As e-commerce becomes increasingly instantaneous through the advent of digital deliveries and extremely expedited shipping, your customers are expecting near-immediate gratification on their purchases. Consumers want everything at their fingertips, and they want it now.

As growing and established merchants alike race to offer the fastest and most compelling shopping experience, research shows the threat posed by online fraud is a blind spot for many companies. In fact, 50% of small to mid-sized business executives surveyed believe their company is too small to be targeted by fraudsters.

The role of automation and other changes

However, nothing could be further from the truth with 1 in 4 businesses reporting a fraud attack. As fraudsters’ techniques become increasingly advanced, launching attacks on a wide array of e-commerce businesses has become easier and more profitable than ever. Organized fraud rings routinely create networks of automated bots that purchase and download digital products (such as ebooks and gift cards) for resale. This happens within a blink of an eye using stolen or synthetic identities and with little to no manual effort.

Merchants have also turned to automation to meet the growing demands of their customers for speed, efficiency, and delivery. What happens when these worlds collide? Increased fraud attacks designed to exploit drastically reduced delivery times and smaller margins of error for retailers. Once resigned to the plot of Hollywood thrillers, it’s now possible for fraud rings to make off with millions of dollars in fraudulently acquired digital goods that never leave cyberspace.

Service level agreements (SLA) and fraud exposure

Merchants make promises about the performance and quality of their products in an attempt to set themselves apart from their competition. At the same time, merchants are also facing more unique challenges based on the type of product sold and the delivery of that product.

Think of it like this: fraudsters are becoming more specialized while consumers are becoming more demanding.

Whether merchants are held to a lightning fast shipping speed or slower freight speeds, they must balance their SLAs with a proactive fraud management strategy.

Fraud management for low SLA products & services

Merchants selling large, or otherwise “big ticket” items, like furniture and appliances, don’t contend with the same consumer expectations of immediate delivery. Customers purchasing these products tend to be more understanding of additional verification due to the hefty price tags associated with these transactions.  This allows organizations the ability to spend more time manually reviewing and digging deeper into purchases that have fraud indicators.

Likewise, vendors selling wholesale items to other businesses have more leeway because items are often shipped freight, buying additional time for investigating potential fraud cases. Even some digital products are considered to have a lower SLA, such as loan applications that rely on a “soft pull” which determines initial qualification, with a consumer expectation of additional time for a final decision.

When your product isn’t expected to be in the hands (or on the devices) of your customers quickly, fraud management teams have more time to investigate suspicious activity. These considerations allow you to use a fraud prevention strategy that looks at each transaction more thoroughly with a variety of data points.

Low SLA businesses can be particularly helpful in reducing fraud globally when partnered with solutions that utilize network sharing, where data such as email addresses or phone numbers associated with confirmed cases of fraud are shared with other merchants.

Fraud management for high SLA products & services

Customers purchasing from merchants with higher SLAs or instantly available products have different requirements. Here, consumers expect their purchase to be completed and goods delivered without additional detectable scrutiny.

For example, consumers are not going to wait four to six hours for a manual fraud team to approve the transaction when they pay to download their favorite gym jams. Fraudsters are fully aware of these circumstances and cause havoc for digital merchants who feel that fraud is simply a price to be paid in the name of a frictionless customer experience.

The price tag for this is significant with digital merchants spending an average of 20% of their operational budgets on fraud and chargeback disputes.

Selling physical goods with expedited or same day shipping doesn’t offer much more protection for retailers. Expedited shipping leaves little room for error or fraud detection. Once the goods have left the warehouse, they’re gone forever. It’s critical for merchants to verify identity behind a purchase quickly and automatically whenever possible.  

The future will belong to companies who step up their game and enact proactive fraud management policies that allow them to approve more legitimate purchases faster and decline very suspicious transactions automatically.

Overcoming common challenges

Frictionless customer experience is critical to the success of your online presence, no matter the product you’re selling or what SLAs your stakeholders expect you to meet. Here are just a few steps that can be taken to optimize your fraud management process:

Digital Vendors:

  • Optimize account creation checks by implementing a fraud management solution up front that uses multiple data points like email address, phone number, and physical address to verify customer identities as soon as an account is opened.
  • Automate sales processes to ensure delivery is as quick and efficient as possible.
  • Approve more transactions with a fraud prevention network that detects anomalous activity when other merchants confirm fraud associated with identifying information.

Physical Goods

  • Create a waterfall and prioritize investigations based on shipping speed. Freight and standard shipping transactions can be subjected to more scrutiny while digital goods and “buy online, pick up in store” transactions go through automated fraud detection algorithms.
  • Implement a fraud management solution that creates custom models for your business to automatically approve and deny more transactions faster.
  • Share fraud data with your fraud management provider–fighting fraud is a team sport, sharing confirmed fraud cases will speed up future automatic declines and approvals providing the best possible customer experience for digital purchases.

In conclusion

Fraud management isn’t a one-size-fits-all problem with a single solution. There’s no silver bullet. To protect your investments and provide frictionless customer experience, your approach to fraud prevention must be holistic and proactive. Getting proactive means getting the right solutions in place that support rules and custom models that automatically approve and decline transactions at scale, leaving a smaller percentage of transactions that require manual review.

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