Sure you know Fraud prevention well?
Fraud Prevention: What it is and its Challenges
In 2020, Merchant Savvy reported that global payment fraud has tripled, growing from $9.84 billion in 2011 to $32.39 billion. The reported number reflects a big jump that was consequential of fast-growing E-Commerce activities and business models.
To equip online merchants and card issuers with better fraud fighting mechanisms, payment security institutions and solution providers have been innovating on their approaches to prevention while constantly upgrading related protocols. The predicted amount of loss from payment fraud is predicted by Merchant Savvy to rise by 25% in 2027 compared to how it was in 2020.
This prediction is perceived by payment security institutions and advocates to be an alert signaling that more actions should be taken in raising awareness, educating E-Commerce participants, and preventing them from happening.
In this article, we will be defining fraud prevention, its application for businesses and the challenges that solution adopters must take into consideration.
What is Fraud Prevention
Fraud prevention is the deployment strategy to detect online, fraudulent activities aimed at transactions and prevent these actions from causing damages to the end customer and financial institutions.
As online and mobile banking grow into a convenience, a comprehensive fraud-preventing program is much needed to protect all E-Commerce participants from fraud threats. It has also been reported by several researches done by Merchant Savvy, Javelin, Maqeta, and more, on the rapid increase of fraud attempts as well as fraudsters’ ever-changing tactics. All of this is the result of criminals actively networking and exchanging stolen information over the dark web to facilitate the bypassing of security layers.
Today, fraud in E-Commerce is conducted using more advanced and sophisticated tools as well as strategies, making them harder to detect and prevent despite the constant advancements in security solutions.
Our Preparation
Fraud Prevention and Detection, despite being different activities to manage and combat fraud, many of us often make the mistake of using them interchangeably. Provided below is some information about each, which helps us understand where they differ.
Fraud Prevention
-Conducted before the fraud is attempted
-The goal is to reduce the risk of fraud in the future
Fraud Detection
-Conducted during the fraud attempt
-The goal is to mitigate the consequences of fraud
-More advanced solutions also help reduce false positive rates which in turn improves the user experience and increases the productivity of the in-house team fighting against fraud
Why are they Both Important?
Fraud detection with the first step in identifying where the risk lies, and then have them prevented by deploying advanced security softwares. The process usually begins with the deployed system working to verify the legitimacy of transactions through looking at cardholder information and confirming it with the card issuer’s data. If additional identity confirmation is required, the customer might have to get involved.
In the case where all confirmations fail or suspicious historical device information is detected by the system, then it would proceed to deny the transaction as a way to prevent fraud.
With digital crimes on the rise, there is no simple way around fraudulent attacks apart from having your merchant protected with security solutions. Bringing a business onto the web means that it shall be faced with different types of attacks that are not confined to being fraudulent. Apart from harming your business’ trustworthiness, the different types of attacks could cause you financial loss as well as reputation for being too vulnerable.
What are the Main Challenges in Detecting and Preventing Fraud?
Even with the constant support of preventive technologies, there remain major obstacles in effectively implementing fraud detection and prevention. Below are the challenges that might come along your way if your merchant is considering Fraud Detection and Prevention.
Anonymity
A common approach adopted by some of the service providers, especially chargeback guarantors, is to block all transactions to ensure they are not fraudulent. However, this also means that you are stopping your customers from paying on your site, and this is called false positive.
Aggressively exploiting this technique can likely bring about a handful of problems for solution adopters. Another unfriendly name given to false positives is “customer insult rate” since the consequences from over-using them may cause your business the loss of customers as well as reputation. It is also considered offensive for legitimate customers to go through this particular type of check out experience being blocked from paying for what they want to purchase.
In most cases, customers will choose to buy alternative products or services from competitors if they encounter obstacles or an unsmooth checkout experience at a certain merchant. This is especially true for first-time buyers or for items that have low switching costs.
One-Size-Fits-All is a No-Go
The way fraud prevention works is by setting up specific rules for the system to respond to threats. Within that, service adopters will be able to block certain IPs, accounts, or create blacklists and whitelists to more accurately direct the authentication process. The elements that make up these rules should be constantly updated because merchants will continue to come across customers who they would like to blacklist or whitelist, based on historical transactions or merchant-specific policy.
Furthermore, what works for one company might not be suitable for another, since each has different needs and priorities in managing transactions. Independent risk teams must always be proactive and remain agile in collaboration with the system.
Unintentionally Adding Friction to the Buyer’s Journeyo
Fraud detection and prevention sometimes would require additional information to identify legitimate cardholders before giving green flags to the transactions. The most common ways to perform identity confirmation is via the entry of a one-time-password (OTP) or biometrics. For OTPs particularly, the customer will be requested to enter their phone number in which the system collects to send out a password for them to enter into the checkout page in limited time.
In today’s online environment where products are offered diversely, and with relatively low switching costs; it is obvious that an improved customer experience keeping friction at the minimum will be able to satisfy the buyer’s needs and help merchants secure sales..
Conclusion
With increasing fraud and attempts in E-Commerce, online merchants become more vulnerable to attack than ever. By actively learning about fraud and how to prevent them, businesses stand a better chance of protecting themselves against it, while maintaining a convenient shopping experience for their customers.
Amid the rapid development of technology and its wide application in support of the business realm, many solutions are offered to tackle the hardships of fraud management. We suggest that merchants choose a prevention program that meets their needs, further customize it if possible, and not stop your efforts in managing fraud to reduce all potential risks.
