, policies, education, collaboration, and customer service.