News, Education and Events Decoding Digital Payments & Fraud

News, Education and Events Decoding Digital Payments & Fraud

Guest Perspective: 10 Steps to Optimize Online Ordering/In-Store Pickup

Guest Perspective: 10 Steps to Optimize Online Ordering/In-Store Pickup

By Tim Laudenbach, Vice President, eBureau

Guest Perspective: 10 Steps to Optimize Online Ordering/In-Store Pickup In the pursuit of a seamless shopping experience for their customers, many merchants have begun to offer in-store pickup of products ordered online. Consumers love it because they avoid shipping fees, can see and touch products before taking them home and can get their stuff sooner. Because the offering leads to increased customer satisfaction and revenue, making the decision to offer this option is relatively easy. Executing without adding unnecessary risk and costs, however, can get complicated.

Early adopters of the service saw great returns. They also experienced fraud attacks they had never considered. The fact that the e-commerce and in-store systems were often not integrated with one another created gaps fraudsters could leverage. They found they were able to pick up an order even after it was flagged for fraud by the online system and send other people to pick the order up, limiting their exposure.

Here are 10 steps to achieving a stellar customer experience while minimizing business risk.

1. Determine which customers will receive online ordering and in-store pick up benefits. Merchants need to understand the risks of offering this capability to all customers. Guests, customers making their first purchase and newly established members will pose the greatest risk and may require additional data checks or third-party validation. This could include predictive scoring, which pinpoints orders with the highest risk of chargeback or verification solutions that automate order verification to streamline decisions. Other options may include 3D Secure (Verified by Visa and MasterCard SecureCode), email validation, second-factor authentication or even challenge questions through third-party authentication solutions. For established or loyalty customers, their good purchasing behavior may be enough to allow them to bypass or limit the number of fraud checks allowing for expeditious order fulfillment.

Best practice: Establish and validate customer data during account setup and the ordering process. Different customer types should receive different approaches when it comes to assessing risk.

2. Determine who will be allowed to pick up the merchandise. Will the merchant allow only the cardholder to pick up the merchandise or can the cardholder designate others to pick up? Allowing a third-person pickup is a great way to improve the convenience of purchasing a gift or getting that new laptop to a college-age child in another state, but this can also open the merchant to more risk, with fraudsters delagating this task to others to avoid capture. If a merchant decides a designated third party is allowed to receive the goods, additional procedures should be in place to address the added risk and secure the transaction.

Best practice: Request the name, address, email, phone or other associated data points to help reduce the risk of third-party recipients. Also, procedures should include documenting and tracking the person picking up the merchandise and the employee completing the transaction. NOTE: If a merchant allows in-store pickup, it is giving up shipping address as a piece of data to validate against as the address is the merchant’s own store.

3. Determine if orders for store pick up will be accepted through all order channels. Merchants need to determine the riskiness of each channel (Web, mobile, tablet, kiosk or phone) and what validation or verification factors it is giving up by accepting orders each way. For example, in addition to possibly not requiring the recipient’s address, if a merchant accepts a phone order for store pick up, it will also lose IP information, any geolocation information the merchant may have picked up from a Web order or any machine information if it has that type of tool deployed.

Best practice: Consider A/B testing for each channel to determine revenue generated and the exposure to fraud. Also consider requiring more information for some channels, where feasible.

4. Determine how the transaction will be processed. Will the card be processed as a card-not-present transaction online, or, will the payment be processed at the POS during pick up? If the card is charged online, it will most likely go through internal fraud review and scoring systems, however the customer may not be as likely to add additional items to the order once in store. If the card is charged in store, several data points for fraud decisioning may not be available and there is a greater chance for the card to be declined in store, face-to-face with a store associate, though the cardholder identification can be verified in store and there is more opportunity for add-on sales.

Best practice: Authorize the credit card at order submit to ensure the card has enough open-to-buy to purchase the product and to pull in the address verification, card verification results and all other fraud tools for fraud mitigation.

5. Determine when to settle the order. Creating the settlement record once the product has been allocated, but before pick up, will incent pick up of the item and remove open-to-buy from the credit card. This is important and will deter bad behavior from those who place holds on constrained inventory. When merchants wait to settle until pick-up time, the card authorization can get lost or the card may no longer have enough open-to-buy to pay for the item. Who picks up the order should also be considered here.

