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How to prevent retail fraud due to identity theft

Author: Tiffany Staples


Chances are, you know someone who’s fallen victim to identity theft — or even had your identity stolen yourself. Identity theft has become so common today as to seem unavoidable. In 2021, Americans made more than 1.4 million identity theft complaints to the Federal Trade Commission. That number is expected to continue growing in the coming years, even as companies and organizations add more security measures, hire additional risk mitigation specialists, and put up tougher firewalls.

Retailers — and online retailers specifically — are one of the most common targets of identity theft. Too often, fraudsters steal the identity of legitimate customers to make fraudulent purchases, then take off with the stolen goods or services, resulting in millions of dollars in losses for retailers each year. Although identity theft is often considered a consumer problem, retailers can still step up to reduce the risk of loss due to identity theft.

Understanding retail fraud due to identity theft

In simple terms, identity theft occurs whenever a fraudster illegally uses another person’s identifying information for their personal gain. For example, an impostor might use another person’s social security number to collect government benefits or steal an ID card to access private spaces they’re not permitted to enter.

In retail fraud, identity theft is employed by fraudsters to make illegal purchases. In the age of online shopping, an imposter can defraud retailers in many different ways, including creating fake customer accounts, hacking into a legitimate customer’s shopping account, creating false gift cards, or using a stolen credit card number to pay for goods. With simpler approval protocols, structures like BNPL also offer a prime opportunity for criminals to commit retail fraud due to identity theft. Today’s sophisticated fraudsters often employ a variety of these tricks in tandem. They may, for example, create a fake account using stolen names and addresses — employing personal devices that make them seem like legitimate customers — then finalize the purchase with a stolen credit card number.

Usually, retailers end up having to pay the costs of identity theft-related retail fraud. These costs can be quite significant, because victimized companies not only lose the direct hard costs of stolen goods, but also must deal with related costs resulting from the loss — such as the time and expense of investigating fraud, reporting the fraud to the police and governmental agencies, performing audits and reviews, managing reputational damage, etc. Moreover, retail fraud due to identity theft can hurt future sales by eroding customer trust and discouraging legitimate shoppers.

There is, however, a powerful solution that empowers companies to stop identity theft before it occurs: a real-time fraud data platform (FDP).

A real-time FDP can catch fraud as it’s happening. To put it in simple terms, an FDP lets companies collect consistent, first-party, cross-domain data across all their websites. That individual-level data then enables companies to create robust customer identities and perform in-depth fraud analysis, which helps detect fraud patterns and prevent fraud in real-time.

Because real-time FDPs are so effective at preventing identity theft, a growing number of retailers are investing in the technology to protect customers and their bottom lines. But with a real-time FDP, online retailers can dramatically lower rates of identity theft.

The challenges of preventing retail fraud

Why is identity theft so hard for companies to prevent? One key reason is this type of fraud must be caught in real-time to be stopped effectively. Yet identifying and stopping fraudsters while they’re in the midst of pulling off a scam is a challenge when most fraud solutions only alert us to fraud after it’s already happened.

As a result, while all retailers seek to prevent identity theft, most only succeed at managing it after it occurs. Fraudulent activity does get detected, but usually long after the scam has already happened — and long after the fraudster has gotten away with stolen goods and services.

This was the exact challenge a multi-brand online retailer client was facing. The company wanted to minimize fraud due to identity theft, but lacked real-time, contextualized data that would help them detect fraud attempts early enough to actually stop them from going through.

That’s when the company decided to invest in a real-time FDP.

Stopping retail fraud due to identity theft with real-time fraud detection

From the start, the company had a clear idea of the challenges it was facing in its effort to minimize fraud. Identity theft, after all, had already been identified as a key problem. Yet actually stopping identity theft from continuing to occur had proven difficult. The company simply couldn’t detect new fraud cases early enough to prevent them because there was no real-time data.

That all changed with the implementation of real-time data capture. The company deployed Celebrus across all their brand domains and immediately started gathering vast amounts of information about the individuals who visited their websites, including personally identifiable information (PII), patterns of activity, and behavioral biometrics, such as which hand a customer tended to favor when shopping on their phone or how they liked to navigate webpages.

Capturing this data in real-time and aggregating it from all its websites allowed the company to build better identity profiles for its customers. Now, the company had a very clear sense of each customer’s typical behaviors — where and when they liked to shop, what they usually shopped for, how often they purchased items, which devices they used to browse websites, how quickly they created a new account, etc. The retailer knew that understanding who their customers were would also tell them who their customers weren’t.

With this information in hand, the fraud analytics team stepped in. It reviewed known cases of identity theft, then looked for repeated patterns in digital account opening data. Soon, the team could detect differences between the opening of a new legitimate account and the opening of a fraudulent one — and prevent purchases from being made via the fake accounts.

As a result, the company quickly identified and mitigated a whopping £1M in customer fraud.

That savings was just the beginning. Today, the retailer’s real-time FDP continues to make cross-brand fraud identification possible in real-time. And cases of multiple identity theft are traced in milliseconds, giving both the company and its customers peace of mind.

Automating identity theft prevention

Because a real-time FDP works by collecting information on both real and fraudulent interactions, it’s able to prevent fraud while delivering a frictionless customer experience. After all, fraud prevention is only truly effective if it works without hassling legitimate customers. Unnecessary security flags that slow down or stop legitimate shoppers can create more problems than they solve by fueling customer frustration and dampening retail sales.

Unfortunately, legacy fraud management systems are notorious for turning up too many false positives. Because they’re third-party systems that aren’t an integral part of a company’s own system, these legacy systems come with many limitations. Data can’t be shared as easily, there are encryption requirements to overcome, data is often in silos, and the latency of the system sharing makes real-time fraud prevention impossible.

A real-time FDP, in contrast, is a first-party system that meshes with a company’s own system. That means all data can be shared freely, with full visibility into every event, and within the organization so there’s no worry about firewalls or other security structures. The whole system can work faster since data transfer delays are eliminated altogether.

In addition, many security processes are fully automated via a real-time FDP. Tasks that legacy systems required to be done manually are accomplished by a real-time FDP without any need for human intervention. Automation also speeds up business processes, allowing customers to more quickly and easily complete applications and make purchases without unnecessary interference.

The importance of a real-time fraud data platform

Identity theft and retail fraud happens multiple times a day. As a result, the U.S. government has even put together a dedicated website,, to help people deal with the problem. But customers can’t be expected to manage this problem by themselves. Scammers and fraudsters have become more sophisticated — which means retailers also need sophisticated tools to protect themselves and their customers.

For companies that truly want to protect their customers from identity theft, a real-time FDP is essential. Retailers must be able to instantly capture individual-level data from every customer interaction seamlessly - across multiple channels, devices, domains, and sessions. By accessing this information, companies can capture and analyze comprehensive data to gain a strong contextual understanding of customer behaviors for both legitimate and fraudulent interactions.

That understanding is essential for repelling fraudsters. With granular data, a real-time FDP can detect, trace, and prevent fraudulent behavior as it happens. Inconsistent patterns are spotted immediately and blocked automatically.

As identity theft grows more common, retailers must take definitive steps to protect their customers, their bottom line, and their reputation. Only a real-time FDP can offer the high level of protection that retailers need to combat fraud. Connect with us to learn more about Celebrus FDP and how it can protect your company from retail fraud due to identity theft.

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