Consumers are shopping online in increasing numbers. It is estimated that the web will capture 10 per cent of all UK retail transactions by the end of 2012. But as the British Retail Consortium (BRC) pointed out recently in their study, e-crime is the greatest emerging threat to retail, costing the sector £204.5 million in 12 months.
Counting the cost of fraud
As e-commerce retailers rely on Customer-not-Present (CNP) payments carried out with debit and/or credit cards, the cost of online fraud cannot be ignored. Quantifying the problem of card fraud itself is difficult, but Chase Paymentech’s own analysis has revealed that 62 per cent of companies had lost on average £1.2 million each through fraudulent CNP transactions during the last 12 months. This negatively affects business and may hurt brand reputation. The challenge is to make life as difficult as possible for fraudsters, while maintaining a positive shopping experience for the customer – a difficult balancing act. While there is no “silver bullet” to entirely safeguard merchants, the use of an appropriate blend of controls may help mitigate loss by fraud. Merchants are advised to work closely with their payment acquirer to ensure the best solutions are in place to suite the merchant’s business needs.
Preparing for Christmas
Christmas is the busiest shopping season of the year for most UK merchants and naturally, with this increased volume comes a greater risk for fraud. As e-commerce grows in popularity, so too does the threat of fraud. E-commerce merchants should talk with their acquiring partner, who will offer insight into how to make payments more secure. They should also develop strategies to ensure that their business can detect fraud across all channels as close to real time as possible. This will enable them to identify threats quickly, to respond immediately and prevent future fraud. The tools for the Christmas shopping period should be the same, up-to-date and reliable tools that an e-commerce merchant would use all year-round. These include reviewing all available metrics, using real-time risk scores, putting better rules in place, adopting device fingerprinting, and comparing good and fraudulent behaviour.
Seven best practices to fight e-crime
Many merchants have successfully driven down fraud rates to less than one per cent of orders by using techniques including automated real-time screening. However, a superior fraud-prevention strategy will also consider the number of legitimate orders that are rejected on suspicion of fraud. Some fraud survey reports suggest that this is one of the biggest concerns for Customer Not Present (CNP) merchants, with some retailers reviewing as many as one in five orders but confirming less than five per cent as fraudulent. Customers who discover that their order has been delayed or rejected on suspicion of fraud may take their business elsewhere, never to return. Hence, by initially accepting more of these good orders, your business could increase sales and boost revenues.
Here are seven steps that may help achieve an acceptable balance between fraud filtering and order acceptance:
- Review all available metrics: Analyse your fraud rates regularly to spot false positives as well as new types of fraud. Look for patterns in the type of transaction, buyer’s location, time of day, IP address and card issuer as well as the country or channel being used. Chargeback analysis can help assess how well your fraud tools are performing and identify further improvements in your acceptance process.
- Use real-time risk scores: Optimise your fraud screening through continuous transaction monitoring. Some tools can provide every transaction with a fraud score to indicate the level of risk associated with it.
- Put better rules in place: Refine and upgrade the rules used by your