Identifying Fraud: Top Challenge for Remote Merchants

ecommerce fraudIn the fast pace life of the 21st century, the one thing that people and consumers are looking for when it comes to shopping is convenience. ecommerce and mcommerce have enabled people the opportunity to save time and money through the use of remote deposits and transactions. However, amid a rise in successful online and mobile fraud or identity theft attempts, a new LexisNexis report cites “the ability to quickly distinguish and confirm fraud” as a key challenge for remote merchants.

Despite the convenience of handling transactions in the comfort of your own home, it also allows for criminals to do exactly the same thing. Large multichannel, ecommerce and mcommerce merchants experience between 707 and 880 fraud attempts each month, and upwards of 60% of those attempts succeed.

For many industry experts, this type of activity doesn’t shock them. The greatest challenge for large remote merchants is how to successfully identify and fight fraud without turning away legitimate customers and their future business. According to the 2016 LexisNexis True Cost of Fraud Study, 1 in 3 declines transactions for suspected fraud turned out to be legitimate purchases. The financial repercussions of these fraudulent attempts and success can be incredibly damaging for these larger companies. On average, US merchants reported an 8% increase over 2015 in the cost per dollar of fraud losses, from $2.23 to $2.40. Essentially this means that with every dollar of losses, merchants are losing $2.40 based on chargebacks, fees and merchandise replacement. With almost 900 fraud attempts monthly, you can see how that amount can add up.

When someone makes a purchase using their credit or debit card of someone other than themselves without permission, this is considered to be fraud. However, there is another type of fraud known as friendly fraud which a consumer claims to never have received a product or claiming to never have authorized the purchase in the first place, all the while keeping the product. LexisNexis has reported that large eCommerce merchants are losing an average of 1.39% of revenue to fraud annually, despite investing $115k on mitigation annually. Between friendly fraud and identity theft, the challenges continue for remote merchants throughout the US and internationally.

Online and mobile channel merchants continue to worry about catching the criminals without alienating their customers. With identify theft on the rise and becoming more prevalent within Card Not Present (CNP) transactions, it causes a severe challenge for remote merchants to identify true customers. Continuously making the wrong decisions can also lead to damaging customer relationships and loosing monetary value that would have been derived from future purchases. However, this is not the only way to lose a customer. By delaying transaction confirmations can cause customers to leave a merchant’s website before completing their transaction. What can also double the grievance is when the consumer is being charged before the confirmation, not to mention also adding in chargebacks for the retailer and loss of future business.

In order to overcome these challenges, remote channel merchants need to increase their tracking of both payment and channel fraud with multi-layer approaches to help redistribute spending away from excessive manual review towards select solution combinations. As a former online remote-channel merchant myself, plagued with fraudulent chargebacks, it was shocking to find there was no up-to-date solution for merchants – technologies and identification techniques were antiquated and costly. I facilitated my company, Chargebacks911, in developing intelligent source detection to accurately distinguish between merchant error, criminal fraud and friendly fraud.

Merchants need to effectively dispute unjustified chargebacks, but also assess and change practices that may be contributing to errors or approval of unauthorized transactions. Evidence continues to show that with a multi-layered approach, remote merchants can substantially reduce successful fraud attempts and false positives.

There needs to be more awareness and education in regards to the types of fraud and the damages that can be done to both the consumer, and the remote merchants. If eCommerce businesses decrease the annual spend on protection and chargebacks, the loses will inevitably increase.

Monica Eaton-Cardone is the Co-founder of Chargebacks911, which offers both response and resolution services for chargebacks and cardholder disputes.

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