Allowing more good customers to successfully transact can be transformational for a business, however, with the persistent threat of fraud looming large, merchants often find themselves walking a tightrope between minimizing risk and maximizing approval rates. In this dynamic landscape, the case for prioritizing pre-auth for fraud protection emerges as a strategic imperative, promising not only enhanced security but also improved authorization rates and, consequently, increased revenue potential.

Authorization is a crucial point in the online payment chain. To review, authorization is the process by which the credit card issuing bank confirms the basics are covered — the account contains sufficient credit to complete the transaction, sufficient account details are present, the account is not expired, etc.

Here are the five explanations for why moving your fraud controls pre-auth, or before authorization, can improve customer experience and drive more top-line revenue:

1. How does sending clean traffic to issuers naturally improve authorization rates

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At Signifyd, we understand that selecting an anti-fraud vendor is a commitment to a long-term relationship.

Any seasoned ecommerce leader knows that fighting fraud and maximizing revenue are two sides of the same coin: They will need a partner who will protect them from the slings and arrows of relentless fraud attacks while partnering deeply to hit revenue and conversion targets.

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This guide will help you better understand this approach to fraud management and will, of course, explore the aforementioned myths and realities accompanying the 3D Secure in America chatter.

What are some common myths about 3DS in the United States?

Myth: 3DS is the only option for shifting liability

Reality: No doubt, 3DS’ liability shift — moving the cost of fraud from merchant to an issuer or fraud protection provider — is an attractive feature for merchants. But that benefit is not unique. A relatively new generation of fraud protection providers also offers a liability shift on approved orders that ultimately turn out to be fraudulent. While such providers are few in number, and the level of their protection varies, the top providers have offered liability shifts for years — the best offer liability shift without requiring consumers to overcome step-ups and challenges. Merchants should carefully consider all options in this space.

Myth: 3DS is only beneficial for high-fraud sectors

Reality: Some argue that 3DS is only necessary for sectors with traditionally high rates of fraud, such as luxury goods or electronics. In fact, 3DS is equally effective in all sectors and can reduce chargebacks across the board. The tendency in the U.S. is to lean toward using 3DS for the riskiest orders. Merchants balance the potential risk of cart abandonment with the reward of liability shift. When confronting orders they’re not willing to ship, some merchants will use 3DS review, reasoning that the order is a low-percentage order anyway, so if the buyer fails the challenges, they’re no worse off. If, on the other hand, the order is approved, the merchant has no worries that it will later come back as a chargeback.

Myth: 3DS and its liability shift are all the fraud protection you will need

Reality: 3DS is best viewed as part of a larger set of fraud protection solutions and strategies. Not only is 3DS something merchants want to be thoughtful about using so as not to risk challenging good customers, but it doesn’t protect merchants from every kind of chargeback. As fraud grows in sophistication, first-party fraud is a threat that is increasing faster than traditional payment fraud. First-party fraud is fraud committed by the rightful credit cardholder, such as claiming a package that did arrive never arrived or that a product that arrived was damaged when it was not. For many merchants, it’s important to have a fraud solution, such as Signifyd’s Commerce Protection Platform, that offers a financial guarantee on all manner of chargebacks, including first-party fraud and consumer abuse.

From Q1 2023 to Q1 2024 friendly fraud growth outstripped payment fraud

How does 3DS work in the United States?

The U.S. credit card market is one of the largest and most diverse in the world, with a significant volume of both online and offline credit card transactions. The adoption of 3DS in the U.S. has been influenced by the need to secure a growing volume of ecommerce transactions against an increasing rate of online fraud. That said, 3DS adoption has grown slowly in the U.S., perhaps because of its potential to introduce additional friction into the buying journey. 

As any merchant knows, online fraud constitutes a serious line item expense on the profit-and-loss ledger. With credit card dumps on the so-called dark web available to anyone with enough cryptocurrency, U.S. merchants need a better way to validate online transactions.

3DS is not required in the United States

Unlike the European Union, where strong customer authentication (SCA) requirements under the PSD2 directive mandate the use of technologies like 3D Secure for enhancing security in electronic payments, the U.S. does not have a similar overarching federal regulation mandating the use of 3DS. This has led to a more voluntary adoption path driven primarily by the benefits of fraud reduction and lower chargeback rates rather than compliance pressures. Merchants have been slow to adopt 3DS in the U.S., perhaps because of the availability of advanced solutions that provide a liability shift. 

