What Methods Do Fraudsters Use to Target Your Subscription Business?
Subspace Official
June 7, 2022
Subscription businesses have proven to be resilient during the epidemic, but how can fraud teams keep ahead of the game as fraudsters continue to target them?
More than ever, subscription businesses are vulnerable to online payment fraud.
Since the outbreak, the subscription economy has exploded: digital news and media subscribers have increased by 300 percent, one in every five US customers has purchased a subscription box, and it's anticipated that by 2023, up to 75 percent of consumer businesses will have a subscription-based offering.
However, like with any other aspect of success and popularity, there is an elevated chance of deception.
Subscription merchants are subject to distinct fraud concerns, despite the fact that every business views fraud differently.
Let's take a closer look at the most significant hazards and how to mitigate them...

What distinguishes subscription businesses?

Subscription businesses come in different forms and sizes, but the two most common types are internet access subscriptions like Netflix, Spotify, or online newspapers, and physical products subscriptions that include monthly box delivery of everything from beauty to wine to Harry Potter items.
While these two subscription models have different perspectives on fraud, they have the following characteristics that set them apart from other online merchants:
Subscription businesses are frequently...
Rely on recurring credit-card payments, which are frequently deducted from a customer's account every month.
To make the most of their recurring payment model, they prioritize client acquisition and retention, and they frequently use social media marketing/offer promotions.
Offer a discount on popular brands and products.
These unique characteristics are beneficial to businesses and make subscriptions more appealing to customers, but they also attract scammers.

How can subscription-based businesses get targeted by fraudsters?

While subscription merchants face fraud in the same ways as other sellers, here are some of their specific fraud dangers...

High-value subscription accounts are targeted for account takeover.

Account takeovers are on the rise, with three major attacks each month on average for online merchants.
Because certain firms allow credit to accrue over time, subscription accounts can be incredibly profitable targets.
A consumer may pay BoxOfMakeup $30 per month, but in order to receive a delivery, they must first log in and pick products.
After three months of forgetting to order a box, they will have $90 in their account.
On the dark web, fraudsters target valued accounts to order/resell things or sell account information.
Fraudsters know they're less likely to be caught in these situations because the client with credit isn't likely to check their account frequently and hence won't detect a takeover.

Customers who share passwords reduce profits and increase the risk of fraud.

Customers frequently exchange passwords for online access subscriptions because they see no danger and the consequences are minor.
According to new data, 80% of 13-24-year-olds have given up their internet TV service account information.
Although many retailers accept account-sharing as a cost of doing business, it can quickly add up.
Netflix is expected to lose over $135 million as a result of password sharing.
Customers are also vulnerable to account takeover if they share their passwords or provide evident account data, which is a constant cause of annoyance for fraud teams.
Thousands of passwords were sold or given out for free on the dark web within a week after Disney+ started in November 2019.
In phishing assaults, fraudsters seek to imitate online subscription organizations, such as the current Netflix phishing email, which gets victims to enter their card information and request a refund.
Watch our previous webinar for additional information on how to account takeovers occur and how to prevent them.

Chargebacks are more common in recurring payment structures.

Recurring transactions are convenient because they are fully frictionless, but customers can "set it and forget it," resulting in avoidable chargebacks for subscription companies.
Customers can easily forget they signed up for a service or neglect to cancel it, only to be astonished when funds are deducted from their account.
More friendly fraud chargebacks may result from this buyer's remorse.
If a customer's claim is approved, they may be able to fraudulently claim funds from all past subscription transactions.

Due to third-party freight suppliers, subscription box delivery fraud is more difficult to detect.

To control demand, subscription firms frequently limit delivery to a single country or region, although social media communities, such as Glossybox UK and its global 'Glossies,' can attract clients from all over the world.
Customers have been known to use third-party freight providers such as shipito.com and boxitforme.com to circumvent limited delivery capabilities.
When a fraud team sees an order from an Australian consumer seeking delivery to a London freight warehouse, it looks fishy right away.
Fraudsters who employ the same third-party delivery services hide behind this genuine activity.

The usage of organised promotion and reselling schemes is on the rise.

Merchants sometimes miss legitimate customers abusing promotions, but increasingly planned scams are growing that should not be overlooked.
By signing up for free trials on their behalf, some scammers offer customers cheaper prices for online access subscriptions.
Similar to subscription boxes, fraudsters can set up several accounts to take advantage of 'get the first box free' offers and collect stuff to resale.
Many subscription businesses provide limited-time discounts and hold pop-up events, which attract fraudsters who take advantage of the increased traffic and quick purchases.
However, resale schemes are in a grey area when it comes to fraud.
It's obviously fraud if someone uses stolen credit cards to buy subscriptions for resale, but what about real customers who buy and exchange their favorite beauty box in bulk?
Unchecked reselling networks can rack up hidden expenses connected with brand erasure and customer loss, even if sales staff don't detect the problem.

Graph networks are an excellent method for preventing subscription merchant fraud.

Every subscription business will face different types of fraud, but you can combat these dangers by tracking fraud indicators that align with your business goals and implementing graph networks.
When it comes to subscription businesses, different fraud indications are more essential than for other shops.
While order content is the most crucial fraud signal in most retail industries, it is typically overlooked by subscription merchants because products are often the same from month to month and among clients.
On the other side, keeping track of order timeframes is crucial, as fraudsters frequently speed up checkout times and opt for next-day delivery with subscription boxes.
It's critical to evaluate your specific business needs and modify your fraud detection strategy accordingly.
Subscription merchants can use graph networks to detect suspect networks of stolen cards or devices, or to highlight large resale scams.
Customer networks that are large, fast-growing, or high-risk become evident, allowing teams to take action against them.
On our insights page, you can discover additional information about connection analysis and graph databases for fraud detection.