Fraud is a growing problem for online retailers, which lose between $2.48 and $2.82 for every $1 of direct fraud, according to financial technology company FIS. And the problem is growing as criminals become increasingly sophisticated.
For instance, identity resolution provider Neustar has seen an uptick in account takeovers—where original customer account data is compromised, perhaps resulting from a hack or breach, and that data is replaced by a criminal’s information—says Robert McKay, vice president and general manager, risk solutions at Neustar. “In some cases, these criminals add their details, including callback numbers to mobile devices the criminal controls,” he says.
The vendor has also observed a rise in omnichannel fraud, in which criminals buy an item online and then pick it up in a physical store. “Many retailers lessen their fraud detection techniques for these types of transaction because they view them as less risky,” he says. “These criminals, however, often use stolen credit cards and send delegates to collect the goods at the stores.”
Merchants are working hard to combat this increased level of fraud, spending about 3% to 5% of their revenue, according to a recent BigCommerce report. Moreover, some tools retailers use to combat fraud add friction to the purchase process, particularly when merchants apply fraud detection techniques that incorrectly flag a transaction as fraudulent and deny good customers. “This negative experience could translate into lost sales or declines in repeat customers,” McKay says.
There are some strategies retailers can implement to more effectively combat fraud, he says. For instance, retailers can create profiles of repeat buyers so subsequent transactions from known repeat clients can move quickly through the transaction process. Some retailers that sell high-priced goods may apply additional scrutiny on newer customers by examining the real-time data gathered from the shopping transaction—such as where the phone is located at that moment—with offline corroborated data—such as customer identity information—to gain a greater level of assurance, he says.
While these measures may be helpful, they don’t guarantee the elimination of fraud. “Criminals are quick to adapt—they change their schemes to exploit new or emerging weaknesses in the sector,” he says. “Retailers may have high costs attempting to merely tread water with evolving fraud attempts.”
McKay suggests retailers work with a fraud management vendor, such as Neustar, that specializes in fighting fraud. “These vendors have the value of servicing a wide number of clients that share feedback of suspicious activities they notice,” he says. “They can harness these early signs to continually improve their offerings at much lower costs than these retailers attempting to address these issues internally.”
Neustar, for example, recently helped a Fortune 500 company streamline its new customer acquisition process, which is entirely mobile, while assessing fraud. The company can now determine the legitimacy of the new customer by analyzing data gathered from the mobile device, comparing known data points on this person through corroborated data suppliers and behavioral data, such as geolocation and recent usage of the mobile device to score the possibilities of potential fraud. By doing this, the company is able to assess the risks associated with potential new customers visiting their sites and ultimately identify those who are high risk.
“Preventing fraud shouldn’t mean increasing friction for legitimate consumers,” McKay says. “They should find a partner, like Neustar, that uses authoritative consumer identity intelligence to reduce fraud risk, improve the customer experiences and increase revenue across the enterprise.”