The Fraud Costs for Sellers of Digital Products
All those 1’s and 0’s in digital goods are adding up to a lot of online sales.
- Half of all music sales last year were digital and streaming revenue grew by more than 60%.
- Digital gift card sales are growing at a 40% annual rate.
- 120% growth in global mobile app revenue since 2014.
Unfortunately, wherever there are strong online sales, there are online fraudsters and fraud. This is especially true for sellers of digital products.
Perhaps the biggest reason is that so much of digital content and so many digital goods are intended to be purchased and used on a mobile device. And 60% of overall fraud originates on mobile. Even worse, the percentage of successful fraudulent mobile transactions increased by more than 34% last year.
These discouraging statistics are perhaps why digital goods merchants spend so much time and money fighting fraud. In fact, digital goods merchants:
- Employ nearly 5x more people to fight fraud than physical goods merchants.
- Spend $10.1 million on average per year for in-house fraud and chargeback management.
And then there are the hidden costs of false positives—legitimate orders that only look suspicious but get wrongly declined or cancelled. Just saying “no” is sometimes a natural response. However, that can backfire. In one study, 15% of cardholders said they had had at least one transaction incorrectly declined. The study put the total costs for these incorrectly blocked transactions at $118 billion annually!
The good news is there are some easy and affordable steps that sellers of digital products can take to reduce these costs significantly.
Know who’s really and truly behind the transaction. Use multiple, advanced screening technologies to analyze data about the device, transaction, and buyer—for example, device fingerprint, geo-location, proxy use, IP address, mobile device type, etc. Of course, building that kind of digital obstacle course in-house can be expensive. However, enterprise-class fraud prevention solutions can deliver the level of technology sophistication you need quite affordably. There are ROI tools available to help you calculate the returns you can generate vs. the cost of enhancing your capabilities.
Real-time data and decisioning. If you’re like most digital goods merchants, you’ve optimized your site to process orders efficiently. Fraudsters take advantage of this with bots and automated tools that can execute hundreds or even thousands of fraudulent transactions in record time. A fraud prevention system using data that’s days, hours, or even minutes old can fall prey to these types of rapid fire attacks. The costs involved in even a single event like this—such as chargeback fees, affiliate commissions mistakenly paid, merchant account holds, etc.—could make the impact disastrous.
Slow down fraudsters without slowing down sales. Make fraudsters—who want to strike quickly and move on—spend a bit more time getting to their purchase. It can be a great deterrent that doesn’t deter legitimate customers. For example, require account registration. Or ask for biometric confirmation that the user is a human and not a bot. Or use two-factor authentication to confirm a purchase. A word of caution, however. Be sure your fraud prevention solution doesn’t slow down your shopping cart response during checkout. A small 2-second delay in load time can result in abandonment rates as high as 87%.
You’ll find more best practices for fighting fraud in the eBook “Fraud In A Digital World”. Download it now to get insights and top strategies for beating fraud attacks, reducing fraud prevention costs, and avoiding false positives that cost you sales.