Key takeaways for merchants

Merchants in the United States have the option of adding 3D Secure to their payment stacks to help reduce fraudulent transactions and chargebacks. The solution is one way to benefit from a liability shift in card-not-present transactions and it provides a data-exchange feature that can be helpful in determining whether the rightful cardholder is adding a card to an existing account. 

The improvements found in the newest versions of 3D Secure make it a helpful complement to the tools and strategies merchants deploy to enhance their revenue and protect their businesses. 

Photo by Getty Images

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Taylor Swift fans know this first-hand. Demand for tickets for concerts on her highly anticipated The Eras Tour far exceeds supply. Fans have reported logging onto Ticketmaster minutes after tickets go on sale to find that they are already sold out, only to find them reappearing on secondary market platforms or reseller sites at much, much higher prices. Some Taylor Swift fans pay 70 times the tickets’ original selling prices, while many can’t get access under any circumstances due to this retailer-versus-reseller battle.

Ticketmaster and other ticketing platforms are attempting to combat this problem using CAPTCHA codes and queueing systems to deflect bots and ensure fair access to tickets for real human beings. But resellers constantly evolve their strategies, creating ongoing challenges for retailer sites.

Reseller abuse is growing as fraud continues its digital transformation

The high-profile incidents of digital scalping and price gouging are simply the best-known cases of a trend that Signifyd data shows has been growing significantly for some time. As organized crime rings industrialize their ecommerce fraud operations, establishing Fortune 500-like enterprises with experts in commerce, fraud, fulfillment and post-purchase returns and refunds, reselling has become a lucrative revenue stream.

In the past year, the increase in orders from unauthorized resellers increased year-over-year by an average of 10%. Month-by-month the increase in attempted reseller orders — identified by a high number of repeated orders bearing the same digital identifiers on the same day — increased from 4% to an April spike of 35%. In no month was the pressure from unauthorized resellers on Signifyd’s Commerce Network lower than in the same month a year before. 

Increase in reseller abuse year over year

Bots power resellers’ business 

Bots are at the root of this problem, though some reselling schemes rely on humans to get the job done. First, what are bots? The term is short for “software robots,” and refers to AI-based applications that automate digital tasks, typically focusing on the repetitive or mundane aspects of computer-dependent desk jobs. They often simulate humans’ interactions with devices, software, websites or online forms. In retail, such bots can be programmed to speedily navigate through even the trickiest online checkout processes, vacuuming up whole inventories of the most in-demand items on a site before genuine customers have the opportunity to make their first click in retailers’ buying processes. 

Resellers also use bots in other ways. For example, they exploit discrepancies in pricing across different online platforms. They scan competitors’ prices and adjust the ones on their reseller sites accordingly. This results in a no-win race to the bottom that can significantly erode retailers’ profits.

Smaller businesses are disproportionately affected by bots, as they don’t possess the money or expertise to invest in the necessary sophisticated anti-bot technologies or business strategies – or to absorb any losses that occur. Market consolidation often ensues, with large reseller sites gaining more and more control and pushing out independent retailers, which inhibits competition and limits consumer choice.

How retailers’ performance is impacted by reseller targeting

The above types of reseller behavior significantly impact retailer performance and brand reputation. Consider, for instance, the great Sony PS5 Christmas disappointment. With the holiday season in full swing, a series of bot attacks cleared the digital shelves of the popular gaming console, leaving parents to pay a premium on the secondary market. Or worse, it left parents explaining to their kids that Santa didn’t see himself clear to drop one of the coveted gizmos at their house. 

Either case leaves consumers frustrated and disappointed or even angry with the retailer that couldn’t keep in stock the PS5 — or in other cases whatever popular item was scooped up.

“I think it’s ultimately about consumer trust and losing that trust has serious repercussions for a business,” said Signifyd Vice President, Strategic Initiatives Gayathri Somanath. “You want to bring consumers to your site and you want to create a trusted experience for them that keeps them coming back to you. These kinds of scalping attacks usually mean that your site has been compromised, a much-desired product is unavailable, and these goods are going to be sold somewhere else. It leaves consumers with a lack of trust in your site. For the retailer, you’re losing good customers and it diminishes your brand value.” 

