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Best Practices for Fighting Holiday Fraud

posted on: Mon Dec 11 2017

We shared sales and fraud trends from Black Friday and Cyber Monday in our blog post, Comparing 2016 and 2017 Holidays: Trends in Naughty and Nice. Overall, the trends that we saw—higher sales and much higher fraud—were in line with previous projections for this 2017 holiday season. A few things caught our attention:

  • Mobile app and mobile browser sales increased dramatically. There were triple digit and double digit increases in mobile channel sales, making mobile the hottest news this holiday season.
  • The growth rate of fraud attacks exceeded the growth rate of sales. Not only is fraud increasing, it’s increasing faster than sales. For example, on Cyber Monday, desktop fraud attacks increased at a rate 3x higher than sales increased.

The impact for online businesses is clear. There are a lot of sales to be had this holiday season, but those sales carry a higher risk of fraud. How can eCommerce operations capture as many sales as possible, without getting hit with an avalanche of chargebacks after the holidays?

Here are 8 steps you should be taking to fight holiday fraud:

  1. Analyze your data to determine normal behavior. Data from last holiday season—supplemented with updated data from this year—will help you identify the characteristics of legitimate orders, so you can automate their approval, avoid false positives and maximize sales.
  2. Strategize abnormal buying patterns for the holidays. The behavior of fraudsters who were able to steal from you last year can help you better define risk thresholds to stop those attacks this year. Know which triggers to set up so you know which orders to escalate for review or decline outright. Identify the products and services most targeted for fraud and plan how you’ll respond.
  3. Determine your KPI benchmarks. Every business has different growth plans, sales strategies, and risk parameters. Use data to make informed decisions about how much risk you’re willing to accept. For example, will increasing ticket total thresholds from $100 to $400 before they trigger a manual review expose you to too much fraud? Or will the sales payoff exceed any potential losses? Should you relax rules on last-minute mobile orders for overnight shipping? Or set up alternate processes? By having your KPI benchmarks defined, you can respond confidently and quickly to fast-changing conditions.
  4. Update your fraud rules and thresholds for risky orders. Make sure your fraud scoring, fraud rules, and automated processes are tuned so they align with the decisions you’ve made about what is and is not acceptable risk. Having a great plan without the requisite execution will cause problems.
  5. Place multiple layers of technology in the way of fraudsters. While always a best practice, this is especially important with fraud attack rates being so much higher during the holidays. Put checks in place throughout the buying path, for example, during account registration (e.g., geo-location), before authorization (e.g., velocity checks), at authorization (e.g., risk scoring), and post-authorization (e.g., Chargeback Alerts). This provides more opportunities to identify fraudsters, without delaying any single aspect of the user experience.
  6. Train fraud analysts on holiday trends and train on a consistent basis. Make sure your fraud analysts and review agents know the latest news. For example, if data from Cyber Monday is revealing new fraud tactics, make sure all your analysts know about them. Think about any impacts on sales and marketing, too. Communicate with frontline customer service agents so they’re up-to-date. Finally, don’t let your guard down after the holidays. For most online businesses, January and February are the months with the second highest eCommerce sales.
  7. Review, analyze, and update as needed. Data is key to great fraud prevention and fresh data is best. Continually review your transactions, manual review rates, exceptions, declines, etc. to make sure you have the most up-to-date characterization of “naughty” and “nice” orders, and how you’ll respond to them. Fraud is constantly changing. You need to constantly change, too.
  8. Partner with your data team and/or fraud solution provider. Seek insights from those outside the fraud prevention team. Experts can offer a fresh perspective, provide insights from other industries, and be a second set of eyes to make sure you have all the bases covered.

This is a follow-up to the blog post Comparing 2016 and 2017 Holidays: Trends in Naughty and Nice. Stay tuned, because we’ll be following up again with more data from Green Monday. In the meantime, check out the eBook "Beat Those Post Holiday Chargeback Blues" to find out how to protect yourself against holiday chargeback fraud.

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