Merchants' Fraud-Fighting Wish List In The Nick Of Time For The Holiday Season


As we enter the holiday season, merchants of all sizes are preparing for what many consider the biggest time of the year for introducing new products, engaging with customers and meeting annual quotas. This is true for traditional retailers and online merchants across the globe.

The excitement that comes with the holidays is also true for today’s fraudsters targeting e-commerce. Fraudsters are using more advanced, cutting-edge techniques than ever before, constantly evolving their networks and methods. Nowhere is this more evident than in the United States, where e-commerce retail sales are projected to exceed $400 billion this year. Furthermore, 77% of U.S. merchants are now selling merchandise online. This type of growth and shift toward the online market is allowing fraudsters to zero in on card-not-present, sometimes called customer-not-present, fraud. CNP fraud represents a huge expense for merchants and can immediately remove the joy and success from the holiday retail season.

CNP fraud is changing the retail industry. Historically, organizations would account for a certain percentage of fraud to occur each year and write it off simply as a loss. Today that is not possible, as the number of cybercrimes and cyberscams continue to grow exponentially. Javelin Research (via Mobile Payments today) is predicting that CNP transactions will increase, eventually to four times the number of point-of-sale purchases.

This growth of CNP fraud is in large part a result of the adoption and rollout of the EMV chip-enabled technology, now found in most credit and debit cards. EMV makes it hard for criminals to create counterfeit credit cards, deterring fraud at the register but pushing fraudsters to online sales. Aite Group predicts that by 2020, total losses due to CNP fraud in the United States, online or otherwise, could reach $7 billion.

Organizations across the entire spectrum of the retail chain are fighting back. This includes merchants, credit card companies, payment processors and individual consumers. Regardless of where you sit within the retail and payments ecosystem, collaboration among all parties is critical to thwart fraud. Below are the five key elements that should be on all chief security officers' fraud wish lists as they brace for the holiday retail season:

1. Advanced artificial intelligence (AI) and machine learning (ML): Introduction of AI and ML technology into fraud practice is only as good as the data that it has to analyze. By automating the analysis of data with AI and ML, organizations can reduce manual reviews, cut operating costs and approve more online orders, which should improve their bottom lines.

2. Technology: Merchants of all sizes have embraced technology that leverages multiple and integrated technologies to collect and analyze hundreds of data points per transaction to detect and thwart fraud before merchandise is distributed. Some of these tools include device fingerprinting, IP proxy detection, geo-location and transaction and custom scoring.

3. Real-time data: The introduction of big data allows organizations to check borderline transactions against third-party data in real-time to separate the good transactions from the bad. Organizations that can identify where fraudsters are committing crimes are better positioned to suppress those orders and avoid fraudulent activity.

4. Human involvement: Technology is the primary platform for combating fraud; however, it is human involvement that allows organizations to stay ahead of fraudsters. Human involvement is critical to keeping track of the latest fraudulent technologies and practices and fine-tuning fraud systems to be most effective for individual businesses.

5. Chargeback Alerts: If you have been hacked, not all is lost. Technology allows merchants to receive alerts that allow them to intercept dubious transactions even after they’ve been approved so you can avoid chargeback fees.

Implementing these five elements will provide the foundation for a holistic fraud strategy for both seasoned and newbie merchants to the e-commerce and e-payment world. As traditional brick-and-mortar and e-commerce startups race to meet this new paradigm shift, many are struggling from a lack of domain expertise, access to historical fraud-related data, as well as technology infrastructure. This lack of preparation and resources is making organizations vulnerable to fraud.

As retailers brace for the holidays, they must also account for the hidden costs of fraud. Outside of lost merchandise and delayed chargeback losses and associated fines, organizations also lose countless amounts of time manually reviewing potentially fraudulent orders and activity. In addition, organizations also run the risk of damaging their brand loyalty. Today’s organizations must balance a frictionless user experience and adequately protect themselves from fraud.

That leaves merchants and the entire fraud prevention ecosystem on a constant watch to improve their services in the face of fervent competition and constant change. Organizations that can apply real fraud intelligence -- which includes AI, machine learning and human intelligence -- are much better equipped to combat fraud.

As the holidays approach, make sure to address today’s fraudster-fueled market with a proactive strategy that will not only protect your organizations’ bottom line but will help fuel more orders and increase the growth and brand loyalty of the entire organization.