This Stuff is Hard
As the remote payments domain (think in-app and browser-based payment transactions) continues to grow at around 15% a year, that growing number means the size and scale of fraud losses are going to increase. And they have - in both absolute terms and as a percentage of overall transaction volume. That also means rising chargeback rates for many merchants.
Rising fraud in the online world is also a result of better security technology in the physical world. While EMV chip cards have dropped counterfeit losses way down, the fraudsters still have their own bills to pay. They’ve just shifted more aggressively to the card not present channel.
A Delicate Balance
All e-tailers face a delicate balance in managing fraud. If they err too far on the side of fraud minimization by tightening approval standards too far, they leave good sales on the table and insult customers with unnecessary declines (the “insult rate”). Of course, those customers promptly go to another site to make their purchase.
The e-tailer’s sales and marketing team, then, tells the fraud manager that she’s killing sales.
If the approval standards are too loose, on the other hand, the e-tailer risks the twin threats of higher fraud and chargeback costs and, if the chargeback rate exceeds 1%, placement on a watch list if that rate stays over 1%. Not a good list to be on because the the merchant could lose card acceptance privileges if the problem is not addressed.
The Smaller E-Tailer is Challenged
While Amazon continues to gobble up half of the growth in US commerce volume, it still means that there is room for smaller online merchants to prosper. It also means they face growing fraud losses. Unlike their larger competitors who can afford internal fraud management teams and technology, small and mid-tier e-tailers have limited time, budget, and skills to meet those needs.
Fraud management is a non-trivial problem even for the largest enterprises. They deploy a layered set of technologies, ranging from table stakes tools like address verification system (AVS) to device and behavioral fingerprinting and on to rules engines, AI, and machine learning controls.
That level of sophistication is beyond what the mid-tier e-tailer can handle. Some enterprise customers don’t want to deal with that complex task either.
The Outsourced Option
That’s where the wholly outsourced proposition comes in. The third party fraud management service provider assembles the necessary technology, makes the right integrations with shopping carts and other software providers, puts an analyst team in place to decide on questionable transactions, and offers its services for a fee.
ClearSale (www.clear.sale) is a provider in this space. Take a listen Rafael Lourenco, its EVP, and George as they discuss fraud management in this segment, how the ClearSale service is deployed, and some merchant best practices. Rafael breaks down this topic very clearly. Definitely worth your time.