One in eight Americans committed first-party fraud, such as return and refund abuse, during the 2024 holiday shopping season, according to Socure, a provider of digital identity verification, sanction screening and fraud prevention.
Such actions, which also include non-payment on credit purchases, cost businesses more than $100 billion annually, Socure reported. The total includes $89 billion from chargebacks, promotional abuse and return fraud, and $18 billion in credit card non-payment losses.
Heightened consumer spending, gift-giving, lenient return policies and the rising cost of goods created what Socure characterized as a perfect storm this past November and December. In a Socure survey, 27% of consumers in the United States said they were more likely to commit first-party fraud when purchasing holiday gifts, with 90% of offenders citing financial struggles as their motivation, including factors such as inflation and high credit card interest rates.
GenZers were most likely to engage in such behavior, with 40% admitting to doing so over the 2024 holidays. Socure noted that the result could spell trouble for the financial institutions and retailers targeting Gen Z due to its growing spending power and online influence.
It’s noteworthy that many wealthier consumers were comfortable with abusive behaviour, as survey respondents who said they have a household income of more than $100,000 were twice as likely to engage in first-party fraud compared with lower income consumers, at 25% versus 11%, respectively.
Fraudulent porch pirate claims, when a consumer falsely reports the theft of a delivered package left outside, were three times more likely to occur during the holidays versus other times of year, Socure maintained.
Of consumers who engaged in first-party fraud, 49% said they committed the offense because they had gotten away with it in 2023, Socure stated, indicating that the behavior may be cyclical and likely to continue without a deterrent.
In looking beyond the holidays, Socure noted 34% of consumers admitted to committing first-party fraud, with 59% of offenses occurring in the last year. Even outside the holiday season, 60% of offenders point to economic hardships as the primary reason for their actions. Buyer’s remorse often underlies the offense, with 82% of consumers reporting that they regretted a purchase and 43% of those took action in the form of first-party fraud. In terms of potential losses, 17% of offenses involve transactions exceeding $500, and 59% involve transactions of more than $100.
The most prevalent types of first-party fraud in the U.S. are disputing legitimate financial transactions, at 12%, and, all at 11%, choosing not to pay off credit card bills, claiming that an online purchase was lost even though it was received and falsely claiming that a delivered package was stolen or damaged.
“The holiday shopping surge is one of the busiest times of year for financial institutions and retailers,” said Ori Snir, Socure head of product management, fraud and identity solutions. “Despite increased consumer spending, rampant first-party fraud is doing tremendous damage to their bottom lines and ultimately the U.S. economy. Far too many shoppers are exploiting the system without consequences. Without action, this will only continue to get worse while destroying trust, damaging customer relationships and putting unnecessary strain on business operations.”
