With e-commerce continuing through a period of exponential growth, firms are being forced to embark on elevated safeguards from the potential threat of fraud, something that’s only likely to become more prominent as the holiday period approaches.
Credorax is able to dive into this critical issue and offer steps merchants can take to protect themselves from exceeding fraud rate thresholds, and their customers against digital fraud. We spoke to the firm’s Chief Financial & Risk Officer, Aviram Shemer about the coming period.
Payment Expert: Just how elevated will the threat of e-commerce fraud be as we approach the holiday period?
Aviram Shemer: As we approach the holiday period, it is critical that online merchants are equipped to protect their customers from e-commerce fraud. We saw a rapid increase in payment fraud at the start of the pandemic when brick-and-mortar stores closed – as early as April, the number of successful monthly fraud attempts increased 43% – 48% for mid to large retailers and 27% for smaller retailers, year over year—and cyber-criminals are waiting for the next rush of e-commerce activity from online holiday sales.
Cyber criminals will look to take advantage of card-not-present payment methods, including the increasingly popular click-and-collect option, as well as buy online pick-up in store (BOPIS). Retailers should also be prepared to handle a higher than usual number of chargebacks this holiday season. For a merchant, maintaining a low chargeback ratio is important to keeping payment processing fees low and avoiding costly account reviews.
PE: What impact has the pandemic had on this threat?
AS: With shoppers now less able to frequent physical brick-and-mortar stores, e-commerce is booming like never before. Cybercriminals are already taking advantage of inexperienced online shoppers and stores that are new to the digital terrain. Many businesses previously not online, but forced to go digital in order to survive, lack the vital knowledge and infrastructure to protect their now-online paying customers.
PE: How can firms ensure that they are best equipped to deal with this evolving threat?
AS: Retailers need to get ahead of the holiday (online) crowds and strengthen their fraud protection now. As part of financial obligations to card schemes, merchants must ensure that fraud rates are kept to acceptable levels. If fraud rates exceed the thresholds dictated by Visa or MasterCard, the merchant may be exposed to fines and additional fees. There are three types of fraud solutions typically used by online merchants: Address Verification Service, CVV code and EMV 3-D Secure.
While these are helpful, to be prepared for the influx of online holiday sales, it’s crucial to add in more sophisticated layers of fraud protection. Credorax found that adding a layer of protection with AI technology is the most efficient way to create the lowest fraud statistics for merchants. Self-learning AI algorithms are able to detect fraud in real time, learn from trends, automate tedious tasks, and effectively identify new fraud patterns.
PE: What can companies do to ensure that whilst the focus on security remains, the user experience is still seamless?
AS: It’s crucial to use a payments platform based on next gen technology and designed to deliver continuous, uninterrupted service. User experience reflects how a brand relates to its customers and it is more important than ever to provide consumers with a frictionless shopping experience.’ To ensure a seamless experience for the consumer, merchants should look for a payments partner with no loss of transactions or disruptions, no single point of failure, and two active, fully independent and redundant co-locations syncing with one another instantaneously.
In Europe, compliance with new PSD2 strong customer authentication regulations will be critical prior to the holiday season. Adoption of 3DSecure 2.0 will ensure merchants meet Strong Customer Authentication (SCA) requirements and provide customers a safe, seamless, compliant checkout experience.
PE: Have regular customer profiling methods become inane in light of COVID-19?
AS: Whether it’s in store or online, retailers have long been using data analytics to better understand their customers’ shopping habits, right down to payment methods and patterns. What we’re seeing now is the spike in online activity induced by store closures, is pushing merchants to rapidly adopt more sophisticated profiling methods, which they had previously been slow to integrate.
For retailers who have had to transition from brick and mortar to online, customer profiling allows them to identify who their target customers are and where they are – all important criteria in assessing their purchasing patterns. The data collected provides stores with research to steer customer expectations, even as purchasing behaviours change. Whether consumers return to stores or choose to continue shopping online, customer profiling methods will continue to be a long-term top priority for merchants.