According to the NY Times article, “Cyber Monday Shopping Surpasses Expectations,” both ComScore and IBM Benchmark reported that the $1.3 billion spent by online shoppers represented up to a 33% increase in online sales over last year. This followed record-breaking Black Friday weekend sales of $52.4 billion, which CNN Money reported is a 16% jump over 2010. Either way you cut it, there’s little doubt that retail and online sales over the weekend could make for a very profitable holiday season for merchants.

At iovation, we help our clients know who to trust online, by quickly recognizing their good online customers and isolating the fraudsters through shared device intelligence. By identifying bad actors upfront and flagging suspicious transactions in real-time, we help merchants decline fraudulent orders faster, minimize chargebacks and take more good business with confidence — all especially important during the holiday’s peak traffic.

Looking at iovation’s device reputation network on Black Friday and Cyber Monday, we found some interesting trends and year-over-year comparisons during the two hottest shopping days of the year, including:

• 400% increase in the rate of fraudulent transactions (from 1% to 4%) on Black Friday
• 25% increase in the rate of fraudulent transactions (from 3% to 4%) on Cyber Monday
• 15% greater transaction volume on Cyber Monday compared to Black Friday
• 4% mobile fraud rate on both Black Friday and Cyber Monday

While it was no surprise that credit card fraud, shipping fraud and account takeovers topped the list of fraud types reported to iovation’s database on these days, a noticeable drop in the share of mobile shopping activity was very unexpected.

Despite several industry surveys forecasting significant increases in mobile purchases over the holidays, iovation saw mobile transactions decrease as a share of overall activity on Black Friday and Cyber Monday. While mobile transactions usually account for 5% of queries to iovation’s service, mobile’s share of overall retail transactions dropped to 3.2% on Black Friday and 2.7% on Cyber Monday. At this point any conclusions would be only speculative as to why mobile transactions were down during these peak periods. Are consumers not ready to make purchases over their smartphones? Is the user experience of a smartphone checkout too cumbersome compared to the convenience of a desktop?  As retailers look to the mobile market as an increasingly important channel, it will be critical that they solve these issues.

As we inch closer to the holiday season, a pair of recent articles highlight the increasing volume of online transactions that are just around the corner for online merchants. If there is a security takeaway from these trends, it’s that IT fraud teams better be prepared for significant increases in online transactions over the next few weeks.

The first article, “Retailers: Don’t Leave ‘Peak Week’ Money on the Table,” highlights the jump in online traffic over the four-day sales period it terms, “Peak Week.” That’s the time between Black Friday (the day after Thanksgiving) and Cyber Monday (the following Monday). According to analysts at Experian Marketing Services, each of these four days appear in the top 10 for high transaction rates. Other online traffic and retail email data results the marketing group released included:

• In 2010, online traffic to the top 500 retail sites increased 5% during Peak Week over 2009
• Email volume increased 26% in 2010 versus 2009 during Peak Week
• Black Friday online traffic increased 13% in 2010
• Black Friday is the second-biggest day for online email transactions

In the article, “Online Merchants Prepare for Cyber Weekend (Not Monday),” Ken Wisnefski, founder and CEO of the search engine marketing and E-commerce solutions firm, WebiMax, elaborated on the significance of how Peak Week, or what he calls, “Cyber Weekend,” has become much larger than a one-day retail event.

“Online retailers and merchants have largely invested in E-commerce, online ads and ramping up their website infrastructure in 2011. We’re seeing these merchants committed to making it a weekend-long buying experience versus confining the mad-dash to just one day.”

At iovation, our mission is to support our clients’ business growth by securing online transactions through highly effective fraud prevention solutions. iovation is focused on helping our subscribers manage the higher volume of risks that come with peak season online transactions, without negatively impacting the shoping experience for their customers.

As an anti-fraud security provider that helps stop more than 150,000 fraud incidents each day, we understand the importance of efficiently managing high-volume order flows. Making sure that your fraud team is prepared for the growing number of online orders over peak sales periods is critical if you’re going to get the most out of the holiday sales season.

