Managing fraud successfully when navigating the digital shift

Tuesday 12 January 2021 08:46 CET | Editor: Alex Guzu | Interview

2020 has seen a rapid and unstoppable shift to ecommerce, but with this has come increased exposure to fraud. Benny Tadele, Head of Merchant Solutions at ACI Worldwide, offers his advice to merchants on how to navigate these challenges.

In 2020 we have seen an extraordinary acceleration towards ecommerce and digital payments. What has been the impact on fraud trends and how is this affecting merchants?

When payment habits change, fraud habits change too. Across ACI’s global merchant customer base we’ve seen fraud attempts increase by 4% in the first half of 2020 and the average transaction value of attempted fraud is up 13%. This is despite the average value of genuine transactions decreasing during the same period. Without the right fraud prevention strategy during this period, a chargeback increase is inevitable.

With unexpected peaks in transaction volumes and merchants busier than ever responding to customer demand, the instinct for many is often to tighten controls to prevent fraud and keep chargeback rates in check. Of course, it’s vital to protect your business from fraud, but the wrong approach to fraud prevention can potentially mean merchants lose more money to the fear of fraud than to fraud itself. An overly strict approach to fraud prevention can introduce unnecessary friction to the payment process and result in false positives – both of which can damage customer relationships and cost merchants heavily in lost sales.

What advice can you offer merchants who are experiencing either an increase in fraud or an increase in declines alongside their increased transaction volumes?

Identifying genuine transactions and minimising false positives is as important as detecting suspicious anomalies and fraudulent transactions. Merchants need to examine their overall fraud Key Performance Metrics alongside their conversion rates and acceptance levels. The right fraud strategy must create a balance between all these metrics to optimise revenue, delight the customer, and yet successfully mitigate risks.

If merchants are not striking this balance, then the first thing they need to do is to understand why – analyse their transaction data (with skilled risk analysts), identify fraud trends and decline (as well as false positive rates) to figure out where the problem lies, and how they can address it.

You advocate that a holistic approach to fraud prevention can support increased sales as well as stopping fraud. Can you expand on this idea in more detail?

Preventing fraud and minimising chargebacks is simply the bare minimum that a fraud prevention solution can achieve and quiet honestly, not the biggest challenge. The real aim should be converted in as much business at possible, but safely.

To give you an example, we recently were asked for help by a Tier 1 merchant whose chargeback rates were stable, but they were experiencing significant declines in acceptance rate (false positives – lost revenue) with their current fraud provider. Working with the merchant, we applied only our positive profiling in the transaction flow as part of the pre-authorisation screening. Positive profiling is one element of ACI’s multi-layered approach and built on ACI’s powerful data consortium. It helps us to identify genuine customers while ensuring a frictionless checkout experience. This process can also help anomalies stand out, so flagged transactions can undergo further scrutiny. In this case, the merchant was able to convert an additional USD 700k in revenue in the first month alone. The merchant’s acceptance rate was improved by one percentage point. Additionally, we were able to reduce the number of Manual Order reviews that can increase the cost base for fraud prevention quite a bit. Decisioning should be automated where possible and manual reviews only executed as last resort. The cost of a manual check is between USD 1.5 and USD 3 depending on the provider. Imagine you could safely reduce these costs by 20-30%.

What additional fraud challenges do you see as causing hurdles for merchants in 2021?

As Strong Customer Authentication (SCA) under PSD2 comes into effect in Europe, two-factor authentication – mostly in the form of 3-D Secure – will become more widely used, having the potential to cause sales disruption for many merchants.

To reduce the friction for as many genuine customers as possible, merchants should be working now to plan and agree their SCA exemptions strategy with their acquirer – as well as continuing to screen transactions for fraud themselves, to ensure that they hold down their fraud rates and, so, qualify for these exemptions.

Of course, consumer shopping habits will continue to evolve, with new buying behaviours, payment, and fulfilment methods. Merchants need to keep a watchful eye on the knock-on effects this will have on fraud and be prepared to adapt strategies to address emerging threats.

What tools and strategies do merchants need to have in place to be prepared for these evolving challenges?

A multi-layered solution, consisting of different mechanisms like machine learning, positive profiling, smart use of third-party intelligence via an orchestration engine to name a few, will give merchants the best chance of striking the right balance between fraud prevention and maximising the revenue intake from genuine customers.

Given the pace of change, merchants need agility in their fraud strategy and a flexible, sophisticated solution in place. Regularly reviewing fraud prevention strategies with external fraud experts will become more valuable than ever. Through the year end and into next year, customer and fraud trends will undoubtedly stay in constant flux, and failing to understand and adapt to these changing trends can be costly.

Learn more about ACI Fraud Management for Merchants here.

This Expert Opinion was published in our Fraud Prevention in Ecommerce Report 2020/2021, the go-to source in securing transactions while offering a frictionless customer journey.

About Benny Tadele

As head of ACI’s merchant solutions, Benny has the responsibility of setting and executing the strategic direction of ACI’s Omni-Channel and eCommerce Payments solutions. He has been in the merchant retail payment space for more than 13 years, holding a range of leadership roles across software engineering, professional services and product management. Benny brings a background in high-performance computations, machine learning, deployment of enterprise-wide solutions and engineering scalable and elastic systems to his role. He works closely alongside ACI’s merchant customers to develop innovative payment strategies.

About ACI Worldwide

ACI, the Universal Payments (UP) company, is a leading global provider of real-time, any-to-any electronic payment and banking solutions. Through our comprehensive suite of software solutions, delivered on customers’ premises or through ACI’s private cloud, we provide real-time, immediate payments capabilities, and we enable the industry’s most complete omnichannel payments experience.

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Keywords: ACI Worldwide, merchants, digital payments, fraud prevention, chargebacks, PSD2, SCA, 3DS
Categories: Fraud & Financial Crime
Countries: World
This article is part of category

Fraud & Financial Crime

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