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Expanding internationally: five strategies to help combat online fraud

Tuesday May 7 2013

The adage that crime doesn’t pay isn’t just for criminals. It is applicable to law-abiding merchants too who have to deal with the costs and issues of fraud when expanding internationally. By Shane Fitzpatrick, president and managing partner of Chase Paymentech, Europe

According to a Chase Paymentech survey, fraud impacts nearly eight in ten international online retailers . It hampers prospects for growth, restricts profitability and increases overhead. International fraud is a challenge for at least a quarter of CNP (customer-not-present) retailers.

This is with good reason. Companies that trade internationally are three times more likely to see higher levels of CNP fraud than domestic retailers , while international fraud has a greater impact on large retailers with overseas offices and with a high percentage of CNP sales.

There is no simple solution to the threat of international fraud. Fraudsters never rest – they are continually evolving and adapting their behaviour to exploit every new opportunity, channel and payment method. They know no boundaries and the threats faced by online retailers are the same no matter where they trade.

So, what can retailers do to help effectively, efficiently and simply mitigate fraud while ensuring successful international expansion? Here are five strategies to help merchants safeguard against fraud.

1.    Unmask even the most determined fraudsters

International fraud is often perpetrated by highly organised and sophisticated criminal gangs. One frequent technique used by fraudsters is to use an internet proxy server to mask the location of each transaction, making it appear that the buyer is in the same country as the registered billing address for the stolen credit card. But advanced technology such as ‘proxy piercing’ and ‘device fingerprinting’ can pinpoint the true location of every computer or mobile device used to make a payment. This allows retailers to compare a customer’s registered or shipping address in real-time with their current location, enabling the retailer to establish automated rules to immediately filter and block suspected transactions. 

2.    Manage risks country-by-country

As more online retailers look globally for growth, the ability to assess fraud risk on a country-by-country basis becomes essential. However, one in five international retailers say they cannot filter transactions from a given country or region automatically.  Fortunately, IP geo-location tools offer retailers the ability to accurately identify breaking threats and block transactions from a known high-risk country. Accurate fraud screening allows retailers to develop specific rules and fraud scores for each country to reflect the level of risk.

3.    Monitor and review multiple channels

According to our survey, retailers operating through multiple channels are more likely to lose revenue as a result of fraud (36 per cent) compared with companies that sell through a single channel (16 per cent).  To avoid this, retailers must work with their payment providers to analyse payment data and identify fraud patterns by sales channels. Additional tools can also be implemented to capture more information about the device being used, and screening criteria should be kept updated to match the needs of each channel to prevent fraud across them all.

4.    Use your data to detect ‘clean fraud’
Until recently, the use of card verification alongside account information and order history checks usually helped to identify a fraudulent transaction from a genuine order. However, the fraudsters’ tactics have become so sophisticated that even fraudulent attempts can appear ‘clean’. In addition, new types of fraud are emerging and retailers need to consider other attacks, such as account takeover, identity theft, skimming and friendly fraud.

While fraud detection tools are essential, there is no substitute for conducting detailed analysis of your data to identify fraudulent behaviour. Since a significant proportion of your chargebacks will be related to fraud-related codes, retailers may consider to analyse its chargebacks across criteria such as country, product and channel (i.e. mobile versus ecommerce).  This combined intelligence may help to spot trends and identify patterns in fraudulent behaviour that retailers may find helpful to refine their response.  

5.    Track potential friendly fraud

Friendly fraud is a growing problem for some retailers. Such fraud is hard to detect in advance because transactions are made using a legitimate card and billing address. But once the product or services have been dispatched, the cardholder denies placing the order or they falsely claim that the product never arrived or was faulty. In other cases, a friend or a member of the cardholder’s family uses their card without their knowledge.

This results in costly chargebacks as well as rising overhead costs. Individual problems can often be addressed just by talking  to the cardholder - but a regular analysis of specific chargeback codes will help identify any recurring patterns of fraudulent behaviour over a period of time. Retailers may want to use this data to build an order history of friendly fraud that can be used to develop its fraud strategy. .

Achieving a balance between security and customer experience
Inefficient fraud prevention may also affect a retailer’s profitability if it impacts customers’ shopping experience, leading to cart abandonment and lost sales. Over half of international retailers said their fraud and authorisation processes were a barrier to delivering a customer checkout experience across multiple channels.  Collecting additional information from mobile shoppers, providing additional authentication methods at the point-of-sale, and fraud screening can deter customers from completing orders. 

Depending on your fraud strategy, fraud prevention methods can support your plans for international growth. You need increasingly sophisticated tools to identify today’s fraudulent transactions in real-time. And, you also need a balanced view of fraud to avoid deterring genuine customers. 

Talk to your payment provider, who should be able to offer advice on the latest fraud detection tools, help analyse your fraud and payment data to identify fraud patterns and highlight potential improvements.

Protection from fraud is vital, but so is ensuring that customers receive a seamless shopping experience across all channels. Finding the right balance is between the two is key for global success.