The holiday season may drive record revenues, but it also brings with it a surge in fraud attempts. With scams, cyberattacks and chargebacks spiking during peak shopping, merchants face an increasingly complex balancing act: protecting profits and customers without slowing down sales. And this year, as criminals weaponize artificial intelligence to wage fraud on an unprecedented scale, new defenses are urgently required.
Rising Fraud Risks in the Fourth Quarter
According to this month’s Payments Optimization Tracker Series, a joint efforts from PYMNTS Intelligence and Worldpay, holiday sales open the door to significantly elevated levels of fraud. Scams, cyberattacks and chargebacks spike during the holiday shopping season, threatening both profits and customer trust.
U.S. consumers lost more than $12.5 billion to fraud in 2024, a 25% increase from 2023, according to the Federal Trade Commission. Nearly 80% of Americans believe cybercrime intensifies during the holidays, with phishing, account takeovers and card-not-present fraud rampant in the fourth quarter.
The scale of the problem is not confined to third-party fraud. “Friendly fraud” — when customers dispute legitimate purchases — now accounts for 75% of digital goods fraud. Chargebacks typically surge 45 to 60 days after the holidays, adding costly administrative burdens for retailers.
Merchants’ Mixed Feelings About AI
Artificial intelligence is reshaping both sides of the fraud battle. The report notes: “AI can be an invaluable tool in retail, but bad actors are also exploiting its capabilities to wage fraud on an unprecedented scale.”
Consumers are uneasy. McAfee data cited in the report found that 88% of Americans believe AI has increased the number and sophistication of scams. One in three consumers aged 18 to 34 have fallen victim to deepfake scams, compared to just 5% of those over 55.
Merchants also express skepticism, with 30% to 40% citing limited resources and gaps in fraud management tools. AI-driven bots can bypass legacy defenses like reCAPTCHAv2 with 100% accuracy, forcing businesses to adopt stronger authentication and new methods.
Still, there is strong evidence that AI can bolster trust rather than erode it.
AI as a Fraud Fighter
The report underscores AI’s ability to transform fraud prevention: “From adaptive authentication to real-time fraud scoring, AI helps keep transactions secure without slowing down the checkout process.
AI-powered monitoring enables instant responses to suspicious activity, while adaptive machine learning models continuously evolve with new data. Generative AI can even strengthen detection models by creating synthetic fraud data, boosting resilience. Benefits include reducing false positives by up to 85% and doubling compromised card detection.
However, AI works best as part of a broader strategy. Strong passwords, two-factor authentication, and prompt customer service are essential companions to advanced technologies.
From Holiday Defense to Year-Round Strategy
The study concludes that fraud prevention can no longer be seen as a seasonal exercise. “To stay ahead, merchants must shift from reactive measures to a proactive strategy that blends AI innovation with multiple safeguards and sound judgment.”
The roadmap for retailers includes:
- adopting layered defenses that combine AI, adaptive authentication and behavioral monitoring,
- investing in transparent AI practices to build consumer trust, and
- prioritizing responsiveness in customer service to minimize chargebacks.
Holiday sales may magnify fraud risks, but AI offers merchants the speed, precision and adaptability to stay one step ahead. As the report makes clear, the path forward lies in leveraging AI not just as a holiday defense but as the foundation of year-round fraud strategy.
Source: https://www.pymnts.com/
