Holiday Fraud Is Here: What Retailers Can Do Right Now to Stay Ahead

Last week, I joined an engaging webinar hosted by The Paypers that focused on two of the biggest challenges retailers face during the holidays: return abuse and chargeback fraud prevention. I was joined by two industry heavyweights: Corin Dennison, Managing Partner at Insight Retail Risk Consultants, and Sivan Herman, Director of Account Management at Riskified. Together, we explored the realities of fraud during this high-stakes season, examined the data trends driving fraud prevention, and shared actionable strategies to help merchants navigate the chaos.

For retailers, this isn’t a hypothetical conversation. It’s happening right now. Black Friday is just days away, and the holiday rush is already testing fraud defenses. From refund abuse to policy exploitation, fraudsters are working overtime to take advantage of the seasonal surge. The cost-of-living crisis is driving even more opportunistic fraud, with individuals resorting to fraud schemes to fund holiday shopping. As the panel pointed out during the webinar: fraudsters buy Christmas gifts too.

It’s too late to rewrite your strategy for 2024, but there’s still time to take action that can minimize fraud’s impact during this critical period and help you prepare for 2025.

Here’s what you need to know and what you can do today.

Fraud Challenges in Full Swing

The holidays bring more than just a surge in sales – they also mark the peak season for fraud. Retailers are grappling with several challenges as they navigate the busiest time of the year, with returns, payment fraud, and dispute management topping the list. According to a poll conducted on the webinar, 42% of retailers anticipate managing returns and refunds to be their biggest post-holiday challenge, followed closely by 37% pointing to payment fraud. Streamlining dispute management was cited by 19%, while 2% highlighted P&L and shrink forecasting as key concerns.

Here’s how these challenges play out during the holiday rush:

1. Chargebacks Overload
   Chargebacks are projected to reach a staggering $165 billion globally in 2024. Despite the scale of the issue, 54% of retailers still rely on manual reviews to handle chargebacks. While necessary for certain cases, manual processes can quickly become overwhelmed by the spike in holiday transactions, leading to slower resolutions and resource bottlenecks.
2. Refund and Policy Abuse
   Refund abuse is leading the charge in global fraud losses, accounting for $394 billion this year alone. The holidays amplify this problem as fraudsters take advantage of lenient return policies designed to drive customer satisfaction. The U.S. is particularly vulnerable, with $111 billion in losses tied to refund abuse.
3. Policy Abuse Peaks During the Holidays
   While summer typically sees the highest rates of policy abuse (21%), the holiday season introduces unique challenges. Fraudsters exploit the strain on customer service teams, knowing that speed and satisfaction are prioritized over scrutiny. This pressure makes it easier for bad actors to slip fraudulent claims through unnoticed.

It’s also important to understand the distinction between opportunists and prolifics, as pointed out by Sivan Herman. Opportunists – who account for about 80% of fraud – exploit systems when it’s easy, often taking advantage of overly lenient policies or systems with no verification checks. On the other hand, prolifics – the remaining 20% – are seasoned fraudsters, often part of organized networks, who actively seek out and target vulnerabilities.

However, these roles aren’t fixed. When systems are left wide open with minimal friction, even opportunists can escalate into prolific behavior, repeatedly exploiting gaps like refund abuse or policy loopholes and making fraud accessible to a much wider audience. This could easily end up leading to those values swapping to be 20% opportunist and 80% prolific.

And the cost-of-living crisis has only amplified this behavior, with individuals looking for ways to stretch their budgets during an expensive time of year and falling for triangulation fraud offers. Combine this with organized fraud networks operating under fraud-as-a-service (FaaS) models (which operate like the “gig economy” for fraud, providing aspiring bad actors with tools, resources, and step-by-step playbooks to exploit vulnerabilities) and you have a perfect storm for holiday fraud.

