As eCommerce grows, so do opportunities for fraudsters. What’s the most important thing for retailers to know about protecting their customers against fraud?
There’s two parts to this answer. The first part is related to the impact to the retailer–understanding the complexity of fraud management and what it’s really costing them if they are trying to do it themselves. Part two is all about knowing your customers.
Managing eCommerce fraud is insanely complex. It’s not a job that your customer service staff performs double duty on. Nor is it something you do 9:00 a.m. to 5:00 p.m., Monday through Friday. It’s a 24/7, 365 days a year function because that how customers shop today. Fraud management takes a team of dedicated experts–fraud investigators, rules analysts, data scientists, manual review analysts, chargeback investigators–that works collectively to accomplish one goal: quickly approve as many orders as possible. Sounds easy, right? Well, as you’re approving orders, you also have to ensure you’re holding a minimum number of orders for manual review while mitigating fraud or you run the risk of annoying every single one of your loyal customers. This can’t be done as a side project especially considering the shift in liability to retailers that EMV created– which brings us to cost. Retailers that attempt to manage fraud on their own also assume all of the risk and expense. Manual review alone consumes 46% of a retailer’s fraud budget. Then there’s insult rate created by false positives, chargeback mediation, friendly fraud costs; the list goes on and on.
The next challenge comes in the form of your customer. How do you create a frictionless experience for your legitimate customer and at the same time stop the bad guys? On their own, a retailer is limited to their data, which may be insufficient in many cases causing retailers to manually review far too many orders. New customers may look suspicious simply because you have never seen them before. More data solves that problem, but when managing fraud on your own, it will take years to acquire – and you will still only have your data – hardly a complete picture of a shopper. Meanwhile, how many good orders have you rejected?
How can eCommerce fraud be stopped?
There is no way to completely stop fraud. It’s really all about minimizing eCommerce fraud by quickly and accurately identifying fraudulent orders and cancelling them. Today’s merchants are faced with a growing eCommerce channel, and with that, an escalation in Card-Not-Present (CNP) fraud. Criminals are just as aware of these trends as merchants, and criminals will always gravitate to the path of least resistance to make as much money as possible. Fraudsters today are smart, sophisticated, tech savvy, and constantly innovating; in fact, they sound like today’s business professionals!
So what are retailers to do–cancel every suspicious order; approve every order, or something in between? If a retailer cancels every suspicious order, they will undoubtedly be canceling legitimate orders along with the bad. We’ve seen merchants cancelling as many as 12% of orders -even though our analysis showed their actual fraud rate was around 0.5%. That means they are insulting good customers and eroding profits by declining 24x the number of orders they should–all in the name of fraud fear.
Alternatively, approving every order is an open invitation for fraudsters – and they are known to coordinate their attacks. The ideal fraud management solution falls somewhere in between. It’s a combination of man and machine learning that frustrates criminals by detecting and analyzing trends and making real-time adjustments and fast decisions that create the least amount of friction for legitimate customers. Ultimately, the goal is to stonewall criminals so they move on to the next easiest mark.
How does a good fraud management solution translate into revenue for retailers and a great experience for customers?
The easy answer is it converts more orders and cancels bad ones. To do this takes people, processes and technology. We talked earlier about how many different roles make up an expert fraud team, so that’s obviously the people part of it. But those folks are all working in tandem to create rules, detect trends, capture data, identify fraud, and manage chargebacks. All of those processes and the people and technology behind them create a continuous feedback loop for faster and more accurate decisions. In other words, the solution is constantly evolving just like criminals. The result is higher order conversion, which translates into revenue, and happier and more loyal customers–and more frustrated criminals.
What other challenges does an in-house fraud team face?
In addition to the lack of big data, scalability is a big one. In-house fraud teams will have a difficult time scaling for peak and promotional times simply because they lack the depth from a data standpoint as well as a staffing standpoint. If they aren’t a 24/7/365 shop (or even if they are), then any event that causes an influx in orders can put them dangerously behind. Retailers facing this situation may decide to just approve every order that’s older than a certain date and hope for the best. In-house fraud teams may also not have staff that are trained in multiple fraud disciplines that can augment manual review resources. They may be forced to bring in temporary staff who are not experts in the retailer’s business, not to mention the impact unplanned hiring has on the bottom line.
Biography: Stefan Weitz is responsible for leading the planning and execution of Radial’s overall corporate strategy, including defining the Company’s portfolio of global products, product marketing, and inventing technologies to deliver the industry’s best post-click commerce solutions. He also leads Radial’s Payments, Tax and Fraud business, delivering fraud-free payment solutions to eCommerce merchants across the world. Prior to joining the Company, Stefan spent 17 years at Microsoft where he served in key engineering and strategic roles to help turn whitespace opportunities into viable business lines. He most recently was one of the founding members of the Bing search engine, helping to drive that product to 30% of search market share and billions in revenue. He began in eCommerce at Microsoft with the acquisition of eShop in 1997.