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Is eCommerce Fraud Coming at You Fast and Making You Furious?

posted on: Wed May 17 2017

Online sales of auto parts are growing fast -- about 16% in 2016 compared to 3.5% for conventional retail. And they should reach $8.4 billion in 2017. All of that growth is on top of a 21% increase in 2015 over 2014.

Automotive_Powersports_Fraud_PreventionUnfortunately, online fraud is growing fast, too. In fact, card-not-present (CNP) fraud is projected to more than double, from $10.7 billion in 2015 to $25.6 billion by 2020.

Why the surge? Four factors:

  1. eCommerce Growth. Overall, eCommerce sales have been growing at a double-digit pace for the past 5 years and will continue to grow rapidly for the foreseeable future. More online sales mean more online fraud.
  2. EMV Effect. If you’re an eCommerce-only business, you've likely been impacted from the implementation of EMV in the U.S., also called Chip & Pin, which refers to the chips embedded on credit and debit cards. This technology makes card counterfeiting at point-of-sale much more difficult and costly. The consequence is that fraudsters are shifting to the online channel because EMV does not stop CNP fraud. For example, Australia, France, and the UK all saw online fraud surge in the years after they adopted EMV.
  3. Data Breaches. Nearly 7 billion data breaches over the past decade have “weaponized” data. Today, fraudsters have more information than ever before – email addresses, Social Security Numbers, phone numbers, etc. – that enables them to impersonate legitimate credit card holders.
  4. Mobile Commerce. mCommerce grew by an astounding 45% in Q4 of 2016 alone and now accounts for over 21% of all online sales. At the same time, mobile transactions are 2X more likely to involve fraud, according to The Fraud Practice.

If you’re running an online business in the automotive, powersports, aftermarket auto parts, or performance and accessories industry, you may be seeing this CNP fraud increase in the form of higher chargeback rates and fees, more product losses, and increases in lost shipping expense. After all, craigslist, eBay, third-party auction sites, etc. provide fraudsters with quick and easy ways to turn expensive, high-end accessories, stereos, speakers, and more into fast cash.

What can you do to fight back?

The 6 strategies listed below will help you reduce fraud losses AND lower the cost of fighting fraud, while at the same time helping you avoid false positives (i.e., legitimate transactions wrongly turned down due to suspicion of fraud) that rob you of topline revenue:

  1. Superior Fraud Screening and Analytics. Most merchants rely on standard checks, like AVS, IIN or security code verification. However, these can be easily thwarted by fraudsters armed with weaponized data. It’s best to analyze hundreds of data points per transaction – like device ID, geo-location, IP address, velocity, etc. Using multiple, integrated technologies like these help you do a better job of beating fraud.
  2. Real-Time Data. Your fraud prevention process should be able to check borderline transactions against third-party data like LexisNexis, Whitepages Pro, emailage, etc. in real-time in order to separate good transactions from bad transactions. To keep costs low, however, these checks should be automated whenever possible and only occur on an as-needed basis.
  3. Advanced AI and Machine Learning. Using massive compute and memory resources, Artificial Intelligence (AI) and Machine Learning can spot fraud patterns and connections undetectable by humans. Your fraud prevention systems should capitalize on AI and machine learning to automate insights from Big Data and reduce manual reviews, cut operating costs, and approve more of your borderline—but valid—orders.
  4. Expert Human Intelligence. You’re an expert in your business – not eCommerce fraud prevention. That’s why it makes sense to work with a provider who is an expert in eCommerce fraud prevention and who can apply it to your business. That way, you can respond to adaptable human adversaries in ways that are best for your specific needs.
  5. Chargeback Alerts. Even with the best fraud screening, a fraudulent order can slip through. However, there are now collaborative networks that electronically share information about chargebacks almost as soon as cardholders report them. This makes it possible to intercept “bad” transactions even after they’ve been approved and stop them from shipping out. That way, you avoid product losses, chargeback fees, and lost shipping expenses.
  6. Simple, Affordable SaaS. For some jobs, doing it yourself is not the best choice. Once again, you’re an expert in the automotive industry – not eCommerce fraud prevention. With a Software-as-a-Service (SaaS) fraud prevention solution, you avoid IT integration hassles, minimize cost and complexity, and gain certainty over costs.

Want to know more about beating online fraud in the automotive, powersports, aftermarket auto parts, and performance and accessories eCommerce world? Register for our webinar “Get on the Road to Less Online Fraud” and hear war stories and best practices from leaders in the industry.

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