They say diamonds are the way to a girl’s heart, and while millennials are proving that less true than it used to be, these big, shiny rocks are still the way to fraudsters’ hearts – along with luxury watches and other jewelry.
Sourabh Kothari, director of Merchant Advocacy at Signifyd, is not surprised.
“Fraud in this industry goes back hundreds of years – before the internet, before credit cards,” Kothari said. “People have been stealing jewelry for centuries, even millennia, because it carries value and crosses borders.”
However, which jewelry carries the most value and where consumers are getting it has been changing in recent years, and it’s made traditional jewelers worried.
Diamond giant De Beers has noticed a trend of millennials buying smaller diamonds and even choosing alternative stones when it comes time to pop the question. When they do buy, they’re often wooed by online jewelry retailers that hawk savings of 50 percent or more. On top of all that, women aren’t waiting for the men in their lives to buy them jewelry; if they like it, they’ll put a ring on it themselves.
These industry shifts, paired with changes in how fraudsters operate, have opened up the jewelry space to continued struggles with account takeover and subsequent chargebacks.
In the latest episode of the Global Fraud Index podcast series, Kothari and Karen Webster explored the trends that are opening doors for bad guys, the strategies that fraudsters have evolved to exploit those trends and the defense mechanism that’s hurting retailers more than it’s helping them fight fraud.
Kothari shared his insights and tips for mitigating the threat, along with a story about two merchants who are doing it right – albeit in unexpected ways.
The Account Takeover Trend
Account takeover has long been an issue in the jewelry and luxury watch industries, he said. It’s an ideal way for a fraudster to get his order approved, because he is able to leverage a customer’s good standing to complete an order and have it shipped to a drop site.
That’s why an unfamiliar shipping address can be one of the key red flags indicating that an order may not be what it appears at first glance.
As account takeover grows across all retail sectors, so too has it grown in this industry, said Kothari. The jewelry industry sees the highest average chargeback amount of any industry for orders below $100.
For higher-end orders over $500, the average chargeback is $2,359, making jewelry chargebacks second only to appliances, furniture and home improvement.
As for watches, in a way it’s almost a luxury to have one at all, said Kothari. Most people today simply check their smartphones if they want to know the time. Some watch aficionados have tried the smartwatch thing, he said, but true watch enthusiasts tend to revert back to the classic, beautiful clock face with its tiny, ticking hands.
Those who love watches, love them for the authentic craftsmanship, precision and tactile time-telling experience, said Kothari, including the analog ticking. They (and he) would categorize smartwatches not as watches at all, but as consumer electronics.
This time-telling trend has created a niche market among watch enthusiasts, making this category more of a collector’s item. That, in turn, has led to an oversupply over the past few decades, which has made it easier for fraudsters to get their hands on collectible luxury watches and resell them for close to full value.
How Fraudsters Take Advantage
Kothari said there has been a particular rise in account takeover for lower-value orders in the under $100 and $100 to $500 brackets, where fraud can be harder to flag because orders seem legitimate on the surface. A customer who has bought jewelry by this brand before is now buying another pair of earrings, but shipping them elsewhere? What could go wrong?
It’s not the highest ticket item in the store, and it’s not a first-time purchase. There’s nothing about the activity that could serve to alert the retailer that something isn’t right — that is, until the true account owner reads their credit card statement and issues a chargeback.
In the luxury watch space, the systemic oversupply has created a glut of inventory that is being sold from manufacturers to wholesalers to dealers but is never making its way to customers. Therefore, retailers may discount watches deeply to make room for new inventory, and resale sites may mark brand-new watches as “like new” so they can slash the price even further.
Consumers have cottoned on to the fact that they can get a mint condition, 100 percent authentic luxury watch for a low price, said Kothari, and since they aren’t buying directly from the brand, they are often less concerned about where the watch came from as long as the item they receive is as described.
And it will be, said Kothari. There are enough authentic watches that less reputable sellers have no reason to create counterfeits; they can acquire, sell and profit from the real thing.
Ironically, this can lead to high seller ratings on some of these resale platforms, he said. Fraudsters have the supply to meet demand immediately and therefore earn five-star ratings, while legitimate sellers may not have items on hand, causing customers to experience a delay waiting for the item to ship – hence, low ratings.
What Not to Do
Retailers must stop declining so many orders. They have been willing to take the loss of legitimate orders in their efforts to avoid losses due to fraud, and this makes sense: Jewelry, said Kothari, is a credit industry, from suppliers to manufacturers to wholesalers to retailers, so cash losses, such as those resulting from whopping chargebacks, can indeed be disastrous.
However, Kothari said, the competition is accepting orders and gobbling up market share. Continuing to rely on this fraud defense strategy will eat brands from the inside out.
Many merchants are not using available technology, such as that which is offered by Signifyd, to protect themselves and accept more orders. Either they are unwilling to innovate, or they are afraid to trust a third party with acceptance of orders. It’s time for that mindset to change, said Kothari.
“The technology is available, and we’re not the only ones to offer it,” he said. “You need to get that advantage so you’re not at the mercy of fraudsters.”
What to Do Instead
Kothari said retailers should aim to accept orders and capture new markets. Signifyd’s mission is not just to stop fraud, but also to enable legitimate transactions so that the company approves as many as possible. If it makes the wrong call, it is not the merchant who takes the hit, but Signifyd.
That guaranteed protection translates to freedom for merchants who may wish to grow their businesses but fear the risks of expanding into unfamiliar markets. Kothari gave two examples of retailers who have been identifying and embracing unexpected opportunities to branch out into new markets.
First, several New York merchants who work with Signifyd have turned their attention overseas, and are now shipping diamonds and gold jewelry to the Caribbean, Asia, Africa and the Middle East. Two years ago, said Kothari, they never would have thought to do business with those markets.
Second, closer to home, Kothari said the bling market is booming. That includes gold, gold-plated, diamond and cubic zirconia lockets, chains, grills, two-finger rings and other jewelry coveted by rap artists.
These products are in high demand in certain markets, but merchants were previously hesitant to ship to some of them. With full fraud protection, at least one company has been able to make the leap.
“Just because it comes from an area you’re not familiar with doesn’t mean the order is fraudulent,” summarized Webster. “If they know it can’t hurt them, merchants aren’t afraid to grow their businesses.”