The digital economy and online shopping continue to grow at a rapid pace, as more and more consumers become comfortable transacting in a digital environment. However, with this rise in popularity comes a concurrent rise in digital fraud.
With more people buying and transacting online, fraudsters have increased their activity in kind, targeting consumers with account takeover attacks and committing refund fraud, promo abuse, and other forms of payments fraud. It’s no surprise then that in 2021 globally, online merchants lost around $20 billion due to payments fraud, according to Statista.
In response, spending on fraud detection and prevention tools has increased by a compound annual growth rate of $21.5% as e-commerce companies seek to stem this tide of attacks. But companies cannot just implement a solution and expect the problem to go away; they need a holistic fraud prevention strategy. A recent white paper from Ekata, a Mastercard company, highlighted three key fraud prevention tactics online merchants should adopt.
Tactic #1: Account Opening Solutions
Consumers want a quick and rapid sign-up experience, and to then be able to deposit money instantly into a payment account. While businesses want to enable this experience for their customers, fraudsters take advantage of this with fake new account registration. A prime fraud attack fake accounts are used for is promo abuse. This is prevalent in a number of industries.
For example, sports betting platforms often offer free money or free bets to entice new customers to sign up. Fraudsters take advantage of this by signing up for fake accounts at scale and then just taking the free money or making a minimal bet and taking the rest. Online video gaming platforms may also offer incentives for signing up, such as free items, gold, or exclusive “skins” to use in the game. Fraudsters create new accounts en masse, collect these items, and resell the items on third-party platforms to real users of these games. These are but a few of the many examples of promo abuse online.
Merchants want to stop this abuse, but they also need to continue offering these promotions to entice new customers. Discounts, coupons, and online sales methods draw in new customers and reward loyal customers. Reports stated that 91% of consumers enter an online store because of an online deal or sale, and 93% of shoppers shared that they used a coupon throughout the year.
This means online merchants need to implement account opening solutions and technological applications that ingest internal as well as third-party identity and behavioral data to monitor sign-ups, new account creations, used voucher codes, and repeat referrals from single users, the white paper stated.
“When issues arise or are flagged (sometimes with as little as an IP [internet protocol] address and phone or email), companies can automate the introduction of pre-defined levels of friction based on the risk profile to conduct additional checks and more accurately define and block fraudulent transactions,” the white paper continued. “Moreover, automated risk solutions that use third-party identity and behavioral data can either be built in-house or integrated directly into a merchantʼs current infrastructure, meaning it creates no additional friction to the sales experience for legitimate customers.”
Tactic #2 Transaction Risk Profiles
Balancing a great user experience with friction is a delicate line to toe for digital merchants, who don’t want to introduce friction to legitimate customers, yet don’t want to let everyone sail through easily and open their platform up for fraud.
That’s why transaction risk profiles are important. Companies should not just strive to create a “frictionless experience” as a hard and fast rule, but adjust the experience for each user based on the amount of risk they present.
“In other words, fraud teams benefit from introducing a variable amount of friction that balances the financial risk and reward of accepting or declining an order — and that starts at account opening,” the white paper advised.
This means that online merchants need to build transaction risk profiles that allow them to increase or decrease friction according to risk throughout the entire customer journey.
Most companies doing business digitally have a wealth of data at their disposal; they should take advantage of tools and data science techniques to use this information to build risk profiles. These profiles can start with internal data to build accurate digital identities for potential customers.
From there, businesses should look beyond just siloed, proprietary data and take advantage of broader network data. For example, the Ekata Identity Engine can validate five key identity elements — name, IP address, address, phone, and email — and analyze how they interact and behave in digital interactions beyond a single retailer. The result is a comprehensive view of a customer’s digital identity as well as a more accurate assessment of their risk at every stage of the journey.
Tactic #3: Manual Review
In general, fraud and security teams want to reduce manual reviews. Doing so saves time and money and increases operational efficiency. However, targeted expert human reviews should still be used in cases where it is difficult to assess the risk potential.
Algorithms, while extremely helpful, cannot accurately account for all the variables that define the customer experience across the buyer journey. Businesses want to risk neither false positives — that is, good customers identified as potential risks — nor false negatives and letting bad actors through.
That’s why the targeted human review needs to be blended with automated solutions.
“The investment in a human fraud analyst team more than pays for itself in increased accuracy, customer satisfaction, and ultimately, dollars,” the white paper stated. “This is why the future of fraud prevention looks to marry manual review and machine learning capabilities of automated fraud prevention solutions to capture the advantages of both options.”
The Ekata Solution
Fraud is an ever-present problem for digital merchants. That’s why the Ekata Identity Engine aims to help merchants with an ever-expanding suite of solutions that can help better detect fraud, validate identity, and provide valuable insight about potential customers.
Ekata offers a variety of account opening solutions, comprehensive identity assessments and insights, as well as data and insights that analyze billions of behavioral data points from logged transactions to flag and evaluate risky orders that need further review.
Completely eliminating fraud in digital commerce is an impossible task. But with the right tools, technology, and processes in place, online merchants can ensure they are identifying potential threats as accurately as possible and enabling a great experience for good users.
