Why Gen Z is Leading the Charge in Online Fraud—And What It Means for Businesses

Each quarter, Sift releases a report analyzing the latest trends in online fraud. This helps shed light on how both consumers and businesses are impacted, the tactics fraudsters are adopting, and how this affects consumer behavior, especially in online shopping. A key finding from the last two quarters has been the clear generational gap: Generation Z (born between 1997 and 2012) is more open than any other generation to committing digital fraud.

In the final quarter of 2023, 42% of Gen Z respondents openly acknowledged they would engage in first-party fraud—disputing a legitimate transaction with their payment provider. This figure is much higher than other age groups. Millennials were the next highest, with just 22% admitting to the same. This quarter also revealed that 33% of Gen Zers have either committed payment fraud or know someone who has. Once again, these figures far exceed those reported by older generations.

Although this data may appear shocking at first glance, there’s more to the story. The fraud triangle theory, used in academic discussions, explains that people are more likely to commit fraud if three conditions are present: motivation, rationalization, and opportunity.

The financial hurdles Gen Z faces

Gen Z is dealing with a variety of financial difficulties. Intuit’s survey revealed that 73% of this generation feels the current economic climate has made it harder to save money. With the rising costs of housing, student loans, and day-to-day essentials like groceries, all while wages stagnate, their financial stress is growing.

These combined economic struggles can create a situation where it becomes tough to manage daily expenses. In times like these, some people might feel tempted to find ways to stretch their money. While most responses to financial stress are harmless, like using coupons or buying secondhand, others might resort to more unethical solutions, like using stolen payment methods or chargebacks. Gen Z is already the top generation purchasing secondhand goods, with 42% of them buying resale items in the past year, according to ThredUp’s resale report.

For some, the economic pressures can lead them to justify fraudulent actions, convincing themselves that it’s a necessary step or a moral gray area with minimal impact on anyone.

Their approach to brand loyalty

Many Gen Zers see large corporations as part of the problem behind the broader economic challenges they face. Because of this, they may not view stealing from these big companies as wrong. For them, it can feel like a victimless crime, as these companies are often massive entities.

This generation is also less loyal to traditional brands. Unlike previous generations, Gen Z isn’t easily swayed by big brand names. Instead, they’re more likely to search for affordable alternatives or “dupes”. They prioritize getting the most value for their money, and this applies to a wide range of products, from fashion to beauty. They’re also more open to trying new brands, instead of sticking with established names or being influenced by celebrity endorsements.

Their preference for flexibility also extends to spending habits. Gen Zers are drawn to monthly subscription models and services that don’t require full ownership, such as car-sharing or streaming platforms.

This desire for flexible access to goods and services can sometimes lead individuals to consider fraud as a way to maintain that access. The rationale might be that while stealing a car or television will likely get noticed, taking advantage of a $6.99 subscription is far less risky.

Digital natives and the influence of social media

Gen Z spends more time online than any other age group, and they’re heavily influenced by social media, which plays a significant role in their purchasing decisions and the information they consume.

This constant exposure also means they’re more vulnerable to online fraud. From notorious figures like Anna Delvey to events like Fyre Fest, the internet has seen its share of high-profile scams. However, a new breed of influencers is pushing outright fraud, providing guides on how to hack accounts or use stolen payment methods. Sift’s data shows that 34% of Gen Zers have encountered offers for participating in online fraud, compared to just 9% of baby boomers. Social media’s deep influence on Gen Z is a major reason why they are more likely to engage in fraudulent activity.

To tackle this, businesses need to adopt a nuanced approach that acknowledges Gen Z’s financial challenges, adapts to their changing shopping habits, and connects with them on digital platforms.

Effective strategies to consider:

• Emphasize transparency and social responsibility. By building an emotional connection with customers, companies can avoid being seen as impersonal entities.
• Offer discounts and flexible payment plans, like buy now, pay later (BNPL) options, to help customers balance their savings with their spending.
• Promote low-cost monthly subscriptions for flexibility.
• Ensure clear return policies to reduce the likelihood of returns fraud and give shoppers peace of mind.
• Provide prompt customer service to resolve issues quickly, which may prevent shoppers from initiating chargebacks.

Gen Z’s willingness to commit fraud reflects the complicated relationship between financial pressure, evolving consumer habits, and social media’s influence. Although this trend is causing real business consequences, it stems from economic struggles, a pursuit of affordability, and a distinct outlook on brand loyalty and consumption.

Instead of viewing these insights as a critique of Gen Z, it’s crucial to see them as a reflection of a generation that’s gaining more purchasing power, even as they face significant economic barriers.