The growing popularity of no-transaction fraud

What is no-transaction fraud and why is it challenging to detect? 

As opposed to payment fraud, which occurs at the checkout stage, with the fraudster actually performing a transaction on the merchant’s website or app, no-transaction fraud happens earlier in the buyer’s journey. Although no-transaction fraud doesn’t result in a direct purchase via the checkout process, it can cause substantial damage to the business.

Examples for such fraudulent activities include refund requests, for goods not actually purchased; coupon fraud, where coupon codes are maliciously obtained; and loyalty and reward fraud, where points are redeemed against goods or services or are sold to others. In addition, fraudsters have much to gain from stealing personal identifiable information (PII), which can result in identity theft and stealing credentials to use in other websites/apps or sell to other malicious actors.

As we can see, the fraudulent activity is not a transaction, but a variety of possible fraudulent actions, which all happen early in the buyer’s journey, and where traditional fraud detection tools have little to no visibility of activities taken by legitimate or malicious users. 

Also, implementing rule-based fraud detection to cover the entire buyer’s journey, will inevitably lead to a high number of false positives and end up frustrating legitimate customers. When these are the options, merchants tend to choose happy customers and a troubling fraud rate over losing customers and catching fraudsters.

What makes these fraud methods attractive to fraudsters and how do they evade fraud prevention tools? 

Payment fraud tends to be picked up by popular fraud detection tools, which is why fraudsters found new ways to carry out fraud and avoid being detected, earlier in the buyers’ journey. They found a significant gap in the solutions that allowed them to exploit the business model.

Infographic: Fraudsters have found ways to monetise earlier in the customer journey without the need to make a traditional transaction thereby avoiding the need to beat transaction or device analysis tools.

Yet, online merchants are reluctant to add fraud prevention tools earlier in the buyer’s journey, as they are concerned about the friction it will add to their legitimate buyers’ experience. This leaves plenty of opportunities for malicious actors to carry out no-transaction fraud. 

Retailers are rightfully concerned with the need to ensure that detection of fraud early in the process (early enough as to prevent damage, including chargebacks) will introduce as little friction as possible into the customer’s journey. 

‘Sometimes it seems that retailers can’t win’ 

Sometimes it seems that retailers just can’t win: If they flag an activity as suspicious based on strict rules, they might find themselves with a rise in false positives and possibly disappointed legitimate customers. Other times, retailers rely solely on fraud detection and prevention at the payment stage, ignoring any potentially suspicious activities that occur earlier in the customer journey. The magnitude of no-transaction fraud is growing fast, as fraudsters are continually developing advanced evasive techniques and increasingly using automated tools, such as bots and emulators, to scale their attacks.

What sets behavioural biometrics apart from other approaches in preventing no-transaction fraud? 

Adopting advanced technologies like behavioural biometrics enables us to take a proactive approach to preventing fraud, by providing complete visibility into fraudster’s activities throughout the entire buyer’s journey. In-depth understanding of the fraud journey, identifying, monitoring, and analysing data from various touchpoints, make it easy to detect suspicious and potentially fraudulent behaviour at its earliest stage.

The ability to automatically differentiate between human and non-human behaviour and to identify behavioural anomalies can clearly indicate fraudulent activities at an early stage, without the need to add friction to the buyer’s journey.

How can merchants improve their business efficiency via solutions similar to the ones offered by SecuredTouch? 

Detecting fraud early in the fraud journey is usually based on identifying fraudulent intent as opposed to fraudulent activities, which means before any damage has been done. To get there, merchants need to apply a holistic approach to their fraud prevention strategy. Solutions must be able to monitor user activities and behaviors from the moment a session begins and carry out continuous discovery, throughout the customer journey. The better we understand the journey of fraud, and the more accurate insights we have about human and non-human fraudulent behaviours, the easier it will be to differentiate between the actions of good users vs fraudsters. 

SecuredTouch applies behavioural biometrics to continuously analyse human-to-device interactions throughout a session, to accurately validate trusted users and the device legitimacy. This approach enables merchants to stop fraudsters long before the transaction stage, reducing fraud while maintaining the balance between customer satisfaction and security.

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

About Alasdair Rambaud

Alasdair is a seasoned C-level general manager with 20+ years experience managing large global organisations with a focus on Sales and Strategy. He holds a Masters in Business Economics from Reins University, France. 

About SecuredTouch

SecuredTouch provides real-time, adaptive fraud detection throughout the customer journey to detect fraud early, with proven ROI from day 1. Our solution ensures accurate risk-based prevention for multiple use cases including ATO, bots, and no-transaction fraud. SecuredTouch customers benefit from reduced overall fraud losses while maintaining a smooth customer experience.