Both the retailer and the brand — Sony in the PS5 example — lose control of the customer experience and miss the opportunity to build a relationship with the buyer — one of many damaging effects of unauthorized reselling.

Here’s a comprehensive list of how unauthorized resellers damage retailers in the short term and the long term:

• Revenue losses: When unauthorized reseller sites commit resale abuse by buying products in large quantities and selling them at inflated prices on secondary markets, retailers can lose big as customers are diverted from shopping legitimate sites where they often buy additional accessories and items that complement the popular item they were after in the first place. 

• Customer dissatisfaction: Genuine human buyers who fail to purchase products through normal retail channels due to resellers’ shenanigans can grow unhappy with both the retailers and with the manufacturers of the products in question — especially when they have to pay a significant premium elsewhere. This potentially erodes trust and customer loyalty.
• Deteriorating brand reputation: When customers perceive the purchasing process as unfair or manipulated, they can associate their negative experiences with your brand. This can damage your reputation, making it more difficult to attract and retain customers.
• Disrupted retail markets: By creating artificial scarcity and driving up prices on secondary markets, reseller sites can completely discourage customers from purchasing certain types of products altogether, impacting overall sales and revenue for manufacturers and retailers in particular industries.
• Regulatory constraints: The behavior of resellers has drawn regulatory scrutiny and calls for legislative intervention to address fairness and transparency. The onus could be put on retailers to implement more robust – and costly – measures to prevent reseller activities and safeguard consumers.

How AI technology – biometrics and machine learning (ML) – can minimize reseller abuse

But AI can be retailers’ friend, also. Behavioral biometrics and ML models can help prevent reseller abuse with advanced ways to detect and thwart suspicious activity. Here’s how:

• Analyze customer behavior: Behavioral biometrics recognize suspicious patterns in the behavior of online visitors to retailer sites such as how mice and trackpads are used, typing speeds, and certain navigation tendencies to create profiles of individual users. By continuously monitoring these behaviors, the technology can recognize anomalies that indicate bots are at work.
• Separate bot from human visitors: By training ML models on historical online data from multiple retailers’ sites, AI systems can learn to recognize bots. Patterns such as too-swift or repetitive clicking, unusual browsing or high-frequency transactions from a single IP address can indicate potentially malicious, non-human activity.
• Automatically identify unauthorized reseller ecommerce fraud: ML algorithms can be trained to detect fraudulent transactions and combat retail fraud by noting the frequency of transactions,  purchasing history of individual site visitors, information about devices used and geolocation data. By identifying deviations from typical human purchasing behaviors, such models can flag those transactions most likely to come from reseller sites or their bots.
• Use dynamic risk scoring: ML algorithms can be used to build risk-scoring systems that dynamically judge the risk associated with transactions or interactions with site visitors based on a broad array of factors. By continuously updating risk scores in real time, retailers can take action like requiring additional authentication or temporarily blocking suspicious accounts.
• Deploy adaptive integrated security controls: ML models can be integrated into retailers’ existing security systems to adapt controls based on evolving threats. For example, if they detect a new type of bot attack, they can swiftly recognize and communicate to the security technologies already in place to stop it, making retailers’ defenses against reseller abuse more resilient.

Reseller abuse is a multi-layered challenge that requires a multi-faceted defense strategy. Signifyd’s Commerce Protection Platform relies on a Commerce Network of thousands of online merchants and AI-driven models to build an understanding of the identity and intent behind every online order. That puts Signifyd in the unique position to detect the tell-tale signs of evolving bot attacks while also giving it the intelligence to recognize sophisticated actors who develop schemes that avoid relying on bots.

While Signifyd’s AI defends merchants against a vast array of reseller attacks, its policy abuse engine, Decision Center, can be used to create customized and flexible rules using AI features to identify and manage resellers based on a business’ needs.

CurrentBody, which sells innovative beauty and self-care products, turned to Signifyd when its unauthorized reseller program became a growing problem.

“We were very concerned about the effect resellers could have,” said Lyn Carbine, head of trading at CurrentBody. “Controlling the distribution of our products is essential to maintaining successful brand partnerships.”

