Card-Not-Present Fraud Shouldn’t Be an Accepted Risk for Online Retailers

By MYOB | 18 Mar 2019

Anyone who has ever traded online knows that e-commerce comes with its fair share of business risks, but how you choose to protect yourself can have significant impacts on your bottom line.

You know the story. You’ve just posted a shipment from a sale made overnight and (wouldn’t you know it?) suddenly the bank issues a chargeback against it for fraudulent activity.

It’s too late to do anything about it other than going back over the transaction details to try and figure out what you missed.

For many retailers, managing online fraud as an accepted risk and therefore budgeting for its occurrence is just part of being in the e-commerce game.

Online Payments Fraud Tipped to Grow

According to data from the Australian Payments Network, the value of fraudulent online payments reached $561 million for 2017, up from $540 million in 2016.

As nefarious individuals become increasingly savvy when it comes to stealing and abusing card data, this trend is only likely to increase.

This represents an increasingly tenuous business environment for any online retailer – at a certain point, you simply can’t ‘factor in’ tens of thousands of dollars’ worth of fraudulent transactions every year.

A study released by Juniper Research at the beginning of this year, titled Online Payment Fraud: Emerging Threats, Segment Analysis & Market Forecasts 2018-2023 estimates retailers will lose as much as USD$130 billion because of this kind of activity over a four-year period.

That means if you’re not concerned about how you’re managing fraudulent activity in your online business today, it’s likely to become a problem for you before long.

For Card-not-present Fraud, Prevention Better than Cure

When it comes to dealing with this type of fraudulent activity, staying ahead of the fraudsters is the key to managing costs.

The good news is, according to MYOB’s Sales and Marketing Manager, Nigel Burke, technological solutions exist today that can help retailers detect and eliminate fraud long before a transaction is processed.

“Small-to-medium retailers may be tempted to try and manage card-not-present fraud in a manual way, whereas some larger businesses have already begun building entire fraud detection and management teams within their businesses,” says Burke.

“But there are also solutions that can be outsourced as a professionally managed service that already exist that, for a variety of reasons, will be far more cost effective than trying to design a new set of systems and protocols from the ground up.”

According to Burke, some of the best-in-show solutions available today utilise artificial intelligence and contemporary machine learning techniques to analyse historical and current data in real-time. The outcome is a system that’s able to detect, flag and eliminate card-not-present fraud before it occurs.

“MYOB has recently partnered with UK-based fraud management provider, The ai Corporation in order to embed this technology into our own payment gateway, MYOB PayBy.

“This has allowed us to create an integrated payments solution that’s customisable – you can define its sensitivity settings and rules – and you can even have it managed as an outsourced service. It’s basically a case of set-and-forget.”

False Positives: The Hidden Statistic of Card-not-present Fraud

For savvy retailers used to spotting the signs of fraudulent activity themselves, there’s some evidence to suggest that you may still be doing your business a disservice despite the best of intentions.

In a poll conducted by CreditCards.com, four out of 10 respondents reported they’d experienced a blocked transaction suspected as fraud when trying to make a purchase online. Of these, more than half stated the blocked transaction was a false positive – either the vendor or the vendor’s financial provider had flagged their purchase as fraudulent, even though it wasn’t.

“Can you imagine a worse customer experience for the online shopper?” says Burke. “But the fact is this is happening every day and it means those retailers often end up losing that customer for life.

“What we’re looking at here is a situation where, not only is legitimate fraud costing Australian retailers hundreds of millions as an industry, but there are even more costs to be accounted for by false positives.”

So how can retailers expect to spot a legitimate sale from a fraudulent one with a high success rate?

“They can’t,” says Burke. “With the number of transactions and the level of insight into the data required to parse true positives from false positives, it’s unlikely there’s any retailer in the country that’s developed an internal system adequate for this purpose.

“This is why we believe outsourced management and machine learning are the way forward for developing truly efficient fraud detection solutions.”

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