5 Payment Fraud Challenges Merchants Must Address Now

Although traditional retail still accounts for the majority of sales, consumers are showing greater preference for comparing prices and purchasing items through e- and m-commerce channels, blurring the line between brick-and-mortar and online for merchants.

Card-not-present (CNP) transactions through ecommerce and mobile channels also continue to grow exponentially. While the changing environment for merchants presents a number of payment fraud challenges, there are 5 that should take priority:

  1. The need to accept high risk payments
  2. The shift to “fast fraud”
  3. Burdens caused by manual reviews
  4. Making consumer data actionable
  5. Creating and using actionable KPIs 

Merchants must be aware of these challenges, the forces driving them, how to asses their performance in defending against them and the potential impact they can have on their business if they are not addressed.

The need to accept high-risk payments 

Mobile is one high-risk payment channel that is also one of the fastest growing. Nearly half of digital goods merchants are concerned about risks associated with mobile payments. It’s a fair concern since mobile payments are more vulnerable and costlier than other channels, costing merchants $3.34 per dollar of fraud loss versus $3.29 on other channels. These costs can have a dramatic impact when multiplied by thousands of transactions common to large merchants.

As m-commerce volume is expected to grow, this problem will only continue to threaten retailers.

The shift to “Fast Fraud” 

Ecommerce is growing rapidly, with projections for it to reach $480 billion by 2019. Unfortunately, incidents of CNP fraud are growing in parallel. Also known as “fast fraud,” CNP losses are predicted to hit more than $6 billion by 2018.

While there is ample data to indicate that the introduction of EMV in the U.S. in October 2015 is driving fraudsters away from physical stores and towards online purchases, the sale of digital goods—like digital gift cards, e-books and digital tickets—is also luring fraudsters to seek targets with fewer defenses.

Fortunately, there are steps merchants can take to better protect their business, their data and their customers from fraudsters.

Burdens caused by manual reviews 

Manual reviews can prove to be highly problematic for merchants, requiring increased time and training to properly decision transactions.

Merchants must be confident that their fraud prevention system can make transaction decisions instantly and accurately. They should utilize a fraud prevention system that uses real-time decisioning and guarantees approved payments— even if they end up being fraudulent— to minimize risk while driving sales.

Making consumer data actionable 

As competition increases, merchants must be able to take a highly individualized 360-degree view of the customer and build a profile that accurately reflects the many unique dimensions of a consumer’s shopping habits and preferences.

By better understanding each customer’s preferences, needs and goals, merchants can provide optimal service, improved marketing tactics, engagement and an increase in customer loyalty and revenue.

Creating and using actionable KPIs 

With the explosive growth in online and mobile sales, it’s imperative that retailers be able to collect, sort and accurately analyze what their key performance indicators (KPIs) are telling them. This includes those that reflect on how a third-party vendor is performing, so that businesses can hold their vendor fully accountable for any under-performance.

What you can do

Ultimately each retailer will need to decide what is more profitable: Fighting fraud with in-house solutions or enlisting the help of an expert third-party vendor that allows them to focus on their primary business of selling goods and services.

A trusted partner will allow merchants to eliminate fraud- and chargeback-related expenses that divert resources from revenue-generating activities.

Chris Uriarte is the Chief Strategy and Payments Officer of Vesta Corporation

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