After setting up policies to deter unauthorized resellers, Carbine said CurrentBody’s unauthorized reseller rate “effectively dropped to zero.” 

“The impact of this on our brand and partnerships can’t be overstated,” she continued. “We’ve regained control of millions of dollars worth of product that would have flowed through the wrong channels.”

Other ways to combat reseller abuse

Technology isn’t the only way to fight back against reseller abuse. Business-model-based strategies can also work well. Of course, not every business-model strategy fits the business model of an existing brand. And while considering whether to adopt a business-model-based approach consider any additional effects, such as adding friction by inconveniencing consumers or causing frustration with limited inventory. That said, some business-model-based strategies include:

• Surprise site visitors with unpredictable product selections and releases: Introduce randomness into your available inventory by changing product release times, limiting the number of products that can be purchased by each customer, or rotating what’s available at any given time to make it harder for reseller sites to easily predict and program their bots to exploit your retail site. You can also create “limited edition” offers that can generate hype and urgency among human customers while making resellers hesitate to invest in building bots for items with limited availability.
• Verify accounts: Use techniques such as email verification or two-factor authentication to make sure that individual purchasers are legitimate human customers and not automated AI bots. 
• Change to a direct-to-consumer (DTC) model: By selling directly to consumers through your own channels – for example, your own online store (as opposed to an aggregated retailer like Amazon) or branded brick-and-mortar locations – you have more control over pricing, inventory management, and customer relationships, reducing the influence of resellers. 
• Offer subscriptions: By asking customers to pay fees for access to exclusive products, discounts, or benefits, you can stop resellers by limiting the availability of sought-after items to privileged – and guaranteed human – members.
• Personalize customer experiences: Offering personalized or customized experiences can discourage resellers, as such products won’t be attractive to the mass market and therefore the revenue potential from reselling them will be low. Personalization also has the advantage of significantly boosting customer loyalty for retailers. 

Stopping reseller market abuse is a retail community effort

Reseller abuse is a serious threat to the health of online retailers. You’ll be more successful if you don’t act alone or in a vacuum. 

By sharing selective data, for example, retailers – even competitors – can collectively strategize to strengthen their defenses against reseller sites. After all, you face common adversaries. You will all be more resilient if you present a united front against the destructive influence of reseller sites and their bots. Signifyd’s vast Commerce Network essentially provides this sort of advantage without sharing data among merchants.

Don’t neglect building strong partnerships with online marketplaces, either. They’re very powerful and working with them to establish strict policies against reseller abuse can help you monitor and enforce fair trade, protecting both them and you—guarding your respective brand reputations as well as customer experiences.

By adopting the above technologies, business models and strategies, retailers can minimize the impact of reseller abuse while fostering stronger relationships with their valued human customers. All of which leads to maintaining better control of their brands.

Photo by Getty Images

Are unauthorized resellers taking your profits? Let’s talk. 

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Online grocery sales were up 22% year over year last month, according to Signifyd Ecommerce Pulse data. The boost in sales was driven by a slowdown in the rise of grocery prices, which apparently attracted new consumers to the online shopping option. 

Let’s look at the numbers. Yes, grocery prices are still on the rise — Signifyd data shows that supermarket inflation year-over-year sat at .5% in April. But a year ago, the inflationary squeeze was dramatically worse. The annual price gain in April 2023 hit 7.5% compared to a year earlier. This April’s relief drew in 18% new online grocery shoppers, according to a Signifyd analysis of digital profiles attached to grocery orders.

April year-over-year online grocery sales: A deep dive

So, what’s the catch, you ask? Well, despite the growing enthusiasm for online shopping, the average amount each shopper spent per order in April was down 9% from a year ago.

“There are more online grocery transactions occurring than last year and this is driven by an influx of new customers,” says Signifyd Data Analyst Phelim Killough, who prepares the company’s monthly Pulse report. “On average consumers are buying less as these new customers test the channel as well as exhibiting lingering price sensitivity with still elevated, albeit plateaued, prices.”

