The top 3 trends in the future of eCommerce fraud prevention
In an age of “fake news,” phishing scams, and virtual reality, it’s often difficult to distinguish fact from fiction. Determining whether individuals are who they say they are is harder than ever.
This identity puzzle lies at the very heart of eCommerce. “Card not present” (CNP) fraud is on the rise, expecting to reach $25 billion in the U.S. by 2020. The costs of fraud to eCommerce merchants go beyond direct financial losses to include the indirect costs of prevention efforts and the significant potential for damaged business reputations. Those costs were estimated by Javelin in 2016 to represent an astonishing 7.6 percent of all eCommerce sales.
On the other side of the fence stand the financial institutions, credit card networks, and payment processors determined to make the future of eCommerce safe for consumers and businesses alike. These payment industry leaders are deploying state-of-the-art technology, rigorous processes, and the best and brightest teams to protect the hard-earned reputation and bottom line of businesses just like yours.
As an eCommerce merchant, you don’t need to become an expert in fraud. Savvy merchants will however want to keep an eye on the future so that they can become more informed consumers of fraud protection services. The following three broad trends offer a glimpse into the future fight against online fraud. Contrary to many headlines, that future is as bright as ever.
Machine learning, Artificial Intelligence (AI), and the future of fraud
Machine learning and artificial intelligence are not new in the battle against fraud. The vast majority of payment processors, financial institutions, and card networks all employ at least some elements of these technologies in current static fraud detection and prevention efforts.
Indeed, in conjunction with PYMNTS.com, machine learning security company Signifyd’s Q1 2017 Fraud Index reported a 35% decrease in eCommerce fraud from 2016 to 2017. Machine learning playing a key contributing role. This is where the promise of “big data” is paying real-life dividends: as the amount of metadata associated with each transaction rises, sophisticated data analytics reveal rich, meaningful patterns. Those patterns fuel machine learning algorithms that are continually learning and adjusting at a scale scarcely imaginable by human analysis alone.
Mastercard is among the leaders in deploying Artificial Intelligence in the fight against fraud with their Decision Assurance technology platform. Unveiled in November 2016, Decision Assurance “is a new way of solving an old problem using sophisticated algorithms to provide a predictive score to the issuer, based on intelligent analysis. They then incorporate that information into their existing fraud mitigation efforts.”
Machine learning and AI are already helping to reduce security costs related to operations and chargeback management, increase acceptance rates, and thwart criminals in their tracks. Machine learning and AI are helping to free eCommerce merchants from the drudgery of fighting fraud. The best news is that these efforts are only beginning to bear fruit and will continue to pave the way for a more secure eCommerce future for years to come.
The end of passwords and the coming age of multifactor biometrics
Biometric authentication methods are now present in a variety of applications, including fingerprint, palm print, eye-scan, and voice recognition technologies that drive advanced security tools such as access to restricted areas and airline security screening.
Multifactor authentication is increasingly common and is now employed in a wide variety of online consumer services such as leading social media and email applications. Multifactor authentication requires confirming at least two among three options:
- Knowledge (something you know, like an answer to a unique question)
- Possession (something you have, like your phone)
- Inheritance (something you are, like your fingerprint)
The future of online fraud detection and prevention will merge these concepts by introducing multifactor biometrics. Where passwords have proven highly penetrable and even two-factor authentication can be spoofed, multifactor biometrics will allow for highly-secure authentication that is nearly impossible to recreate by anyone other than the verified user.
Imagine being able to login to your favorite eCommerce site and login by simply looking at and touching whatever device you are using. Now imagine that it’s your eCommerce site. That’s safety and security that will allow merchants and consumers alike to transact with increasing confidence and focus on your goods and services, instead of having to remember one of their dozens of passwords, or their first favorite teacher’s pet’s name.
Moving from static to dynamic fraud detection and prevention
In a 2017 white paper entitled “Fraud Detection 2.0: Dynamic Tools for Fighting eCommerce Fraud," the Mercator Advisory Group outlined a progressive vision that offers tangible hope for a safer future of online commerce that includes a combination of:
- Machine learning and AI
- Behavioral biometrics
- Persistent identity
- Dynamic risk scoring
- Mobile device ID
- Persona linking
Mercator identifies proactive tools for the new age of fighting fraud to include "continuous learning and real-time updating, fewer manual reviews, reduced incidence of false positives, customized—deters fraudster spoofing and mimicking, and more sales and long-term customers.”
It may sound space-aged, but “multimodal behavioral biometrics” can create a persistent identity authentication that doesn’t require any active intervention on the part of the user. Now that’s frictionless commerce.
The future of fraud prevention is closer than you think
Criminal fraudsters are intelligent, relentless, and innovative. Fraudsters understand the importance of continuous improvement and are constantly adjusting their tactics to stay one step ahead of the game. As a class fraudsters represent a formidable criminal foe.
None of this is news to anyone who runs an eCommerce business. If you are thinking of starting your own eCommerce business—or are looking to expand an existing business online—one of the most important steps is to ally yourself with partners equal to the task who can help your eCommerce business stay one step ahead of fraud.
eCommerce merchants have plenty of options when it comes to selecting a payments partner. So be sure to ask the tough questions about how they plan to fight fraud, now and in the future. Are they reliant on static methods and fighting the last battle? Or are they employing the latest technology and working with those that push the envelope of security? Look for partners who can point to demonstrated successes protecting eCommerce merchants just like you.
Vantiv, now Worldpay, is the leader in global eCommerce and a dedicated payments partner with online merchants of every size. We’re committed to creating fast and easy checkout experiences that are safe and secure. Worldpay delivers world-class technology that drives commerce and empowers businesses.
Your business is about your dreams. Our business provides safe harbor for you to pursue those dreams. For other tips on how to create an eCommerce experience that allows your business and your dreams to shine, be sure to check out Worldpay’s eCommerce Cookbook.