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How 5 Digital Products Merchants Beat Fraud and Boosted Sales

posted on: Thu Dec 21 2017

Are you a seller of digital products? Are you experiencing higher rates of card-not-present (CNP) fraud?

Welcome to the club. Digital goods merchants typically get hit with more fraud than online business selling physical goods. There are a number of reasons for this:

  • Expectation of immediate delivery leaves little or no time to review borderline orders.
  • Less data available for fraud screening can make it harder to detect fraudsters.
  • Higher incidence of mobile transactions, which are more likely to involve fraud (60% of all fraud originates on mobile).
  • Balancing user experience with risk can mean fewer fraud checks in order to streamline the buying process.

The digital products merchants listed below were battling these issues, too. They began looking for ways to reduce fraud and ultimately found a solution that worked for them.

Jagex is a leading online game developer with a global reputation for creating hugely popular, free-to-play games. Fast-changing fraud tactics, high rejection rates, and increasing competition for development resources caused Dave Parrott, Fraud Manager at Jagex, to seek a solution that would allow him to rapidly respond to fraud, while reducing decline rates. “We started using rule writing to make fine-grained modifications to quickly stop new fraud attacks. Next, we [went] to work reducing our rejection rate. All the data I was seeing suggested we were missing out on sales.” Leveraging fraud scoring, Dave was able to quickly cut their rejection rate by 50% with no increase in fraudulent charges. “Altogether, that equals almost 1% more net credit card revenue each year” notes Dave.

ClickBank specializes in digital product purchases with over 30,000 transactions a day. They sought a fraud prevention solution with a high level of automation and the customized rules engine in order to minimize operational impact. “[Automation] has helped up us take control of our risk. We can handle 30 thousand transactions a day with just a single person managing the entire process” says Tom Denig, Director, Risk Operations at ClickBank. Using advanced technology was important to increasing efficiency. Capabilities like custom rules setting, orders to-be-reviewed, and priority sorting help streamline work-flow. And unique technology is also key: “Even if a transaction goes through with what turns out to be a stolen card,” reports Tom, “Dynamic Scoring will track that card for 14 days and alert us.  So, we may not be able to recover the digital goods, but we can avoid the chargeback costs and fees.”

Webjet is Australia and New Zealand’s leading online travel agency. With travel as one of the top targets for fraudsters, they became interested in enhancing their fraud prevention capabilities. “We wanted a partner with great performance, reporting and data analytics that would enable us to more quickly spot fraud trends so we could respond right away” explains Tim Wagg, General Manager Customer Operations at Webjet.com. They ran a pilot program to evaluate providers before choosing a SaaS solution. The impact has been significant, with Webjet’s chargeback percentage now 98.4% lower than the industry average, says Tim: “Our chargeback percentage of Total Transaction Volume is 0.03% compared to an Australian Online Travel Services benchmark of 1.9%.” At the same time, sales are up and manual reviews are down. “We’ve achieved an 83% reduction in the number of bookings flagged for review,” notes Tim, “[and] a 50% reduction in bookings declined for fraud validation.” The result has been a 6% increase in the percentage of bookings accepted.

TickPick is a no-fee ticket marketplace that saves its customers 10% to 15%, offers a patented ticket grading algorithm that grades the quality of every ticket, a name-your-price tool, and other great advantages. Sales were going great and their in-house fraud solution was performing well enough, but TickPick co-founders, Christopher O’Brien and Brett Goldberg, saw the need to upgrade their fraud prevention capabilities. “If you’re going to be in this industry, you need strong fraud prevention” says Brett. “When we were smaller, we were kind of under the radar. We knew as we got larger, we would definitely become a target for fraudsters.” Unlike many sellers of digital goods, Tick Pick conducts manual reviews. Brett explains: “We believe the human element is really critical. [Our solution] makes it possible for us to actually review more orders—which is what we want to do—but more efficiently. That has allowed us to scale from $25 million in revenue to $50 million in revenue, with expenses holding steady in a straight line.” At the same time, Tick Pick reduced their chargeback rate by 50%.

SaferVPN is a fast-growing Virtual Private Network service. However, the company started to see an unsettling rise in the number of monthly chargebacks, with fraudulent activity accelerating over a fairly short period of time. At first, they tried increasing the number of manual reviews, but that quickly became untenable. “When we hit a sky high record – more than quadruple our usual number of chargebacks in one month – we knew it was time to make a change,” explains Bar Gidali, Fraud Analyst at SaferVPN. Their payment processor recommended a third party fraud prevention solution. “We’ve reduced our monthly chargebacks by 65%. The platform helps us to automate the process with customizable, pre-defined rules. We’ve gone from more than 100 reviews a day to maybe 30. And as we add more and more automated rules, we expect that number to decrease even more.” Even with the dramatically reduced workload, SaferVPN has seen a 65% reduction in chargebacks with no slowdown in sales.

Fraud prevention for digital products is a highly-specialized endeavor. Take a deeper dive into the causes and cures of CNP fraud as it pertains to digital products. Download the eBook “Fraud In A Digital World” for information and insights, including best practices to fight digital product fraud.