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Expanding into new countries is a widely adopted strategy for business growth. Once companies reach maturity in their local market, exploring opportunities to operate on a multi-country or even global scale becomes an attractive path, though it presents numerous challenges. Success in global expansion requires thorough planning and strategic execution, such steps include:

1. Market research. Start with the total addressable market (TAM) definition, understanding competitor’s strengths and weaknesses. These initial steps are important to establish a solid foundation.
2. Regulatory and compliance analysis. Ensure that products and services comply with local regulations and consider establishing local institutions to navigate regional taxation and legal requirements effectively.
3. Customer behavior studies. Understand cultural nuances, learning about customer needs, language barriers and market segmentation to anticipate and address potential obstacles to product adoption.
4. Risk assessment. Identify social and economic risks in the new market and develop comprehensive migration strategies. This step is critical for safeguarding the success of the expansion and minimizing potential setbacks. 
5. Product localization. Evaluate the readiness of the product to operate in the new country and determine necessary changes for successful expansion.

Selling into a new market

All these steps will influence the design of the products you bring to your new markets, but none will carry more weight than product localization. Product localization refers to the process of adapting a product to a new market by considering the language and specific needs of local customers. This involves tasks such as translation, adjustment of features and functionalities to align with local preferences and requirements. 

Companies must evaluate market nuances to decide the extent to which a standardized product, originally developed for other regions, can be reused in the new market. Decisions regarding localization should be made thoughtfully, as overlooking essential adaptations can lead to significant problems down the line.

Why product localization is so important

Rigorous attention to detail during the product localization step is crucial to avoid future complications. While neglecting necessary adaptations may initially seem to reduce costs and project scope during release planning, it often results in higher expenses even in the short term. Issues such as low product adoption rates, miscalculated metrics, customer churn and the need for rework can all arise, ultimately increasing costs and timing associated with the expansion. Beyond those costs, there is the first impression factor that can damage the brand and harm the new market opportunity.

Payments methods provide an excellent example to explore market nuances and assess the need for product localization. In the Latin America (Latam) market, credit card installment payments are widely embraced by consumers, especially for high-cost purchases.

Credit card installment payments power key categories

According to estimates by Americas Market Intelligence (AMI), 70% of online travel purchases in Latin America are paid for with a credit card and, depending on the country, from 10% to 65% of those transactions are made in installments. Credit card installments work as an agreement made between consumers (cardholders) and credit card issuers. 

Essentially, the credit card operates as an instant loan, paying the merchant upfront, while the transaction amount is settled in installments over time to be paid by the consumer. Offering this payment option doesn’t only enable a new payment. It also accommodates the receiving, storing and reporting of the new data (installment amount, installment quantity) and it handles consumer protection laws concerning things around product returns and the chargebacks process.

Many consumers perceive credit card installment payment as the only feasible means to acquire desired products. For ecommerce businesses, attentiveness to customer preferences and the ability to offer diverse payment methods are crucial to meet the different customer segments’ needs. This approach not only enhances sales but also boosts customer satisfaction.

Fraud prevention methods for localized payment 

Once you decide to adapt your product to suit a new market’s consumer behavior, for example, by offering new payments like credit card installments, it will be important to look at the entire consumer journey to adapt other elements involved. In a payment universe, fraud detection and prevention is a relevant element that needs special attention. There are fundamental fraud detection aspects to be evaluated when performing product localization:

• Chargeback. Understanding the local chargeback processes and rules, and identifying nuances for different payment methods and liabilities.
• Fraud assessment. Evaluating the regional risk behaviors enables anticipation of trends and facilitates effective onboarding of a merchant’s teams.
• Data collection and reports. Adapting integrations to collect specific data and provide accurate reports. Updating flows to ensure the accurate processing and normalization of information.
• Regional models. Adapting data models to account for regional behavior and implementing local data enrichment. Developing exclusive features tailored to the new market further enhances effectiveness.
• UI adaptation. Adjusting platform interfaces to support local languages and displaying localized payment information, including currencies, enhances user experience and trust.

Expanding into a new market is not an insignificant decision. It’s a big bet with potentially a big payoff. By implementing a comprehensive plan for product localization, considering the geographical, cultural and legal differences among markets, companies can effectively strengthen their position in a new region and also prepare the way for long-term success in the expansion.  

Contemplating expanding into new markets? Let’s talk.

