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- Introducing the CNP Fraud Lexicon January 31, 2017
With record breaking holiday sales, 2015 ended on a high note for eCommerce merchants. As more people come online around the world, global online purchases are projected to more than double to $3.551 trillion by 2019. In the following post, we cover the key trends eCommerce merchants should look out for in 2016, along with relevant fraud management advice.
Mobile Commerce (mCommerce) Continues To Rise
Mobile commerce, also known as mCommerce, is on the rise, and will only continue growing in importance in 2016. In the US alone, mCommerce sales last year were estimated to total more than $100 billion, and accounted for 22% of all retail eCommerce sales. According to eMarketer, US consumers bought an estimated $48 billion worth of goods and services using mobile devices in 2015, a 32% increase over the previous year. In other markets, mCommerce is even more popular. In 2015, mobile sales accounted for 46% of all retail eCommerce sales in South Korea and for over 50% of all retail eCommerce sales in China.
The growing importance of mCommerce means that merchants cannot ignore this channel any longer.
- The ability to collect information across devices such as desktop computers and mobile devices and then match this data to a specific consumer is crucial for accurate fraud detection. Not only will this ability help quickly identify fraud, but it will also help merchants avoid false positive declines (good customers rejected due to fear of fraud).
- Research in the US market shows that wrongly rejecting a good customer is a costly mistake for merchants, as 66% of consumers who experienced a false decline limited or entirely stopped their patronage of the declining merchant. The impact is even stronger among young adult cardholders – who are more likely to shop via mobile devices – 75% of whom reported changing their shopping habits following a false positive decline.
- Another tip for boosting fraud detection accuracy for mobile transactions is incorporating data unique to the mobile channel into your fraud management systems. Mobile carrier information, GPS location, and advanced behavioral analytics can all be used to inform your decisions and boost your fraud detection accuracy.
- Lastly, tracking fraud and decline rates by channel (desktop vs mobile) will allow you to identify areas for improvement going forward.
Cross-Border eCommerce Presents a Huge Growth Opportunity
Cross-border sales have grown exponentially in the past few years, with the combined global market value exceeding $1 trillion and showing no signs of slowing down. Digital shoppers worldwide make nearly 25% of their purchases from websites outside of their home country, with approximately 50% of these cross-border purchases occurring on US sites. As cross-border shopping becomes more habitual for consumers, it’s projected that the total global revenue from these transactions will amount to nearly $2 trillion by 2018.
Taking advantage of the opportunity to grow your global customer-base requires optimizing your operations to ensure you are prepared to handle cross-border transactions.
- First of all, this means eliminating fraud prevention filters or measures that are not suitable for international orders – such as AVS and billing-shipping address mismatch rules.
- Secondly, working with global consumers means that even merchants who only ship domestically must accept international payment methods. Riskified data shows that even eCommerce merchants who do not offer international shipping stand to boost revenue by over 10% simply by accepting purchases made with international cards. In other words, if you only accept domestic credit cards you are missing out.
- Third, familiarity with the legitimate shopping patterns of cross-border commerce is key to reviewing these orders. Whereas reshipping services may be considered to be a suspicious indicator in domestic orders, they are often used by legitimate cross-border consumers. To learn more, read our detailed explanation of everything eCommerce merchants need to know about reshippers and cross-border commerce.
- Lastly, merchants really looking to make the most of cross-border eCommerce need to be familiar with international holidays that can impact online shopping volumes across the world – check out this useful list of holidays by our partners at Zooz.
Demand for Digital Goods (Gift Cards and e-Tickets) Will Increase
Digital goods, such as electronic gift cards and e-tickets, are becoming increasingly popular. In the US, over $127 billion is spent on gift cards annually, one third spent for holiday gifts, with up to 10% expected to be digital gift card purchases. A growing number of businesses selling tangible goods have added gift cards to their offering, and CEB projects that total gift card volume will reach $160 billion by 2018.
Lack of shipping and logistic costs in digital goods are beneficial to eCommerce merchants, but these products pose unique challenges when it comes to fraud prevention. The 2015 MRC Global Fraud Survey found that the average fraud rate for physical goods was 0.38%. The average rate of fraud in digital goods was higher – at 0.42%. However, the disparity in fraud rates between tangible and digital goods varies by vertical; For example, Riskified data from online ticket sales shows there’s nearly 2x more fraud in e-tickets than in physical tickets.
- Unlike tangible goods transactions, digital goods orders are not tied to a physical addresses. This renders classic fraud prevention cross-verification methods, like measuring the distance between the shipping and billing addresses or matching the shipping address to the user’s IP address, irrelevant.
- Merchants are also challenged by the instant turnaround times required in digital goods orders. Consumers expect immediate approvals and “shipping”; they do not want to wait a couple of days to receive a gift card or event ticket. Merchants who can’t provide quick responses risk losing customers to competing sites. Therefore, if you sell digital goods or if you are considering adding gift cards or e-tickets to your offering, we highly recommend devising a strategy to review these orders accurately and quickly.
- In digital goods orders, you may find it useful to consider the payer’s email address as the “billing address” while the recipient email address can be considered to be the “shipping address”.
- While you can’t cross-check these email addresses in the White Pages, it is important to try and link them to the cardholder. It is best practice to analyze the email ‘age’ and email domain, and to utilize all the available data (such as IP address, referring site, and on-site browsing behavior) in order to establish a positive or negative “story”.
More Fraud Prevention Collaboration and Information Sharing
As fraud continues to evolve, even the savviest merchants find it exceedingly difficult to quickly identify fraud rings and to accurately distinguish between legitimate and fraudulent transactions. In the MRC’s 2015 Global Fraud Survey, merchants reported an increase in “clean fraud”. Clean fraud means fraud cases for which there were no indications. In other words, this means that even when reviewing orders for which chargebacks have already been incurred, merchants still have a hard time figuring out the fraudsters’ modus operandi.
In the battle against CNP fraud, cardholders, eCommerce merchants, and fraud prevention solution providers are all on the same side. Sharing information and collaborating in order to prevent fraud is common practice among the major players in high-risk industries such as gift cards and travel. We expect fraud prevention collaboration to expand into new verticals this year.
- The MRC recently created online forums where merchants can ask questions and share advice about fraud and payments challenges.
- For our part, Riskified will continue sharing relevant insights and best practices to help merchants across verticals combat fraud. After publishing a report about online ticket sales fraud, and a research paper on the consumer impact of false positive declines, we’re currently working on a report about fraud patterns in online fashion sales.
- In addition to creating valuable content, Riskified is working to build a stronger community for eCommerce retailers to connect and share their experiences. To this end, we will be partnering with the the Boston eCommerce community to launch ‘eCommerce Insiders’, with a first meeting planned for later this month.
Here’s To a Fraud-Free 2016
As long as eCommerce merchants are aware of the trends in the market and are willing to make the changes required to take on new challenges, they can look forward to successfully managing fraud in 2016 and making it a year of record growth and success!