In an article featured on Fortune.com, an executive at a company that tracks online fraud trends revealed that Generation Z (Gen Z) is more willing than any other generation to commit online digital fraud. Kris Nagle, president of Sift, claims that 42 percent of Gen Zers would consider engaging in first-party fraud.
This type of fraud involves making a legitimate credit card purchase and disputing it with the credit card company to get out of the purchase.
Sift’s Role in Tracking Online Fraud Trends
Nagle’s company reviews and tracks online fraud trends and their impacts on both businesses and consumers. It evaluates and follows new and emerging trends to commit fraud and its effects on purchasing behaviors. They have put out a list of best practices companies can employ to get better results with Gen Z consumers.
Increasing Digital Fraud Among Gen Z
In the last two fiscal quarters, Sift has seen Gen Z committing digital fraud increasingly. In the last quarter of 2023, 42 percent of Gen Z stated they would be willing to engage in first-party fraud. Millennials were the next most likely generation to express willingness to commit first-party fraud, with 22 percent saying that they had committed this fraud themselves.
First-Quarter 2024 Trends
In the first quarter of 2024, 33 percent of Gen Zers stated that they or someone they know has participated in this payment fraud. According to Nagle and Sift, the collective willingness of Gen Z and Millennials to do so is an anomaly, as they are willing to do so at much higher rates than older generations.
The Fraud Triangle Theory
The trend pattern aligns with a theory in academic communities called “the fraud triangle.” According to this theory, individuals will be more likely to commit fraud if three aspects are present: incentive, rationalization, and opportunity.
For the contributing factor of “incentive” to be met, Nagle argues that Gen Z faces a maelstrom of economic stressors, from inflation to unaffordable housing costs, student loan debt, and stagnant wages putting pressure on consumers and providing an incentive for fraudulent behavior.
Adaptation to Economic Conditions
Given these economic conditions, Gen Z has adapted by shopping for used and refurbished items online, and it is the most likely generation to do so. According to Sift, 42 percent of Gen Z bought used items online in the past year.
Another, more nefarious outcome of this economic challenge is that Gen Z has also become more likely to use stolen payment methods or chargebacks, which are types of digital fraud.
Rationalization of Fraudulent Practices
The second leg of the “fraud triangle” ladder is rationalization, and Gen Z has become adept at rationalizing or justifying their fraudulent practices as “necessary” or “justified.” They may view their actions as having no real impact on anyone or as providing a temporary solution to a legitimate problem they may have.
For example, some Gen Zers may not consider stealing from a large corporation immoral, as they may find the company “greedy.” Committing fraud against an online entity may seem more like a victimless crime than the same act against a brick-and-mortar store in the neighborhood.
Brand Loyalty and Financial Flexibility
Gen Z is less loyal to particular brands than earlier generations, willing to support knockoffs, generic labels, and “dupes” in more significant numbers. They are less likely to commit to brands and purchases, preferring financial flexibility and renting or subscriptions rather than ownership.
Small-Scale Fraud Practices
It is easier to commit fraud on a small scale than on a large scale, which could explain the means Gen Z uses to maintain access even when renting or trying a product or service, sharing passwords, and canceling purchases while disputing them with their credit card company.
Opportunity for Fraud
The final trifecta, opportunity, may be the most significant as it is unique to Gen Z compared to previous generations. Gen Z is the first generation to be brought up with full access to the Internet, smartphones, and social media. They are considered “digitally native.” One of the troubling aspects of internet presence is the lack of personal accountability in a physical space.
The opportunity to hide or mask one’s identity can dehumanize interactions and provide an opportunity to commit fraud that the same individual would not undertake in a physical exchange.
Exposure to Fraud Offers
Another datapoint showing how Gen Z has ample access and “opportunity” to commit online fraud, 34 percent of Gen Z reports having encountered instructions or offers to participate in online fraudulent activity, while only 9 percent of Baby Boomers have encountered similar fraud offers.
Industry Response to Emerging Fraud Trends
In response to this data, Sift has generated a multifaceted approach for the industry to address the emerging fraud trends with the growing number of Gen Z reaching adulthood.
The newest best practices involve increasing the emotional connection between consumers and brands by focusing on authenticity and social responsibility, which are prized by Gen Z; increasing access to sales, discounts, and flexible payments such as buy-now-pay-later; offering a tiered membership or payment approach, allowing Gen Z access through subscriptions or “base” level lowest cost access; and being upfront about return policies while responding to customers, offering prompt refunds.