With all this in mind, retailers must strike a careful balance. Policies that are too lenient invite opportunists to abuse the system, while overly restrictive measures can alienate legitimate customers. Understanding and adapting to these fraud profiles is critical, not just for preventing losses this holiday season, but for building a fraud prevention strategy that scales effectively year-round.

What You Can Do Right Now

Even with the holiday season in full swing, small changes can make a difference. Here are a few steps you can take today to protect your business from further fraud losses:

1. Focus on High-Risk Signals
Time and resources are tight, so focus your efforts where they’ll have the biggest impact. Use your tools to track data signals at the identity level – device data, payment methods, and transaction patterns are key – and get as micro and creative as you can. Fraudsters often leave a trail if you know where to look.

It’s also important to use sessions and behavioral analytics data to not only see key data points, but to also see exactly what fraudsters are doing. Having those insights, you can more directly enable fraud prevention that may stop them before they’re able to commit their acts.

What to flag:

• Mismatched payment and shipping information.
• Multiple refund requests tied to the same device.
• Unusual transaction patterns, like high-value orders with vague return reasons.

2. Train and Empower Customer Service Teams
Your customer service team is your first line of defense against refund abuse. While they’re likely already swamped, a few simple tactics can help them handle suspected fraud effectively:

• Recognize patterns in scripted responses during return requests.
• Know when to add friction, like asking for proof of purchase.
• Escalate cases tied to accounts or devices with a history of abuse.

Pro tip: Share insights with your on a regular basis to keep them sharp. It doesn’t have to be complex, just actionable updates based on what fraud patterns you’re seeing.

Also: Generative AI may become more helpful, here, in identifying fraudsters’ playbooks, particularly around chatbots for refunds. These signals can be automatically sent to your customer service and fraud teams to alert them of suspicious activities.

3. Fine-Tune Your Chargeback Processes
If you’re one of the 54% of retailers relying on manual chargeback reviews, you’ve probably felt the strain already. While it’s too late to fully automate this year, you can still reduce friction:

• Identify the most common fraud types and prioritize those cases.
• Assign clear ownership for manual reviews to avoid bottlenecks.
• Track repeat offenders and escalate their transactions for closer scrutiny.

Note: Fraudsters know when API calls are made during a customer's journey. By following them from as soon as they land on your website or platform to when they are done, and by linking those sessions, you can stop them LIVE in their tracks. (Learn more about Entity Behavior & Linking here.)

Lessons for 2025: Prepare During the Chaos

The holidays are a pressure test for fraud defenses, offering valuable insights into where your systems need improvement. While you’re in the thick of it now, documenting what you’re seeing this season can help you strengthen your strategy for next year.

Start by tracking and analyzing the most common fraud tactics you’re encountering, whether it’s refund abuse, policy exploitation, or chargeback fraud. Then use this data to pinpoint weaknesses in your current policies and update fraud detection rules to close the gaps.

Fraud during the holidays is rarely one-dimensional, which is why adopting a multi-layered prevention strategy is essential. Combining digital risk protection services with AI-powered tools can give you the ability to monitor activity across the entire customer journey, identify anomalies earlier, and quickly adapt to evolving fraud tactics. The more holistic your approach, the better equipped you’ll be to stop fraud before it impacts your bottom line.

And finally, don’t overlook collaboration. Sharing anonymized claims data with other retailers can uncover broader fraud patterns without jeopardizing compliance. This kind of collaboration not only helps combat organized fraud networks but also benefits the entire ecosystem by pooling intelligence.

The insights gained now can lay the foundation for a more resilient fraud prevention strategy in the years ahead.

What’s Next?

The holiday season may be a sprint, but fraud prevention is a marathon. Taking steps now to tighten your defenses will reduce losses this year and set you up for a stronger start in 2025.

Keep your teams informed, prioritize high-risk cases, and document what you’re learning during this busy season. The more you understand the tactics fraudsters are using, the better equipped you’ll be to stop them.

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