As far back as I can remember, police have been warning of thieves who target cars in parking lots, smashing windows to steal shopping bags left in plain sight. Then, we’d be warned that as the Christmas lights went up, thieves would target the wrapped gifts underneath the tree. I thought, “It can’t get worse than this?”

Then Cyber Monday came along. It was born as a marketing opportunity that has taken on a life of its own over the past five or six years. Online retailers promote their Cyber Monday offers throughout the fall, creating hype that whips shoppers into a frenzy. It’s become as essential to the retail community as Black Friday.

Now the warnings are different: no longer so focused on crime in the physical world, but instead, on threats in the virtual world.

When shopping online, you risk unintentionally visiting an infected website, which could infect your PC with keylogging spyware, which would be used to steal your data. Or you might provide your credit card information to a legitimate online merchant that later falls victim to a data breach. Another risk is that you might order a particular product but receive something of lesser quality, or a different item entirely, and then have to contend with poor customer service.

And, of course, your identity might get stolen. Lovely. My, how times have changed!

Online retailers would spread more holiday cheer if they did their part to protect the public from credit card fraud by implementing device reputation. Device reputation, offered by iovation Inc., taps into a global device identification network that also contains millions of verified fraud and abuse events such as chargebacks, identity theft, shipping fraud on those devices. The device’s reputation is assessed in real time when a transaction is being attempted on a retailer’s website.  And when the device (such as a computer, phone or tablet) has no prior history, iovation profiles its potential risk for the online retailer, identifying high-risk activity before the transaction is approved or product shipped.

Stopping fraudulent transactions upfront spares many holiday revelers the burden of covering the bill for the gift lists of cyber criminals.

Robert Siciliano, personal security and identity theft expert contributor to iovation, discusses identity theft  in front of the National Speakers Association. (Disclosures)

Besides providing statistics on what online purchases people were spending their hard-earned money on during Black Friday, ReD also noted that online criminals were out in force, busy spending other people’s money. “Whilst online retailers witnessed a huge upturn in sales this Black Friday, fraudsters are also ‘spending’ more, with an average value of $248 per transaction online, 23% more than the average genuine customer,” said ReD’s CEO, Carl Clump.

And in most cases, it seems that fraudsters were clamoring for the same hot commodities as everyone else. Based on ReD’s list, the three most popular items bought with stolen credit cards were gift cards, Nintendo Wiis and Xbox 360s. Of course, this doesn’t mean that fraudsters will soon be kicking back and playing their stolen video games. It’s important to remember that for criminals, online theft is a business, and the principles of supply and demand are still in effect. Fraudsters choose to steal items that are in high demand because it will be easy to turn those goods around for a quick profit.

The problem is, if online criminals are profiting—it means online merchants aren’t. And while a new camera or video game might be at the top of many of our wish lists this season, for online criminals, it always comes down to one thing: money.

The retail sites for Amazon.com, Apple, Best Buy, Target and Wal-Mart each saw more than 4 million unique visits Friday, comScore said, with Amazon receiving the most traffic (up 28% from 2008). Apple, Best Buy and Wal-Mart sites also experienced double-digit traffic gains. According to Experian Hitwise, another Web monitoring firm, other e-commerce standouts included Sears, Staples and Dell.

These results are welcome news for retailers who have been concerned that fear of identity theft could have a noticeably negative impact on sales. Just last week SC Magazine predicted overall online spending to be down this year because of such fears. Luckily, so far, this does not appear to be the case.

With online commerce looking healthy, online retailers can now turn their focus from enticing online shoppers to ensuring that the orders that are coming in are valid. With the increase in shopping will inevitably come an increase in fraud. Unfortunately, as the volume of orders increases, it often involves increased time spent on manual reviews to distinguish the fraudulent orders from the legitimate ones.

Periods of high volume online shopping, such as now, underline the need for effective tools that can identify fraud more quickly with less manual intervention. Running checks on the device history, in addition to credit, identity, and shipping information, are all important steps in finding (and stopping) online criminals and repeat offenders.

We at iovation wish all online retailers a profitable and fraud-free online shopping season!