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Grocery spending was up annually, as it has been for months partly due to rising grocery prices. But in February, the 22% year-over-year increase appeared to be fueled by more shoppers buying more online, rather than by higher prices. Along with increased spending, shoppers placed significantly more online orders — up 29% over February 2023 — while including roughly as many items in each order. The easing grocery inflation continued a year-over-year trend that has been ongoing.

The good grocery news was also reflected in government data on consumer prices, which was released on Tuesday by the U.S. Department of Labor.

Online grocery shopping is seeing a resurgence

On top of consumers making more digital trips to the grocery store, more consumers overall were relying on online orders to do their grocery shopping compared to a year ago, according to Signifyd data. 

A Signifyd analysis of purchases showed a 15% increase in unique digital wallets making purchases in February — suggesting that roughly 15% more people started buying groceries online compared to a year ago. 

As for online shopping overall, ecommerce sales in North America were up 3% over a year ago, according to Signifyd data, with impressive growth in the grocery and electronics categories offset by a steep decline in the apparel vertical. 

While growth is growth, the 3% figure was overshadowed by a surprising holiday season that saw spending up 7% year over year, including an 11% boost in December and a 7% increase in January.

 Consumers chill after red-hot spending over the holiday season 

The February slowdown could be a sign that consumers are taking a breath after leaning on credit cards, discounts and buy now pay later plans to make holiday dreams come true. Nonetheless, most major categories finished February in positive territory compared to a year ago — just not in extremely positive territory. 

Electronics sales were up 11% from last February, notable for a month that featured the Super Bowl and often sees a bounce in the sales of devices with screens. This year’s version of the football extravaganza attracted a record 123.4 million viewers — an audience figure that hadn’t assembled for a single show since 1969 when old-school networks broadcast Apollo 11 landing humans on the moon for the first time. 

Apparel sales had a tough month 

Auto, parts and tires spending was up 3% in February; home goods sales were flat; beauty and cosmetics rose 1% over last year.

On the flip side, apparel plunged 15% year over year after being down 2% in January. Leisure and outdoor sales dropped 3% from a year ago and home goods were flat.

One other signal in a time of mixed economic messages: The use of gift cards to make purchases was up 27% in February over a year ago, similar to the trend in January when their use rose 33%.

We speculated last month that the rise could be the result of heavy gift card giving during the 2023 holiday season, spurred by gift-givers with set spending limits in the face of inflation. Rather than spend $65 in December for a wallet that cost $50 during the 2023 season, a shopper might opt for a $50 gift card that gets a loved one most of the way there. 

Tales from the dark side: Ecommerce fraud rises

Fraud and consumer abuse continued to flourish in February. Fraud pressure — a measure of the rise and fall of orders identified by Signifyd as risky and likely fraudulent  — increased 18% last month. Meanwhile, consumer abuse — for instance, false claims that a package never arrived or that it was unsatisfactory when it did arrive — rose 11%, a slight bump over January’s 6% year-over-year increase. 

Photo by Getty Images

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The announcement of the month’s higher online sales comes amid key economic news regarding retail sales overall and the general health of the economy when it comes to inflation. 

Economists and investors were taken aback by the U.S. Labor Department’s report showing an increase in the Consumer Price Index — a sign that inflation might have a tighter grip on the economy than they had thought only last month. 

A clearer picture of the state of the consumer will come Thursday when the U.S. Census Bureau releases its retail sales numbers, which will look at both online and in-store shopping in January. 

And while the economic picture remains muddled — gross domestic product is up, hiring is robust and consumer confidence is rising — one thing remains clear: Consumers are willing to spend online.  

That’s a lot of guacamole

As has been the case in recent months, the grocery category saw one of the biggest increases in spending in January. Sales in the vertical were up 29%, adding to the good-news-bad-news nature of economic reporting this week. It’s possible shoppers were buying a lot more food online — after all Super Bowl Sunday is second only to Thanksgiving when it comes to holiday feasting. But January is a touch early to be stocking up for a mid-February feast and higher food prices undoubtedly contributed to the bigger sales numbers. 

Super Bowl bounce?

While nearly all the key retail categories saw a year-over-year increase in January sales, the Electronics category saw one of the most dramatic upward trends outside of Grocery and Household Goods. Online sales in the vertical were up 7%, perhaps not surprising for the month leading up to the Super Bowl, the United States’ most screen-worthy event. 

