New Year, New Chargebacks

30-Jan-2018

For many, the new year brings a fresh start, a clean slate. Unfortunately, many merchants without a fraud strategy in place soon will realize they were on the naughty list during the previous holiday season, becoming a victim of a nasty side effect of fraud: chargebacks.

Chargebacks are a huge issue for merchants after a busy holiday retail season. And many merchants won't know if they were victims of higher fraud during the holiday season until the end of the first quarter of 2018. By the time chargebacks get fully reported for the 2017 holiday season, merchants are 60 to 90 days or more down the road.

Not only will they have missed the chance to stop fraud, but an audit to identify the cause of that fraud will be expensive and difficult. In fact, it may be impossible to learn enough from those aged transactions to prevent a future attack by the same methods. In addition, the lag in chargeback reporting means companies' financial reports will show a distorted picture of performance. Those great sales and profits seen in December could turn out to be ugly losses in February, March and April.

Five tips for improved fraud strategies

For businesses seeking the best ways to protect themselves in 2018, there are many ways to stay a step ahead of fraudsters to curb chargebacks and remain fraud free throughout the entire year. Read on for five tips for merchants who are evaluating their fraud strategies this year.

Maximize the use of artificial intelligence (AI). To truly capitalize on all that AI and machine learning have to offer, fraud solutions must implement a combination of four pillars: patented, proprietary technology; vast amounts of data; AI to make sense of all of that data and to identify anomalies; and finally, human intelligence. AI by itself is not enough – the key is the addition of the human element to calculate specific tolerance and risk levels for each specific business to provide real intelligence for retailers.

Identify type of mobile device being used. The first rule in fraud detection is the simplest, and one that all merchants should already be able to determine. iPhones, iPads, Android devices, etc. all have different fraud profiles. Knowing the type of device allows you to screen accordingly.

Reduce manual reviews. Manual review of orders should be a last line of defense when fighting online fraud. The process is slow, resource intensive and not scalable for company growth. In addition, making your customer wait for approvals can cost you sales and brand reputation. Automating the transaction review process can eliminate costs and speed up order acceptance while maintaining a high-quality customer experience.

Use order linking and personas. Capabilities like order linking and personas use hundreds of variables to construct a definitive link to online purchase behavior ‒ either directly or indirectly ‒ to help reveal fraudulent activity.

Optimize rules. Every business is different, and there is no universal setting for rules within your fraud platform. Your fraud platform should be able to uncover hidden insights and optimize performance of the fraud platform itself. After reviewing specific business goals and objectives, merchants should make sure their fraud platform conducts an analysis of currently active rules and their overall effectiveness to best make recommendations, along with an assessment of future performance gains.

While merchants work to prevent fraud and its side effects, they also must ensure their systems aren't stopping legitimate sales in the process. The goal of most online (and brick-and-mortar) businesses is to grow revenue, increase market share and maintain an expanding base of happy customers. Expanding into new markets, adding new products or reducing manual reviews can help or hinder growth, depending on what fraud strategy is behind each goal.

Some businesses think that blocking transactions from one particular region, or stopping sales via one specific channel that has higher fraud rates than the rest, will allow them to sidestep fraud. But this thinking will hurt them in the long run. Merchants need to find a solution that gives them the confidence to sell more products to more people in more places and expand revenue opportunities – mitigating fraud, but boosting overall sales.