Guest Column | November 7, 2022

Fraud Detection Should Go Beyond Stopping Chargebacks

By Nathan Smith, SVP of Products, Appriss Retail

Data Protection GettyImages-1318615136

Before the growth of eCommerce during the pandemic, retailers typically focused their online fraud detection efforts on reducing the rate of chargebacks. But with the rise of claims fraud, retailers are up against a new goliath. 

Claims, or instances where a shopper reports that an order was not received, damaged, or incomplete, always have been a cost of doing business for retailers. But now, recent data from Appriss Retail found total claims adjustments can be anywhere from two to four percent of a business’s revenue. What’s more, an estimated 10% of those claims are fraudulent. 

To protect the bottom line, retailers must find a way to detect these fraudulent claims and put a stop to the behavior, without punishing loyal customers.

Why Claims Fraud Occurs

Consumers who report fraudulent claims are doing so in search of appeasement. Many retailers respond to order claims by offering a refund or reshipment of the damaged item. These adjustments are costly but when used in response to a legitimate claim, eCommerce retailers can build trusted relationships by righting the wrong.

Claims adjustments are necessary, but they have a significant impact on the bottom line. By identifying which consumers are continuously taking advantage of generous appeasements, retailers can save millions of dollars every year.

How To Identify The Different Types Of Claims

The eCommerce fulfillment process is complex and requires a lot of touchpoints. A product goes from the warehouse to the delivery truck to the front door without the retailer being able to ensure quality control of the entire end-to-end delivery. As a result, there is potential for error throughout the process.

Most claims are legitimate – the consumer’s shipment was lost, stolen, or incomplete before receipt, or there was damage or issues that make the item unusable. And, unlike with chargebacks, the issue is immediately reported to the retailer as opposed to going through a third-party bank. This gives retailers the chance to resolve the situation when the claim is legitimate, but it also leaves the company vulnerable to claims fraud.

To determine the authenticity of an order claim, customer service representatives must review company guidelines and processes to ensure the concern is handled fairly. This can include pulling package tracking information, requesting photo evidence of damage, validating the shipping address, and more. They may also use the name and address of the customer to search for past order claims in the system that might raise the concern of fraud.

What Artificial Intelligence Can Do To Help

Unfortunately, when determining the validity of a claim, customer service representatives may not have the full picture. Consumers who commit fraud often make slight changes to their name, IDs, and street addresses, making it difficult for customer service representatives to identify the fraudulent action and put a stop to it. There is no easy way to manually review all the profiles that might be linked to the shopper, especially during a live call. The best way to immediately determine the validity of an order or a claim and take action is to employ artificial intelligence.

With the help of AI, retailers can connect the purchasing activity and behaviors of their consumers across all channels and data sources to flag fraudulent claims and give the customer service representative the information they need to apply the right adjustment offering or lack thereof. Similarly, for loyal customers with legitimate claims, the AI solution can recommend individualized appeasement alongside a promotion or discount that may settle the dispute and encourage them to make another purchase.

An AI-driven approach to claims management assists customer service representatives so they can focus on supporting loyal customers and improving the customer experience.

The Bigger Picture Of Fraud Detection

As consumers acclimate to eCommerce, they are beginning to expect personalization across various touchpoints. By adding dynamic policies to address claims, retailers can deliver a smooth customer journey for loyal shoppers while protecting the bottom line from consumers who attempt fraudulent claims.

As inflation pushes prices higher, retailers can’t afford to lose money at any stage of the customer journey. As a result, when retailers approach fraud detection they must take a holistic approach that covers more than just chargebacks. By using AI to monitor for other inconsistencies like claims fraud, retailers can protect their profits without impacting the customer experience for loyal shoppers.