Read the State of Commerce Report for 2021
The fraud attacks started nearly a year ago, just as the global computer chip shortage was becoming painfully apparent.
For the past year, as the shortage worsened and chip prices rose to two or three times their pre-shortage cost, the attacks on online sellers have intensified. Increasingly brazen fraudsters are grabbing up memory chips, CPUs and particularly graphics processing units — the digital nuts and bolts that gamers need to build their machines — only to turn around and sell them on marketplaces for a huge profit.
Their cost of goods, after all, is zero.
- An unharmonic convergence has led to a global chip shortage that is rippling through industries that are finding they can’t manufacture 21st-century goods without semiconductors.
- Gamers, too, have been suffering, particularly finding it difficult to snag speedy graphics processing units to build their custom gaming rigs.
- Fraudsters have found an opening, launching rapid-fire attacks against online retailers, placing millions in bad chip orders in a matter of hours. Their goal: Turn around and sell the chips for a tidy profit.
For months, the shortage of semiconductors has caused havoc in a wide range of industries — automotive, consumer electronics, mobile phones, home appliances and gaming. In fact, in 2021 silicon chips are key components of, well, pretty much everything.
“Chips are everything,” Neil Campling, a Mirabaud media and tech analyst, recently told The Guardian. “There is a perfect storm of supply and demand factors going on here. But basically, there is a new level of demand that can’t be kept up with, everyone is in crisis and it is getting worse.”
Fraudsters find opportunity in the chip chaos
And for fraudsters, the chaos afforded a niche opportunity. Selling hot chips to major manufacturers was not a practical business plan. But what about gamers and hobbyists? What about those who build their own machines and rely on components sold by online merchants? Now that some graphics processing units (GPUs) with list prices of $699 are selling for $2,200, professional fraud rings have found their sweet spot.
As prices for the scarce chips increased, so did the fraud attacks. Fraud activity targeting chips on Signifyd’s Commerce Network accelerated dramatically in April and May. In some instances, criminal rings deploying bots, ordered millions of dollars of chips and components within hours in a fraud fusillade that pushed order volumes skyward.
Signifyd’s Commerce Protection Platform, which uses big data and machine learning to sort legitimate from fraudulent orders, detected troubling characteristics in the wave of fraudulent orders and declined nearly all of them. It also reimbursed its merchant customers for the few bad orders that were actually shipped.
Nonetheless, the ongoing threat is a reminder of how what appear to be outside forces can affect the fraud vulnerabilities that retailers face — and how innovative and entrepreneurial professional fraudsters can be.
Like so many disruptive trends of the last year, the chip shortage was born of the pandemic. On one hand, consumers stuck at home, looking for a diversion, as well as ways to be productive in an online world, created tremendous demand for electronics — all requiring complex configurations of computer chips.
Semiconductor supply can’t keep up with demand
Online electronics sales soared, roughly doubling year-over-year for most of the second half of 2020, according to Signifyd’s Ecommerce Pulse data. Sales remain sky-high today, soaring to a figure 245% higher than May 2020, Pulse data shows. It’s a sign of what many have said: Some habits formed during the pandemic are not likely to change and may well accelerate.
Meantime, early in the pandemic, the fabs that manufacture chips for the world’s biggest brands were forced to shut down to keep workers safe. Then they were forced to adjust to the new reality of social distancing. Supply chains were also disrupted — and they’ve yet to recover. Add to that, some note, the run on cryptocurrency, which requires powerful processors to mine the buzzy payment form and the chip squeeze becomes even more severe.
The combination of factors means that the chip shortage is not likely to end anytime soon.
“There is no sign of supply catching up, or demand decreasing, while prices are rising across the chain,” Campling said in his interview with The Guardian. “This will cross over to people in the street.”
And it will cross over to online merchants selling chips, who can expect fraud attacks to persist.
“Yes. This will continue until production levels get back to normal,” said Tim Potvin, Signifyd head of customer success. “Gamers and folks who build their own PCs are clamoring to get their hands on these chips and processors.”
Photo by Christian Wiediger on Unsplash
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