Online transactions surged in the last year. Ninety seven percent of CEOs know that business model innovation is crucial to staying competitive. Shifting the mindset of fraud prevention from risk mitigation to strategic planning is how savvy merchants can gain an advantage.
To do this, you need to collect quality data. The more you know about the fraud that your business experiences, the better your strategy can be to prevent it in the future. And the right fraud strategy will reduce your chargeback disputes, save you money, and improve your customers’ experience and trust in your product and service.
Collecting data will give you the upper hand on fraudsters
While fraudulent transactions are not new, the volumes are at a greater level than most businesses have seen before. During the pandemic, 25% of ecommerce merchants experienced a significant spike in chargebacks. This is forcing businesses to reconsider their strategy for dealing with them if they want to improve their bottom line.
Gathering the right data about consumer behavior makes it easier to spot if a payment is out of the ordinary. As Milena Shishkova, Principal Product Manager, Checkout.com, explains: “We allocate data about the user and data about the merchant. We use this data to identify behaviour patterns, and whether they are in line with genuine users and transactions. Or perhaps they're suspicious based on the risk appetite of the merchant. So it must be a strategy specific for that type of merchant.”
Importantly, it is not a one size fits all approach. Creating the right strategy will depend on getting the right data so that businesses can block fraud and prevent chargebacks while letting all legitimate customers through. “Merchants that are invested in their payments risk strategy are not only preventing fraud, they are maximizing revenue by making sure their fraud fighting efforts have minimal to no impact on legitimate customers.,” Alexander Eliseev, Senior Product Manager, Checkout.com.
“At Checkout.com, we use data about consumer behavior and the specific merchant to identify patterns and whether they are in line with genuine users and transactions,”
Milena Shishkova, Principal Product Manager, Checkout.com.
Balancing fraud prevention and sales conversion
Effective fraud management is about striking a balance between maximizing conversion, while keeping fraud to a minimum. Wrongly rejecting a payment - a false decline- can be expensive. Merchants lose over $20 billion a year due to false declines and this is before the costs of marketing and customer acquisition are factored in.
There is more to consider, however, than the cost of wrongly blocking a legitimate customer. You also have to remain aware of your chargeback ratio ensuring it doesn't ever get too high so that you can continue operating successfully.
"The card schemes like Visa and MasterCard monitor the level of fraud for each merchant. As the level of fraud goes over a certain threshold, they start imposing fines. The ultimate nightmare scenario in this case, especially in the high risk industries, is not losing money on chargebacks, but losing access to Visa and MasterCard networks completely.," says Eliseev.
So, while you may consider fraud as part of the cost of doing business, there are consequences to letting fraud go unchecked. Keeping the balance between customer conversion and preventing fraud is an ongoing process and a business will need to be prepared to quickly shift their approach when the data suggests this is the best option.
Strong Customer Authentication (SCA) regulations like 3DS may give merchants the confidence that liability has successfully been shifted to the issuer. However, this liability shift does not come into play when the networks are calculating a merchant’s fraud levels. One way or another, therefore, you will have to keep on top of this delicate balance or risk falling foul of scheme rules.
Finding the right payments partner for optimization
Identifying false declines requires meaningful data. You need access to the right data at the right time to power your fraud, chargeback and broader payments strategy. Yet our research revealed that 67% of merchants do not receive fraud and chargeback analysis data or detailed response codes on failed payments.
Having the right data, at the end of the day, lets you better serve your customers — you can focus on conversion and letting as many legitimate customers as possible make a purchase with as little friction as possible. A good risk strategy is what will give you a competitive advantage.
This is what Checkout.com aims to deliver for its customers. Checkout.com’s end-to-end payments platform leverages data to give you a detailed view of every transaction. And it provides you with the tools and advice you need to take action. As Eliseev explains, “We give our customers a toolbox that scales in terms of complexity according to their needs. From simple rules to machine learning models. Customers can mix and match them together to create custom risk strategies.”
A payments partner should be monitoring and adapting their approach to fraud. “This is especially important because fraud is the problem that fights back. It’s always mutating and not something that you can simply set and forget or ‘solve’ once and for all,” says Eliseev.
“With our technology, deep payments expertise, and specialist teams with local knowledge in your markets, we help you capitalize on your data. This allows for smarter decision making to meet customer expectations, cut fraud and capture more revenue,” says Shishkova.
To find out more about how you can use data in fraud prevention to gain a competitive advantage, speak to our team.