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Beating card-not-present fraudsters while keeping happy customers

Vice President | Glen Goldstein
Blog Post06/23/2017
Business Fraud and Identity Management
Woman looking at computer screen

Online fraud is poised to overwhelm merchants at a time when they’re focused on improving the online shopping experience and converting more customers. While ecommerce grew 17% year-over-year in Q4 2016, mobile commerce grew 44% according to comScore. Not surprising, merchants are clamoring to capture online customers and fraudsters are going along for the ride. In fact, Juniper Research estimates that in the next five years, online transaction fraud will more than double from $10.7 billion from 2015 to $25.6 billion in 2020, according to their Online Payment Fraud Whitepaper, 2016–2020. The challenge for retailers in this environment is to convert as many customers as they can while implementing seamless and mostly hidden processes to fight fraud.

The future of fraud is online: Card-not-present
Online fraud is growing at a time when point-of-sale fraud is falling because EMV Chip Cards are a double- edged sword for merchants. They’re great for fighting point-of-sale fraud, but ineffective for card-not-present (CNP) transactions. In a recent report, The Future of Cardholder Verification Methods: Beyond Pin and Signature, Javelin estimates the EMV Chip Card rollout in the U.S. is expected to cut point-of-sale fraud by 30% to 1.6% of consumers, from 2.3% today. At the same time, the report points out that CNP fraud will increase by 30%, from 2.4% to 3.1% by 2019.

It’s happening to you
The growth in online fraud reminds me of an Adobe video from a couple of years ago, Click Baby, Click, that brilliantly illustrates how a merchant is fooled into thinking sales are skyrocketing because of a baby playing with an iPad. While focused on marketing technology, I love this video because it demonstrates the impact of accepting every transaction as “real” in a frictionless, mobile commerce environment. It also illustrates the total cost of fraud as it trickles across the organization and throughout the supply chain. While a funny video of a baby single-handedly resuscitating the encyclopedia industry with thousands of accidental orders is ludicrous, it speaks volumes for merchants that lack a modern, sophisticated fraud detection system.

Moving toward an integrated fraud prevention and identity management system rather than siloes of point-solutions enables you  to provide a smooth customer experience while protecting your bottom line.

The stakes get higher for merchants
Not only is the risk of online fraud growing, with the
October 2015 fraud liability shift for the major payment networks, merchants who don’t implement EMV-compliant terminals will be responsible for certain types of fraud. As a result, the processor will charge the full price of the transaction to the merchant should a chargeback occur. With the Boston Federal Reserve reporting that CNP fraud accounts for 25% of global fraud losses and 45% of U.S. card fraud in their Mitigating Fraud Risk Brief, February 2016, merchants face a large, growing and expensive problem. Not surprisingly, the cost of online fraud is increasing. Year-over-year change in costs per dollar associated with online fraud increased from 9 to 12% in 2016, according to Business Insider’s The False Declines Report, July 2016.

Fighting fraud without creating customer friction
Fighting fraud while providing a great customer shopping experience is always a balancing act; however, for mid-sized retailers, who’ve depended on payment processors or card issuers for protection against fraud, the risk of erring on the side of converting sales at the expense of increasing fraud is the highest. To meet the increasing pressure to deliver a smooth customer experience while mitigating fraud risk, retailers can use a mix of automated and manual review workflows. This includes using technology enabled solutions to mitigate risk, loss and liability, allowing the merchant to confidently say yes to customers while quickly identifying suspect transactions.

How do I prevent fraud while making good customers happy?
The good news is that it’s possible to simultaneously let good customers through and keep your CNP fraud defenses strong—balancing risk with customer experience. Moving toward an integrated fraud prevention and identity management system rather than siloes of point-solutions enables you to provide a smooth customer experience while protecting your bottom line. Find out more in this recent post on how to prevent evolving fraud and identity theft.

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