Issue: As eCommerce sales grow, so does the number of online frauds. The dollar losses due to online fraud have risen to a number exceeding 3.6 Billion, but the percentage of fraud to revenue has stabilized at about 1.4% (See Chart from MarketingSherpa) from 2006 – 2008 because of the improvement in technology, as well as better online fraud preparedness by merchants.
Solution:
1. Detection – Credit Card: AVS (Address Verification Service), CVV (Card Verification Value) Code. All ecommerce systems nowadays should have mechanisms to reflect real-time AVS and CVV results after an order is submitted. Tools such as Maxmind are available to provide a fraud score that can help merchants determine the riskiness of an order. The scores are determined by factors such as:
- Locating the buyer’s computer IP (Internet Protocol) address and matching with the credit card’s billing address/city
- Enhanced proxy detection to make sure buyers are not trying to hide their own computer from detection
- Identifying the issuing Bank BIN (Bank Identification Number) Check
- Frequency of chargebacks issued with a particular credit card history
Third Party Payments though mediums such as Paypal can also minimize risk by verifying and linking up accounts with both buyers and sellers’ checking/saving accounts. New Guidelines & Technology from Visa/Mastercard are created to further ensure authentic transactions:
- PCI (Payment Card Industry) Compliance – A set of guidelines for online merchants to follow in order to ensure the hosting environment, ecommerce system, operation procedures, and logistics are all compliant in order to minimize the chance of being hacked-in or leaking of sensitive information.
- Mastercard SecureCode/ Verified by Visa – New technology that allows a customer to input a secret code before submitting a transaction. It also protects the merchants who offer this technology on their websites from liability if there is a fraud.
2. Prevention: To prevent frauds, a merchant must develop a fraud prevention policy and process using all the detection tools available. These tools have to be combined with existing experience learned in combating online fraud to maximize the policy’s effectiveness. Polices and processes that are too strict or too lenient will either yield a loss of good orders or high fraudulent charges.
2. Management: As chargebacks occur, in addition to fighting them with supporting policy and documents, merchants also needs to learn from it (whether the case is won or lost) in order to adjust the prevention policy/process for the future.
Opportunity: International Sales account for 10-20% of revenue. The number one reason that merchants are reluctant to accept these orders is because of the “Fear of Fraud”. Therefore, if the anti-fraud policies and processes are setup correctly, there will be more potential to expand this channel for sales growth.
Source: MarketingSherpa
Written by Edwin Wai