By Patrick Kelly, Executive, ShuftiPro
From shopping for clothing to online-gaming purchases, eCommerce is redefining consumerism in a way that has taken the world by storm. Along with the emergence of faster, more efficient delivery services, eCommerce offers customers a seamless, on-demand alternative to brick-and-mortar stores that they can easily access and enjoy from the convenience of anywhere, using mobile devices or tablets. From 2011 to 2020, however, global payment fraud tripled from $9.84 billion to $32.39 billion, leaving consumers wary about allowing online sellers access to their payment credentials.
Consumer preferences drastically shifted toward eCommerce throughout the COVID-19 pandemic, sky-rocketing online shopping. Between quarantine requirements and public health concerns, eCommerce became the preferential alternative for shoppers across the globe.
As customers increasingly moved to online shopping, so did the fraudsters who hoped to capitalize on security shortfalls in many eCommerce sites. The United States reported a staggering $145 million lost to fraud throughout the pandemic. As the frequency of these attacks accelerates, eCommerce businesses have recognized they must implement robust detection and resilience programs to respond to multiple types of fraud such as phishing, account takeover, identity theft, credit card fraud, and other attack vectors designed to defraud online retailers.
eCommerce businesses must act now to protect their customers, improve internal resilience procedures, and safeguard their reputations. Here are three initial steps retailers can take to minimize potential risk:
Step 1: Get To Know Your Customer
Know Your Customer (KYC) is an identity verification system that verifies legitimate customer identities for fraud prevention. By using advanced identity verification, companies can verify their customers accessing their services and take preventative measures against fraudulent activities.
Card Not Present (CNP) fraud occurs when payments are processed over the phone or online where a physical card is not required, typical of the eCommerce space. Between 2018 and 2023, retailers are set to lose $130 billion from CNP fraud. Threat actors are often difficult to detect – and often not who you think they are. Threat actors are not limited to hackers. Anyone attempting to obtain free products, a finder of a lost debit card, or even a child with their parent's credit card can commit fraud.
In these cases, you may see frequent chargebacks people file through their bank. This leaves the online retailer with the cost of additional assessments and fees associated with the chargeback. A retailer with a high chargeback rate may even risk account termination.
KYC services can be used to reduce CNP fraud resulting in lower chargeback rates. By using advanced identity verification solutions, merchants can verify the identity of customers accessing their services through document verification, biometric facial recognition, or address verification. KYC verification can quickly present customers’ risk profiles to prevent engagement with threat actors.
Step 2: Redefine The Online Shopping Experience
Implementing KYC and AML screening can help detect suspicious transactions up-front, flagging and reporting the activity to mitigate further issues. Artificial Intelligence (AI) and Machine Learning (ML)-powered technologies offer a fast, accurate solution to mitigating fraud attempts on your business. Advanced AML screening allows merchants to check their customers across known threat actors and sanctions lists.
Many identity verification systems today still require manual intervention, which is a time-consuming exercise that results in lower conversion rates and slower time to revenue with customers. AI and ML-powered KYC and AML services are improving the customer experience by reducing customer verification wait times while ensuring resilience. By utilizing advanced automation, businesses can save more than 80% of the cost of manual security.
Manual identity verification processes also can lead to higher labor costs and result in human error. By implementing AI-powered identity verification, eCommerce businesses can significantly reduce expenses while improving their customer onboarding accuracy. Configuring AI and ML-powered systems into customer interfaces can reduce fraud and provide a seamless customer experience.
Step 3: Going Beyond Technology
It is important to remember that preventative measures are not limited to technology. Although most fraudulent activity is often a result of fraudsters using fake identities and documentation, people using accurate and legitimate information are more than capable of money laundering and other fraudulent activities.
Monitoring customer activity is a critical preventative measure for eCommerce retailers to regulate and identify suspicious activity and identify high-risk customers. Billing and shipping information is a common indicator of fraud. It is critical for retailers to track orders and monitor for inconsistencies. Additionally, monitoring for changes in shipping addresses after the transaction can be a key indicator of fraud.
Innovation Is Key
With the eCommerce landscape flourishing, so is fraud in the space. Attackers are taking on a more sophisticated and complex approach to fraud requiring merchants' proactive and robust mitigation measures. Unfortunately, there is no way to be 100% protected against payment fraud, but there are preventative measures to mitigate the frequency and severity of fraud.
The identity verification landscape offers technology that uses highly innovative services to protect customer credentials beyond only security codes and passwords. Implementing these technologies can bolster retailers’ resilience, preventing threats that may deem them less reputable. By adopting more robust security systems with incorporated AI-powered IDV, retailers can identify threats to safeguard their customers’ information, even before fraudulent transactions occur. Utilizing technology-driven tools and manual monitoring can help ensure your eCommerce business is future-proof and prepared to fend off sophisticated fraudsters.
About The Author
Patrick Kelly is an experienced professional in digital identity and multi-modal biometrics designed “to prove you are who you say you are.” He is head of sales for ShuftiPro in the Americas.