A record 123.4 million people tuned in to watch the Kansas City Chiefs beat the San Francisco 49ers in overtime, a growing number of them on tablets, mobile phones and smart TVs, including, apparently, on some devices that were brand new. 

How’s the resolution working out

January’s other obsession — resolutions and self-improvement — no doubt provided fuel for impressive growth in the Leisure and Outdoor category, which saw a 4% rise in online sales. 

Home Goods and Decor started the year off flat, compared to a year ago. Beauty & Cosmetics did slightly better, rising 2% for the month over January 2023. Only Fashion, Apparel & Luggage among key verticals experienced a decline in January. Ecommerce sales in the category were down 2% 

The gift that keeps on giving

Another sign of the season — or January anyway — made itself known in the way online consumers paid for things during the month. The use of gift cards was up 33% in January, calculated by comparing the value of items purchased with gift cards year over year.

The significant increase in gift-card redemption could be a sign that gift-card gift-givers were more generous during the recent holiday season than in 2022. Conversely, it could be that more gift-givers turned to gift cards during holiday 2023 in the face of high inflation. Rather than stretch the budget to give the gift of a $65 wallet that just last year cost $50, a gift-giver might have opted to lock in the cost of being a friend at $50 by purchasing a gift card instead. 

Bad operators never rest 

After a busy holiday season, the misguided among us kept at it in January, searching for ways to take advantage of retailers. Fraud pressure in January was up 13% year over year, based on the value of orders that Signfiyd’s AI-powered fraud protection models deemed risky and likely fraudulent. 

January also saw an increase in consumer abuse — for instance, false claims that a package never arrived or that a product was not satisfactory when it did arrive. Such abuse increased 6% compared to a year ago, based on a comparison of total sales that resulted in such claims. 

Photo credit: Getty Images

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The surprising month helped propel ecommerce sales for the entire holiday season to a level 7% higher than in 2022. All this to cap off a year marked by economic uncertainty, pessimistic consumers and predictions that holiday 2023 spending would disappoint.  

The Q4 spending figures were particularly remarkable given early-season predictions that reflected the notion that inflation fatigue would have shoppers holding back on holiday splurges. In fact, Signifyd’s late September analysis projected that holiday season spending — from October through December — would be up 5% over the same period last year. The December projection saw sales rising 3% higher than December 2022. 

Discounts continued to be a big story in December 

Discounts, which established themselves as a key holiday storyline during Cyber Week, continued to be an important part of December’s results. The month saw a 14% increase in discount code use over 2022. In all, 23% of online sales in December were accompanied by a discount code. During the fourth quarter overall, shoppers’ discount use increased by 20%. And 24% of all online sales were completed with a discount. 

In terms of what consumers were spending on, grocery sales led the surge with a 27% year-over-year increase. Electronics was close behind experiencing a 19% boost, and leisure and outdoor goods saw a 14% rise. Luxury goods, fashion and apparel, alcohol, tobacco, and cannabis, and home goods & decor also experienced positive growth.

Was the holiday season a reminder of what normal is?

One significant aspect of the 2023 holiday season was the return of consumers to pre-COVID buying patterns. Early expectations called for consumers to front-load their holiday shopping in October. Instead, spending steadily increased month by month throughout the fourth quarter. 

Signifyd’s Chief Customer Officer, J. Bennett, noted that this pattern mirrored the pre-pandemic years when the peak holiday shopping season typically extended from mid-November to about December 20.

“Both we and our merchants were pleasantly surprised by the staying power of the consumer throughout what has typically been the peak holiday period,” Bennett said. “This felt like a return to normalcy, with consumers waiting for better deals later in the season. When retailers ultimately offered those deals, consumers responded in a big way.”

Can consumers keep up with their 2023 spending ways

It will be interesting to see where the surprising holiday season leaves consumers as we move deeper into 2024. Will they continue to search out discounts and keep spending? Or will they finally pull back on spending, allowing savings and household budgets some time to recover?

