November 8, 2016
By Liron Damri, COO, Forter
The holidays are just around the corner, and consumers and retailers all over the country have already started gearing up for this busy, exciting and important season. There’s another group that’s planning their campaign for the coming months, though, and unfortunately their agenda runs directly counter to everyone else’s. Fraudsters are already plotting how best to exploit the holidays for theft.
There are three things that online retailers need to know about fraud this holiday: It’s rising, it’s mobile, and it might hurt your good customers.
The Rise of Online Fraud
If you’re in online retail, or involved in the payments industry, you’ll be aware that online fraud has been rising over the last year. This hasn’t been a surprise—but the scale of the attack increase has exceeded expectations.
It was always probable that online fraud would rise after the EMV liability-shift date. Fraudsters keep a canny eye on their personal bottom lines, and they were as aware as any payments professional that card-present fraud was about to get harder. That being the case, it made sense that they would move to get ahead of the curve—in fact, they moved faster than the card networks.
In just the two quarters following the October deadline date, the Global Fraud Attack Index reported that online fraud attacks in the U.S. rose 26 percent. One of those quarters was the critical holiday period—during which the fraud rate usually drops, as fraud attacks are diluted in the flood of genuine shoppers. Last year, instead of dropping, it rose.
A year later, more merchants have made the switch to EMV, and more fraudsters have moved online. The festive season, always tempting to criminals, will attract even more of them online than usual. This holiday season, merchants will have to be more careful than ever to ensure that they’re not letting criminals slip through their checkout to steal their profits.
Fraud Going Mobile
Last holiday season, one ComScore commentator memorably declared that “mobile is eating brick-and-mortar retail.” A recent report from Aite Group found that online commerce market growth is increasingly dependent on mobile retail commerce. E-commerce alone is growing, but slowly—whereas mobile is just taking off. Unfortunately, as Forrester has reported, “mobile offers fraudsters more options than any other channel.”
This holiday season, it’s likely that more fraudsters will start exploring the opportunities that mobile presents for theft. Retailers who aren’t tracking fraud by channel need to start doing so at once. Retailers who are must work to track and understand holiday mobile norms for both good and bad customers.
Relying on e-commerce knowledge and expectations for mobile won’t be enough; the data available through mobile versus web is distinctively different, and so are behavioral patterns. It’s time for a mobile-first approach to mobile fraud prevention—sooner rather than later.
The Customer Experience Cost
What online merchants have to guard against is letting their natural desire to protect against fraud overwhelm their focus on the customer. Battening down the hatches is bad for business. Instituting stringent fraud prevention policies stops loss from one direction (fraud) but invites it in another (lost sales). Inevitably, some merchants are going to make this mistake this holiday season—and they’ll pay for it with lower revenues.
Instead, retailers need to aim for a combination of speed and a very high level of accuracy. Speed, which requires automating as extensively as possible to avoid the delays created by manual reviews, will promote a swift, seamless shopping experience. Truly accurate fraud prevention isn’t risk-averse. It provides an excellent customer experience, because good customers are not unfairly caught in the net and rejected, or made to wait or answer further questions. It also stops fraud effectively, adapting quickly to new fraudster techniques and patterns.
To stop fraud without paying for it with poor customer experience, retailers need to be intimately aware of all aspects of their website and how customers interact with it, the payments ecosystem and how fraudsters try to exploit it, and how to put all that together to block fraud while providing a frictionless experience for good customers.
Liron Damri is the chief operating officer for Forter, which provides fully automated guaranteed approve/decline decisions for every transaction in real time. Damri co-founded Forter after leading PayPal’s risk organization in Tel Aviv. Prior to that he was the head of operations at Fraud Sciences, where he was responsible for behavioral analytics.