News, Education and Events Decoding Digital Payments & Fraud

News, Education and Events Decoding Digital Payments & Fraud

How to Ruin Christmas for Fraudsters

5 Ways to Ruin Christmas for Fraudsters

By Dustin Clinard, Managing Director, Risk Ident

The festive shopping season is now reaching its crescendo with U.S. e-commerce merchants having already enjoyed a blistering Black Friday weekend. Adobe Analytics reported that American consumers spent $19.62 billion online over the five-day period from 23rd November through 27th November, 15 percent more than was spent during the same timeframe last year.

However, the revenues generated on Black Friday are small change compared to the sales potential of the full festive period. It’s therefore important that merchants not only ride the peak sales waves, but also maintain a steady strategy that will maximize sales throughout the holiday season. Yet maintaining stability in a period of frenzy is difficult, and no one knows this better than a fraudster.

For fraudsters, the lure of November and December shopping is irresistible. The spike in online visitors and the unpredictable spending patterns of regular customers are the perfect disguise, making it harder for merchants to sort legitimate spending behavior from fraudulent activity.

Picking the bad transactions out of a turbulent sea of good business is tough, and wrong decisions either result in rejected customers or mounting fraud costs. But by correctly identifying suspicious behavior, users and devices as early as possible in the transaction process, merchants can protect revenues and make sure their online attackers don’t profit this Christmas or in Christmases to come.

Here are Risk Ident’s five golden rules to help e-commerce merchants stop fraud in its tracks throughout the holiday season:

1. Identify and verify

During peak sales periods, it is even more important for retailers to ensure that their customers are genuinely who they say they are. Implementing identity verification and transaction authentication protocols can help retailers ensure that the purchases are legitimate, and the shopping account is truly under a genuine customer’s control.

2. Marry machine learning and human intelligence

Identity verification is not always enough on its own to tackle fraud—retailers need to ensure they monitor their customers’ buying behavior as well to spot any suspicious activity. During peak sales periods, retailers are increasingly recognizing the benefits of artificial intelligence (AI) to help achieve this. AI is an invaluable weapon that helps analyze multiple transactions and data points simultaneously, but it cannot be relied on to correctly spot fraud and act on its own. Incorporating the insight of expert human fraud managers into the process can help retailers correctly analyze the findings of the AI system to ensure optimum vigilance against fraud.

3. Hunt for devices and locations

To maximize their gain in a short timeframe, fraudsters will often use the same device—laptop, tablet or mobile—for multiple illegitimate transactions. Identifying when a single device is being used—or whether its location is being masked—when making purchases across several different accounts can help retailers locate the source of fraudulent activity, so they can take steps to stop more illegitimate transactions occurring.

4. Cut through the noise to spot account takeovers

Customers’ spending patterns change vastly from their usual behavior during the holiday season—they will purchase items they wouldn’t normally consider, and their shopping baskets will be significantly larger. This can make fraudulent activity much harder to spot with traditional automated algorithms and rules. Machine learning technologies are ideal for cutting through this background noise, enabling retailers to identify a combination of suspicious factors that suggest an account is being used by an unauthorized person.

5. Reduce the risk of false positives

No single customer data point can be used on its own to accurately spot fraudulent activity. It’s important for a human fraud manager to analyze all sources of information together to create a complete picture of transaction activity. This way, “good” purchases can be correctly sorted from “bad” ones, allowing retailers to reject illegitimate transactions, while accepting genuine ones, ensuring a frictionless experience for customers.

Dustin Clinard is managing director of Risk Ident.  Risk Ident is a software provider that offers antifraud solutions for European companies within the e-commerce, telecommunication and financial sector. The company uses data analytics and machine learning in solutions for payment fraud, account takeovers, fraud within account and loan applications.

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