Mitigating the CNP challenge during the holidays
Holiday shopping trends come and go, but one thing remains constant year after year— fraud. It’s no secret that fraud rates increase during the holiday season. Verifi typically expects merchants to face an increase in chargebacks before and after the holidays of around 50 percent in an average year. And with the EMV transition in full swing, this year will be no exception.
Before the EMV liability shift in October 2015, which moved liability for fraudulent card-present transactions to merchants, the major warning experts handed down to merchants was to expect a sharp increase in card-not-present transactions. The logic behind that warning is that since EMV is so effective at curbing card-present fraud in retailers’ physical stores, fraudsters would look for easier targets to carry out their fraudulent activities. Since EMV does not protect online, card-not present transactions, it’s an easy bet to assume ecommerce fraud would rise. Data from other countries that have implemented EMV has also proven this to be true. Despite the fact that merchants have been slow to adopt EMV, leaving fraudsters ample opportunity to continue targeting businesses with in-person fraud, online fraud has increased significantly.
According to Security Magazine, the number of fraud attempts in 2015, based on total population, increased from 1 out of every 72 transactions in 2014, to one out of every 67 in 2015. Forrester predicted a 55 percent increase in online fraud over a three-year period. Both of these stats point to the fact that online fraud will increase even faster than online transactions as a whole increase.
With the likelihood of major online fraud activity in mind, online retailers can take several steps to prepare for the card-not-present holiday challenge.
Use a fraud scoring system
A robust fraud scoring system is worth every penny in the fraud it can prevent. By analyzing data and using tools like IP filtering and proxy detection, geography filtering, and sales thresholds for the number and amount of transactions, a fraud score is generated for each transaction request. If the score doesn’t meet the standards, the transaction is considered high-risk and will be declined.
Monitor post-billing chargeback notifications
Whenever possible, stopping the chargeback process is a great way to reduce the pain of chargebacks and help merchants avoid costly fines and fees. One way to do this is to resolve disputes with consumers directly. Not every chargeback can be stopped, particularly when they are a result of intentional fraud. But if fraud rates go as high as expected, every little bit counts.
Beware of in-store pickup fraud
Providing integrated in-store and online experiences is something consumers are increasingly demanding. But it does pose a particular risk. When a customer selects store pickup as the delivery method, they don’t provide a shipping address. Systems that rely on AVS for shipping/billing address matching are at a significant disadvantage. According to an ACI Worldwide report, fraud attempts that include buying online and picking up in store rose 47 percent in 2015.
Change policies for guest checkouts
There are many benefits to having customers create a unique user ID and password to make purchases on an ecommerce site. For one, their activity can be more easily monitored for suspicious activity. And if such activity is occurring, their account can be suspended for additional monitoring. Customers who choose to use a guest checkout should require more scrutiny and should be prevented from certain features like the ability to ship to a noncertified address.
Ditch manual reviews
For large ecommerce retailers, CVV code and billing address checks and fraud scoring systems may not be good enough. Manually reviewing that data may have been sufficient in the past, but considering the volume large e-tailers are expecting, and that it takes about five minutes to do a review properly, relying on a manual task in today’s ecommerce world is equivalent to say baking your own bread before making a sandwich. It’s not efficient, or realistic– particularly during the holiday season when fraud may increase by as much as 50 percent.
Instead of manual reviews, merchants should implement full automation for fraud controls. The sheer number of sources, variables, and data to comb through make automation a necessary feature for many online retailers who are looking to keep fraud under control this year.
The main takeaway for ecommerce providers this year is to be prepared for more volume overall, and more fraud volume in particular. If you were hurt by fraud last year and don’t have a fully automated fraud prevention system, consider adding one as soon as possible. Contact Vantiv for additional fraud mitigation strategies.