Signifyd’s Holiday Season Pulse Tracker data is derived from transactions on Signifyd’s Commerce Network of thousands of ecommerce retailers and brands. Commerce Network intelligence also powers Signifyd’s Commerce Protection Platform, which leverages AI-driven machine learning models and data from millions of transactions to detect and block fraudulent activity. Signifyd has seen more than 600 million unique shopper wallets* globally, meaning that 98% of the time when a shopper comes to a Signifyd-protected site, Signifyd’s machine-learning models recognize the shopper instantly. For a tutorial explaining the methods and meanings behind Signifyd’s Holiday Season Pulse Tracker visit Signifyd’s YouTube channel.
*A digital wallet is a distinct combination of signals present in an online transaction.

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The November shopping frenzy, which was particularly evident during the Cyber Five weekend, relied heavily on discounts and buy now, pay later (BNPL) options — none-too-subtle signs that consumers are still feeling financially stressed.

We’ll need to wait until the wrapping paper is swept up and the holiday is tree tossed to the curb before we know to what extent generous deals bit into retailers’ profits. On the other side of the ledger, it could be that consumers pull back on spending in early 2024 as the holiday bill literally comes due — time and again in the case of BNPL. 

“I do believe that the American consumer is stretching this holiday period and they’re justifying that by getting a discount or delaying payment,” Signifyd Chief Customer Officer J. Bennett said. 

Beauty and cosmetics buyers doubled their use of discounts in November

The number of online orders placed with discount codes rose 28% in November over a year ago, according to Signifyd data. Discount usage really took off during the traditional Cyber Five shopping festival, which stretches from Thanksgiving through Cyber Monday. Discounted online orders were up 38% year-over-year for the five days. On Black Friday alone the number of orders placed with a discount code shot up by 46%. 

Some verticals most likely owed their positive Novembers to the discounts available in their categories. Sales of beauty and cosmetics for instance were 8% higher than November 2022 and the number of orders placed with a discount increased a whopping 102% over a year ago. 

Fourth-quarter earnings will determine discount strategy success

How discounting to that extent will play out for merchants will become evident once they —  and in some cases the public markets — analyze their fourth-quarter earnings. 

“I think that the profitability of discount strategies has to be really on point for retailers to justify the level of discounting that they’re doing,” Bennett said. “Maybe they’re able to successfully differentiate between types of consumers — the ones who are willing to pay full price and ones who need a discount — and thus they’ve kind of maximized their curve. But that’s really hard to do.”

Whatever the case, consumers continue to find a way to spend in a time when dwindling pandemic nest eggs are reflected in declining savings rates. A look at November’s buy now, pay later activity provides some clues as to how consumers can keep going strong. 

BNPL encouraged holiday shoppers to spend more

For November as a whole, BNPL orders were up 6%. But as the weeks raced closer to Christmas, the pace of BNPL purchases raced with them. In the last two weeks of the month, use of 2023’s version of the installment plan was up 12% over the same period in 2022. In the electronics category, which tends to include pricier items, BNPL purchases toward the end of the month were up 50% over a year ago.

The ability to pay in installments prompted shoppers to spend more than their pay-as-you-go peers, Signifyd data shows. The average BNPL online order in November was $328 compared to the $181 per order spent by shoppers who paid in full. 

 That $328 represented a 12% increase in order value for BNPL purchases over November 2022. Meanwhile, the average order value for those who paid in one lump sum increased by only 1% over a year ago. 

This week marks the holiday season’s free shipping day — a day distinctly defined, but also an unofficial reminder of the logistical deadline for receiving free or lower-cost shipping for packages meant to arrive by Christmas Day. 

Will the discount and BNPL holiday hangover arrive in January?

For retailers who have pulled out all the stops on discounting, it will be interesting to see if the general upswing in sales can continue for the rest of the holiday season. And for consumers who have gone repeatedly to the BNPL option, it will be interesting to see just what they have left in them. 

For now, both camps can look back at a November that saw positive growth in all the traditional gift verticals and a big boost in the grocery category, owing no doubt to high prices and holiday traditions. 

November 2023 vs. November 2022 online sales by vertical 

While November outperformed Signifyd’s initial projection made before the holiday season started, the strong showing wasn’t enough to move projections for December or the entire holiday season — defined as the fourth quarter. 

Sales in December will be 3% higher than last year, Signifyd’s models indicate. And Q4 is projected to finish up 5% over the final quarter of 2022. 

Photo by Getty Images

Want to dig into more holiday data? Visit Signifyd’s Holiday Season Pulse Tracker.

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