Best practice : When the cardholder is the one picking up the product, merchants should consider an online authorization to check open-to-buy followed by an authorization reversal. This way, when the item is picked up, the card can be swiped and a signature obtained to complete the transaction. Moreover, this will change the transaction to card-present, shifting the liability (assuming the merchant has an EMV-compliant POS system) and lowering the interchange rate.

6. Determine the payment types accepted for store pick-up orders. The credit card associations view card-not-present transactions with in-store pickup as shipping to a non-AVS verified address. The physical store is the address of record, not the cardholder’s address. This is important if the order moves into disputed status. Also, consider there are banks that issue single-use card numbers to protect customers’ main credit card account number. These card numbers, although tied to the main account, can be difficult to verify and the customer will not have a physical card in his name to present at time of pick-up, if required.

Best practice: Work with in-store employees to verify a cardholder’s identity. Settling the transaction in store as a card-present transaction lowers the risk of disputes due to “did not receive” and “services not rendered” dispute reason codes. Always review contractual obligations on alternative payment options regarding who holds liability on store pick-up orders.

7. Determine what inventory to allow for store pick up and what to reserve. High-risk products will always drive bad behavior and merchants need to decide when certain products should be available for store pick up. This risk can be mitigated by using customer purchasing history. Existing customers or loyalty members will have purchasing history that can enable even high-risk products to be sold. Velocity checks should be in place to keep individuals from reserving all constrained inventory and a store should not allow all inventory to be allocated to card-not-present transactions. Keeping inventory available for in-store shoppers is a delicate balancing act around holidays or the release of a popular new item.

Best Practice: Allocate inventory only after the credit card and existing fraud checks have been completed successfully. There is no reason to reserve inventory if the card does not have enough open-to-buy or if the order is fraudulent. Additionally, determine which items should be available for in-store pick-up and which items should be online exclusives, or when the customer should be encouraged to shop at the store for a particular item.

8. Determine how long the inventory should be held for pick up. After a merchant has pulled an item out of inventory, how long should it be held before canceling the order and releasing the merchandise back to the shelves? The timing can be adjusted, but it should allow for payments to clear and for unforeseen issues on the customer’s side.

Best practice: Allow 3 to 7 days for pick up. If the customer or designated recipient does not do so within this window, the order should be cancelled and voided, if it was authorized, refunded if the order was previously settled. When processing refunds for this purpose, always refund to the method of tender and not a store credit. Store credit can be difficult to track and it exposes the merchant to chargebacks based on non-refund of cancelled or returned merchandise. The length of time allowed for pick up should be clearly messaged to the customer.

9. Determine what is required to release the product. Requiring an order number and a government-issued identity card is acceptable for releasing product. The best defense is to review the documents presented and match those to the information on the order.

Best practice: Do not release merchandise unless the data presented matches that on the order. For an additional layer of security, consider using security lights to validate the authenticity of the identity document. Training employees to be polite and effective is crucial in these situations. They are the first line of defense for protecting merchandise, but also impact the customer experience most.

10. Determine best processes for timely and complete customer communications. The store pick-up concept is worthless if the in-store experience is miserable or beset with delays. Most customers, however, will find a nominal delay acceptable. Customers should be informed of all pick-up requirements when they place the order. Expectations should be clearly established so there is no miscommunication, leading to fewer service-related chargebacks.

Best practice:  Explicitly state requirements and pick-up availability on the Thank You Page, Order Acknowledgement email or Order Confirmation email. Also ensure that store staff can meet the expectations set in those communications.

In-store pickup can be a competitive advantage for companies that fulfill orders this way. For the customer, it reduces wait times for the product and cost by avoiding shipping charges. But, this advantage can become a liability if improperly deployed, creating a negative customer experience, exposure to new fraud methods and chargebacks. If the risks of in-store pickup are understood, they can be successfully mitigated.  Ensure clear expectations have been set with the customer on product availability, when the product can be picked up and what is needed to ensure a smooth pick up process.  This will create a successful and satisfying customer experience.

Tim Laudenbach: 10 Steps to Optimize Online Ordering/In-Store Pickup Tim Laudenbach is a vice president with eBureau’s fraud-prevention team. Previously, he spent 14 years directing card-not-present fraud prevention efforts for Founded in 2004, eBureau leverages patented technologies and big data assets to provide predictive analytics and information solutions.

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