Online payment fraud is rising fast. In 2021 alone, it increased by 285% as fraudsters exploited the growing volume of online commerce and weaknesses in businesses' fraud defenses. And the threats continue to evolve, with devastating impact: it's estimated online sellers will experience losses exceeding USD 206 billion between 2021 and 2025.
Fraudsters are also becoming more sophisticated. Automated attacks, primarily through bots, are major new threats businesses face. These attacks make it easy for fraudsters to scale their efforts. For example, it can cost less than USD 200 to attempt 100,000 account takeovers, with a success rate between 0.2 and 2%.
Also, the threat is not uniform. Fraudsters go after different businesses in different ways. Ecommerce, airline ticketing, money transfer, and banking services businesses seem more vulnerable to credential stuffing and account takeovers. Online marketplaces are primarily targeted by fake accounts, false advertising, order cancellations, and fake buyer/ seller closed-loops. The crypto sector gets hit with fake exchanges, wallet takeovers, and Man-in-the-Middle Attacks (MITM). Online gaming businesses suffer most from fake third-party top-up services, credential stuffing, account takeovers, and Streaming Potluck schemes.
A rigid, one-size-fits-all approach to fraud is no longer enough in this new fraud paradigm. Businesses must deploy sophisticated fraud management strategies that take a more nuanced approach to balance risk and maximise revenue. And to do that, they need solutions that:
Leverage millions of data points: Merchants need the power of advanced machine learning that detects new fraudulent trends and uses network-wide intelligence in real time. The more data points the fraud solution can call upon, the better it can learn from patterns of real fraud across multiple sectors and countries and apply these insights to identify and stop suspicious activity at the point of transaction. Without these comprehensive insights, merchants are left exposed to emerging fraud patterns.
Provide complete customisation: Merchants not only want to define their overall risk tolerance but also tailor fraud strategies for specific segments or criteria. For example, a merchant will probably deem a returning customer using the same IP address, buying something expensive as ‘safer’ than a new customer from a flagged IP address buying something of lower value.
Merchants need the flexibility to treat these two transactions with different risk classifications and to build tailored fraud strategies for each. They also need to do that across multiple segments - to separate high-risk versus low-risk geographies, segment by different payment methods, or even detach specific product codes that experience more fraud attacks than others. Merchants must be armed with unlimited scope to create rules that suit the specifics of their business.
As well as setting individual fraud thresholds for different segments, merchants should have more control over the action triggered when a threshold isn’t met (e.g., accept or decline, send to 3DS, or undertake a manual review). These actions provide merchants with additional levers to block more fraud or reduce strictness to allow more transactions through.
Allow for continuous optimisation: To stay one step ahead of the fraudsters, merchants need access to powerful analytics and testing capabilities to fine-tune strategies and inform new ones. Desired capabilities include highly visual illustrations of current risk strategies that merchants can adjust by adding, amending, or subtracting components.
Merchants should also demand a centralised view of all transactions requiring manual review, alongside rich contextual data on why each transaction has been flagged, saving time, and increasing the accuracy of decisions. And for each change, merchants must be able to experiment safely with new rules by testing their potential before pushing live.
Fighting fraud shouldn’t be an overly defensive exercise. Instead, it should maximise revenue by increasing acceptance rates and reducing friction for legitimate customers, leading to more conversions. Research from Checkout.com found a declined payment has permanently put that 34% of people off an ecommerce store, but a much higher 52% will abandon their baskets if the payment process is too complex.
Many fraud tools today mandate strict risk strategies that create friction and frustrate customers. Merchants need solutions that work with the customer experience. They must be able to monitor the impact of their risk strategies on key metrics, such as conversion, acceptance rates, and performance against scheme chargeback limits. They must be able to do that within the safety of a testing environment while also investigating and diagnosing the root causes of false positives and false negatives and using these insights to eliminate burdensome anti-fraud measures.
Fraud is ever developing, as are customers’ expectations about what makes a great shopping experience. Merchants that stay ahead will be those that recognise this is not a zero-sum game and that you can fight fraud and prioritise sales. The right solution must protect them today and from whatever future fraud throws their way.
Checkout.com’s new Fraud Detection Pro empowers complex global businesses with an advanced suite of tools to fight fraudulent threats without compromising payments performance. To learn more, visit checkout.com/products/fraud-detection.
This editorial is part of The Paypers' Fraud Prevention in Ecommerce Report 2022-2023, 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.
Augustin Testu is a Senior Product Manager at Checkout.com, responsible for building products that empower merchants to fight fraudulent threats without compromising payments performance. Prior to joining Checkout.com, Augustin held product management roles at Ant Group and World First.
Checkout.com is a global payments solution provider that helps businesses and their communities thrive in the digital economy. It offers innovative solutions that flex to your needs, valuable insights that help you get smart about your payments' performance, and expertise you can count on as you navigate the complexities of an ever-shifting world.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now