How the cosmetics industry is winning the battle against online fraudsters

The online cosmetics industry is the fastest growing sector of beauty retail, but the benefits come with a financial risk

From mail theft to false declines, the cosmetics industry has come up against a huge number of criminal activities when expanding into the digital world. But what can be done about it?

Sourabh Kothari is the Director of Merchant Advocacy at online fraud protection group Signifyd. Here he talks to Cosmetics Business about how online beauty retailers are successfully preventing fraud and how there is still much more to be done.

Sourabh Kothari

With steady online sales growth for the cosmetics industry has come a tremendous amount of fraud pressure as beauty products are in high demand and fraudsters can convert them to cash easily for near full value.

One reason cosmetics are so popular with fraudsters is the industry trend to launch new products in Limited Edition releases.

These Limited Edition products can often be sold at the same or even higher prices in the resale market by fraudsters.

Despite this ongoing fraud pressure, online cosmetics and perfumes merchants have successfully reduced fraud losses by more than 10% since Q1 2016, according to the Global Fraud Index, a new quarterly report from PYMNTS and Signifyd.

Overall fraud losses for online cosmetics and perfumes merchants have dropped from 4.05% in Q1 2016 to 3.64% in Q1 2017. This is in contrast with online jewellery and precious metals merchants who saw a 13% increase in overall fraud losses from 11.72% to 13.27% over the same period.

What are cosmetics e-commerce merchants doing right?

A major factor contributing to reduced fraud losses is the adoption of machine learning for fraud prevention, which allows merchants to leverage far more data in real-time than older 'rules' based systems or manual reviews.

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