Tuesday, 29 January 2019 01:23

How to reduce retail fraud without damaging the shopper experience

Michel van Aalten, Adyen country manager ANZ

According to the Australian Payments Network, payment fraud on Australian credit cards hit $476 million in 2017, surging from $218.1 million in 2016. As of 2018, online card fraud now accounts for 85 per cent of all card fraud in Australia.

The January sales provide retailers with an increase in sales, but it’s also a popular time for fraudsters to take advantage in this uptick of in-store and online sales.

Zero fraud is only achievable by stopping all sales, which is not an option. But having a well thought out fraud strategy is an option, and one that balances both managing fraud and maximising authorisations to increase sales.

The power of data

A crucial first step to is to look at transactions as more than just stand-alone entities. Omnichannel data will show you which shoppers are visiting your stores and  your ecommerce site. This will prevent you from inadvertently blocking online shoppers who previously spent thousands in store. You can also create heat maps that reveal patterns to help you detect potential fraud.

Adyen processes payments for more than 4,500 merchants around the world. This comprehensive dataset enables an intelligent assessment of each transaction – so if a fraudulent card is identified anywhere on our network, it can be analysed and treated with caution across whenever the transaction is detected.

There is a lot of valuable data that can be clustered with a transaction to get a holistic view of the shopper – such as email address, IP address and card details. An advanced linking algorithm , such as Adyen’s ShopperDNA, is applied to these clusters, alongside proprietary device fingerprinting and network intelligence, to track devices, networks and online personas. This enables merchants to track and block fraudsters as they adapt to reduce risk and chargebacks (the reversal of a charge on a credit card, or debit card).

Striking the balance

A fraud strategy is not ‘set and forget’. To find the sweet spot between authorisation rates and fraud prevention it requires constant turning, with further adjustments over peak shopping periods like New Year’s sales and other key shopping periods like Christmas and Black Friday.

During these seasonal shopping events people buy more frequently and tend to spend more per transaction, which may trigger risk settings.

If you reject a legitimate purchase, you risk losing the transaction and potentially lose a future loyal customer. Merchants want to protect themselves from fraudsters, but also want to assure that the customer shopping experience is not degraded. This is a tricky balance that retailers grapple with daily.

The ability to adjust your transaction velocity settings, can therefore become the difference between blocking and authorising legitimate purchases by legitimate shoppers during a peak retail period.

A secret weapon

A proven way for merchants to reduce risk and protect their customers from payments fraud is to implement 3DS 2.0 when it launches this year.

3DS 2.0 is an authentication technology solution that can help to verify a transaction in the background without requiring any redirects. This creates an uninterrupted payments experience that increases conversion rates while reducing fraud.

Importantly, it can be implemented on mobile devices offers and advanced customer experience for transactions that require strong authentication, enabling shoppers to use biometrics such as fingerprint recognition, voice recognition or facial scans, as well as SMS-delivered two-factor authentication.

The biggest challenge with fraud prevention within a retail and payments context is how you maintain your defence without compromising the checkout experience, or accidentally refusing legitimate transactions. To do this, we believe minimising fraud without stopping genuine transactions is the key to creating a great customer experience and at the same time protecting your business.

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