Just as today’s e-commerce payments ecosystem is increasingly dynamic, so too is the fraud landscape that threatens it. Fraud techniques are ever-evolving, and online criminals are growing more sophisticated in their methods and capabilities. As a consequence, online merchants are forced to spend as much as 23 per cent of their operational budget on fraud prevention and chargeback management. As the e-commerce industry becomes increasingly aware of the costs of fraud, merchants across the board are looking for more sophisticated fraud prevention solutions.
But merchants shouldn’t have to shoulder the responsibility of understanding and managing fraud alone – it’s a distraction from their core business, especially because staying ahead of clever fraudsters takes tremendous expertise and effort. Payment Service Providers (PSPs) that offer fraud protection, including chargeback guarantees (reimbursements to merchants for chargebacks related to transactions that were wrongly approved), have a significant opportunity to provide additional value and build stronger relationships with their clients. Merchants recognise that there is a massive upside to being able to reduce their chargeback rate without the need for manual transaction reviews - increasing their top-line revenue while maintaining a superior customer experience. Between buyer’s remorse and claims of services or items not delivered, both fraudsters and good customers can cause high chargeback rates that can prove quite costly to merchants.
In fact, a portion of chargeback fraud today is otherwise known as "friendly fraud," which refers to the misuse or abuse of a merchants’ policies by good customers on a platform. When combined with the concerted efforts of bad actors to abuse a merchant by finding loopholes in the system or vulnerabilities around the enforcement of merchant rules and policies, these behaviours can wreak havoc on a business’ bottom line. For small merchants, just two chargebacks per month can have an enormous economic impact.
Addressing merchants' fraud
As you compete for merchants’ business, offering to cover chargebacks serves as a major differentiator both during the sales cycle and in the long term to entice and maintain customer loyalty. A chargeback guarantee offers an effective solution to a longstanding problem by taking both financial risk and operational hassle out of the merchants’ hands. If you only offer traditional fraud solutions without chargeback protection, you will find yourself at a disadvantage given the complexities of today’s buyers’ expectations and market threats. Moreover, if you’re able to provide a more holistic view of the merchant’s customer ecosystems, through their fraud expertise and understanding, it will only further benefit merchants and help them to preserve the sanctity of their customer ecosystem.
To effectively address merchants’ fraud and chargeback protection needs, fraud prevention efforts must focus on understanding in a nuanced way, how to protect merchants’ platforms from end to end. As the middle-man in the payments process, you should look to fraud prevention partnership solutions that address the following fraud prevention limitations for merchants:
Access to data: Historically, the inability to offer chargeback protection stems from general inaccuracy due to lack of exposure to data. For example, if a merchant uses multiple PSPs, each PSP works in silo, only able to see a subset of transactions processed by that specific merchant.
Types of datasets: The types and variety of data sets (richness of data) fed into their model is a determining factor when it comes to providing effective chargeback protection. A narrow data set affects the ability to be accurate. This is especially true when merchants need to protect their platforms beyond just the point of transaction - protecting loyalty point programs, account details, etc.
Understanding the value
Seeing the big picture: Even with access to data and different types of data sets, it is the technology and experience behind it that enables you and your fraud prevention partner to provide merchants with a holistic picture. For years, legacy fraud systems and rules-based solutions have focused on the point of sale, neglecting the larger picture of the customer journey - including sign up, coupon redemption, loyalty point usage, and more - the vulnerabilities before a customer makes it through to checkout.
Merchants understand the value of protecting their customers at the point of checkout. However, the understanding of other vulnerabilities along the customer journey is still less known and actioned by many brands. Protecting the customer journey means understanding each of the touchpoints and interactions a shopper may experience prior to the point of transaction. This ranges from the moment a customer navigates to a merchant’s site, to the point at which they log into their account or try to redeem any reward points they may have. Merchants must better protect their customers by more proactively protecting their accounts - limiting the opportunity for fraudsters to commit account takeover (an attack-type that increased by 45 per cent in 2018), and leverage stolen customer credentials. By better protecting their platform against such attacks, merchants can ensure increased customer lifetime value (LTV), and bolster brand reputation.
Furthermore, amid regulatory changes around payments and data security, such as GDPR and PSD2, the ability to detect and prevent fraud throughout the entire customer lifecycle becomes even more valuable in order to block various types of fraud while simultaneously ensuring compliance requirements are met. In this regulatory climate, and as the number of fraudulent e-commerce transactions against retailers rises, smart fraud prevention that taps global merchant network data will continue to be a consistent need. Knowing this, if you focus on value-add strategies in the fraud realm you can strengthen your merchant relationships and catapult themselves to the front of the competitive pack for future growth opportunities.
Michael Reitblat, Co-Founder and CEO, Forter