Rather than wax poetic about the “good ole’ days” I’m here to remind you that retail shops have never been immune to fraud. Remember, at one-point retail shops had to look out for counterfeit bills and bad checks. Within the last few years, EMV chips and digital credit card signatures were created to mitigate point-of-sale fraud. But as retail options expanded, so did the fraud tactics. However, in-person fraud is not scalable to the degree that online fraud is: in fact, it doesn’t even hold a candle.
As commerce has evolved online, fraud has closely followed – and brought with it an onslaught of new strategies. EMV chips have played a part in fraud’s evolution, as chip cards have thwarted physical credit card fraud and helped decrease in-person fraud. At the same time, the mass exodus of retailers from physical stores to online has certainly played a part. Fraudsters follow the opportunity, and right now the opportunity is Card-Not-Present (CNP) fraud. A treasure trove of personal consumer data (much of it for sale on the Dark Web) and available technology makes online fraud a highly productive and cost-effective endeavor. As consumers and criminals alike conduct most of their business on digital channels, all of these factors have arguably resulted in the perfect storm of fraud. At Kount, we want to arm you with the tools needed to combat and prevent fraud, and an important part of this is understanding what the fraudsters are up to.
E-Commerce is Rising, and So Is E-Commerce Fraud
While CNP fraud has always existed, it used to be much more labor-intensive, such as getting on the telephone, creating counterfeit power bills, or intercepting someone’s mail. But with so much information available online now, the cup of stolen information with which to commit CNP fraud runneth over. A practically never-ending stream of data breaches means that there is information on practically every American “out there” for fraudsters to use and corrupt. As noted previously, much of this data may be for sale on the Dark Web, where it can be accessed by amateur fraudsters or utilized by sophisticated criminal organizations.
Suffice to say this is not just bad news for the individual shopper, but it’s also bad for business. According to LexisNexis, for every dollar of fraud losses, U.S. merchants are spending $2.47 for chargebacks, fees, and merchandise replacement. Merchants are losing money both on fraudulent transactions on the part of fraudsters and trying to protect their business from fraudsters. Cue, shrug.
The Move to Mobile
With millions of cardholders’ stolen data available on Dark Web, and many merchants ill-equipped to fight E-commerce fraud, fighting illicit online purchase transactions while also boosting sales is no simple feat. Within fraud’s move to CNP transactions, fraud now increasingly occurs on the mobile channel. In fact, Kount’s 2017 Mobile Payments and Fraud Survey showed that merchants who actively support the mobile channel have increased from 54 percent to 78 percent over just the last five years.
So while many merchants have implemented better fraud protection measures for online and in-person transactions, most are playing catch up when it comes to preventing and understanding mobile fraud. It’s imperative that all merchants understand the myriad risks associated with mobile transactions, and put mobile-specific fraud protection in place, in addition to dealing with in-person and online fraud.
So, Where Does This Leave Us?
Merchants need an integrated, comprehensive fraud prevention program, not a one-hit-wonder. This means avoiding standalone or ad hoc tools that open up vulnerabilities in certain areas, or create isolated silos of data that restrict the ability to respond to fraud attacks effectively. Fraudsters have innovated as fast (and in some cases much faster) than commerce has. What separates business and retail innovators from fraud “innovators” is that you, the merchant, are bound by the rules, and the bad guys are not.
There is good news though. Fraud management tools are becoming more dynamic. From behavioral biometrics and persona linking—the “good guys” can now be empowered with the capability to distinguish between real and fraudulent shoppers. Furthermore, machine learning— by analyzing hundreds of millions of transactions, at a rate impossible for humans to accomplish, to determine between risky behavior and legitimate transactions—helps to target organized criminal groups attempting to conceal (their identities) while they steal (your money). For these reasons, the E-commerce sector must continue to innovate and use big data, machine learning and “Real Intelligence” to its advantage to get ahead of the fraudsters using the Dark Web to theirs.
Some may tout the ABC’s but we think it’s more important to Always Be Learning, because a boost in sales should be the natural accompaniment to an integrated, comprehensive fraud prevention program. To learn more about the perfect storm of fraud and dynamic tools for addressing it, read Kount and Meractor Advisory Group’s new whitepaper “Fraud Detection 2.0: Dynamic Tools For Fighting E-Commerce Fraud.”