In recent years, the prevalence of card fraud has skyrocketed, in part due to the growth of e-commerce and mobile payments. By the end of 2022, the loss from e-commerce fraud is expected to be $41 billion. In addition to the costs of fraud, companies also lose sales when good transactions are rejected by fraud management systems. False declines cause businesses to lose up to 75 times more money than payment fraud does.
EMV, the international standard for chip-based debit and credit card transactions, is being adopted by more shops. In terms of security, mobile payments are much more vulnerable because smartphone technology is less secure than conventional computer systems. Operating system updates, for instance, don’t happen as frequently, and security software is less widespread. Card fraud and other forms of fraud are draining significant value from businesses and endangering the integrity of their brands as commerce shifts online and onto smartphones.
Fraudulent issues affecting financial services and e-commerce businesses are changing. Identity theft is evolving from card skimming to account takeovers, which has significant repercussions for the majority of businesses. It is no longer friendly fraud (disputed charges from cardholders).
How fraud is evolving
Companies must recognize the frequency, direction, and paths of fraud as well as the trends influencing the future of fraud management in order to secure themselves.
The nature of financial crime is continuously changing as card-chip technology develops, new digital channels appear, and fraudsters become more sophisticated. Higher fraud rates are seen with cards and other payment options like digital and mobile payments. Due to the rapid increase in incidence rates in mobile channels, demand is mounting to prevent fraud in both offline and online transactions.
Sellers are attempting to stay up with the trend in consumer behavior toward mobile and internet channels by expanding their market reach while attacks and breaches are getting worse. Social networks are being used by criminals to recruit, train, and organize fraud schemes. Phishing emails keep coming up with new strategies to get clients to click on links that use malware to gather user information for online shopping. Fraudsters quickly identify new points of vulnerability to exploit as banks and businesses enhance their defenses. The management of fraud and vigilance are never-ending jobs.
When looking to strengthen their fraud management, e-commerce companies must make difficult decisions because the customer’s online experience is so important. A seller’s net promoter score (NPS), a crucial success metric for many, can suffer from the use of tools and procedures like authentication. Customers may find fraud prevention measures annoying, but they can also cost businesses money.
Additionally, the value chain’s account-opening aspect becomes increasingly crucial as authentication technology advances and transaction fraud becomes more challenging, necessitating the development of more effective customer onboarding procedures. Most large online retailers have improved their defenses and are now better equipped to fend against high-value attacks. However, particularly for small and medium-sized shops, the volume of small-ticket attacks, which frequently go undetected by automatic detection criteria, continues to soar significantly. Financial institutions will keep pushing chargeback rates as chip cards become more common, which will increase the liability shifted to online retailers and force them to improve their fraud detection and recovery skills.
Improving value with cutting-edge risk and fraud management
Employing sophisticated analytics, reengineering fraud case management, and enhancing the customer experience are the three measures that businesses may take to improve their fraud management efforts.
Some companies are already utilizing advanced analytics to improve their risk and fraud protection services. In order to do so, it may be necessary to use additional data sources, such as social media, user behavior, and purchase histories, as well as details on a customer’s location and device type.
Because fraudsters are becoming more sophisticated, concentrating preventive efforts excessively on one channel can result in vulnerabilities. Adopting an integrated fraud strategy across all business lines and transaction types, with a uniform set of fraud-prevention policies, restrictions, and thresholds across all channels, is a better method to prevent losses.
Leading companies are adopting digital strategies to enable next-generation risk and fraud management. These systems can be enhanced with automation, robotics, lean management, and other methods to enhance speed, reliability, and customer satisfaction while lowering costs and errors.
Players in e-commerce need to consider authentication, fraud control, and customer experience simultaneously. Customer engagement, fraud mitigation, and operational efficiency are all negatively impacted by poorly designed authentication experiences.
Authentication and transaction decline can be critical moments for customers, and a company’s desire to implement more comprehensive customer onboarding processes puts account openings under special strain. That means businesses need to think about how they can improve customer experiences during interactions involving fraud in addition to how good they are at preventing disruptive incidents. It will need thoughtful follow-up communication and a well-thought-out value case for monitoring and identity protection to make this happen.
Improved card fraud management not only decreases losses and processing costs for payment providers but also provides the opportunity to improve the consumer experience by gaining a better understanding of how different segments prioritize security and convenience.
Businesses that implement cutting-edge strategies can protect themselves against increasingly sophisticated types of attacks while also improving client loyalty, engagement, and value.
