Merchants are experiencing a complex landscape of fraud right now. First-party fraud is sharply on the rise as consumers take advantage of merchant policies. Return-policy abuse, as well as false claims about card charges, order fulfilment, or quality of products, has significantly spiked in recent years and left merchants revaluating policies.
In addition, as inflation rises, merchants look for new ways to curb customer acquisition costs by offering perks such as rewards points, free shipping, and easy checkout with saved credit card information. Although this can create a seamless experience for customers in future interactions, it’s a juggling act to balance a frictionless experience while still reigning in fraud.
As automation and machine learning become more commonplace, fraud rings rely more heavily on credential stuffing and find high levels of success with these easily hackable merchant accounts. This typically leads to large amounts of luxury goods or gift card purchases, with a high resale value.
Another pain point merchants are experiencing is a rise in false positive fraud declines. To mitigate increased ecommerce fraud losses, issuers have turned to stricter fraud controls with unintended consequences of blocking legitimate transactions. Unfortunately, a rejected transaction from a good customer can have reverberating effects, as a customer may not return to a merchant site where they had a bad experience. Balancing fraud losses without compromising customer experience continues to be top of mind for merchants.
In recent years, Buy Online Pickup in Store (BOPIS) has become a rising trend, and so has BOPIS fraud. Omnichannel experiences such as BOPIS are highly susceptible to fraud when merchant systems don’t interact instantaneously. For example, a bad actor places an order online and drives to the store to pick it up. Just before collecting the product, they cancel the order for a refund. However, the merchant’s systems are likely not interacting in real time. A full refund is given for the cancelled order, and moments later, the product is still given out. This type of omnichannel abuse acts as the perfect system for bad actors who can’t pass the scrutiny of a simple billing and shipping address check for ecommerce purchases.
We are also seeing trends with increased use of AI and machine learning models, as this type of technology becomes more attainable for fraud rings. More than ever, fraud rings can conduct large-scale attacks and move quickly between merchants and methods of attack. With an arsenal of bot attacks, credential stuffing, and brute force attacks, fraud rings are well-equipped to wage war on multiple entities at once. Even more concerning, AI is changing the game when it comes to fraud. Realistic voice recognition scams prey on people’s emotions and have minds reeling and wondering what will come next.
First-party fraud and consumer abuse are becoming more commonplace as people share tactics and tricks to manipulate merchants and take advantage of systems.
As AI and machine learning become more attainable tools in fraud rings, credential stuffing, and brute force attacks become more scalable, and fraud is on the rise.
As the fraud landscape becomes more complex, networks and issuers seek to weed out bad transactions while approving every good transaction. Now more than ever, data is the key. Real-time, comprehensive, and accurate data is needed to paint a complete picture of the customer journey and make real-time decisions with accuracy.
Networks and issuers who make authorisation decisions rely on merchants to provide this information. It’s up to merchants to seek acquirer support and ensure that for every purchase on their app or website, all transactional data is made available on the authorisation rails so banks can make a confident and accurate authorisation decision.
Recently, Discover® Global Network has shown support for this shift in mindset with Discover Enhanced Decisioning. Discover Enhanced Decisioning allows merchants to provide additional transaction data to issuers on trusted payment rails. Enhanced Data allows issuers to make more accurate decisions at the time of authorisation to both increase fraud capture and decrease false positive declines, all while working behind the scenes without introducing any friction to the customer journey.
Card-on-File (COF) tokenization is also a valuable consideration for merchants and allows them to replace a customer’s primary account number with a unique token. Because the token is used instead of the PAN, the customer’s information is protected throughout the transaction.
Merchants should also consider implementing Secure Remote Commerce (SRC). SRC offers a simple and streamlined checkout experience for customers while providing an additional layer of security with smart authentication to help reduce fraud and fraud declines.
We support industry protocols such as 3DS with the Discover ProtectBuy® solution, which allows a merchant to validate consumer identity at the time of purchase. Our Fraud Alerts, which allows a merchant to be notified within 15 minutes of confirmed fraud, lets merchants stop shipment and cancel orders, reducing chargebacks in turn. Discover Global Network also offers Discover Enhanced Decisioning to facilitate additional data sharing with issuers and decrease false positive fraud declines. Enhanced Decisioning is a seamless and frictionless way for merchants to ensure good customers can make purchases, while still stopping bad actors. These offerings, along with card-on-file tokenization and Secure Remote Commerce, ensure we are prepared to help merchants battle fraud from any direction. For more information, visit DiscoverGlobalNetwork.com.
The key to the future of fighting fraud lies in the integration and connectivity of data throughout the lifecycle of a transaction – from authorisation to fraud monitoring and disputes. As we partner with merchants, acquirers, fraud service providers, and issuers, one thing remains clear – as we become more interconnected and integrate more seamlessly throughout the transaction lifecycle, we become empowered to make better and more accurate decisions that benefit everybody involved.
This editorial is part of The Paypers' Fraud Prevention in Ecommerce Report 2023-2024, the ultimate source of knowledge that delves into the world of fraud prevention, revealing the most effective security methods for companies to stay one step away from bad actors and secure their businesses.
Jeff Gipson is the Director of Digital Product Management at Discover® Global Network where he manages authentication, fraud, and security solutions. Jeff has more than a decade of product management experience covering core and emerging payment products. Prior, Jeff worked in data science and related consulting for the financial services, retail, and entertainment industries. Jeff has a dual B.A. in Mathematics and Computer Science from Knox College.
Discover® Global Network, the global payments brand of Discover Financial Services, processes millions of cardholder transactions each day. With industry expertise, innovative technology, and a closed-loop infrastructure, Discover Global Network provides effective, customised solutions that evolve as needs change. Discover Global Network has alliances with 25+ payment networks around the world and is led by three Discover businesses: Discover Network, with millions of retail and cash access locations; PULSE®, one of the leading ATM/ debit networks; and Diners Club International®, a global payments network with acceptance in over 200 countries and territories. For more information, visit DiscoverGlobalNetwork.com.
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