An Unkind Guest: The Complex Issue of Guest Checkout Fraud

Introduction

The famed Greek poet Homer said, “A guest never forgets the host who has treated him kindly.” This is the basis of great hospitality and the aim of any well-run business. Treat your customers well, and they’re likely not only to come back, but also to tell their friends.

How do customers transact with companies with which they may not have established relationships? How do you gain a first-time customer’s trust while laying the foundation for a future relationship? Conversely, how do retailers curb cart abandonment and capitalize on visits to their site?

One component to this multilayered strategy can be the use of “guest checkout.” The word “guest” connotes a positive image of one who is invited and welcome. However, fraudsters use this agreeable connotation to exploit retailers for personal gain.

What is guest checkout fraud?

Guest checkout allows a customer to complete a transaction without setting up an account with that particular retailer or merchant. Not only does this incent customers to make an initial purchase, but it also attracts customers suffering from “account fatigue” — a consumer’s resistance to registering for yet another online account.

The frictionless elements of guest checkout are precisely the ones fraudsters exploit. A fraudster may use myriad scams and avoid detection because the retailer simply doesn’t know who the “guest” is. The “guest” checking out may be using a stolen credit card, shipping to an alternate address or performing any combination of e-commerce crimes, such as Account Takeover (ATO) fraud and Card Not Present (CNP) fraud, among others.

History of guest checkout fraud

Online merchants may offer the guest checkout option as a way to reduce friction and speed the purchase process. A 2019 PwC global study found nearly a third of consumers make an average of one or more online purchases every week.

Take a further look, however, and you can see this number could be exponentially higher. A Baymard Institute study calculates cart abandonment at a whopping 69 percent of transactions. Consumers reported the checkout experience as one of the highest-ranking issues leading to cart abandonment.

Guest checkout evolved as a practical deterrent to cart abandonment, reducing checkout friction and increasing completed transactions. Although the logic is solid, the inevitable opportunity for fraud was quickly exploited.

Impacts of guest checkout fraud

Studies on the impact of fraud show that retailers incur $3.13 for every $1  of fraud committed. This is an astronomical sum considering the nearly $587 billion in e-commerce transactions in the U.S. in 2019 alone.

Guest checkout can create additional problems for returns and refunds as there may not be a permanent record of the transaction or anything tying it to a particular customer. In addition, guest checkout doesn’t allow merchants to build further on the relationship with legitimate customers as no follow-up communication or marketing can be sent.

Retailers are forced to balance the cost-versus-benefit ratio of guest checkout functionality as a solution to friction while accepting the associated risks of fraud.

Identifying and preventing guest checkout fraud

What if these risks could be mitigated so that your business can focus on the benefits of sales growth through guest checkout rather than the fraud? Implementing Emailage risk assessment technology can make the “what-if” a practical reality.

E-commerce retailers are especially susceptible to guest checkout fraud, but any entity that allows a transaction without establishing an account is at risk. Dynamic data from a customer’s email address, rather than static data such as a Social Security number (SSN) or physical address, can better identify your customers and provide the basis of your risk management strategy.

Guest checkout fraud presents a complex issue for businesses and requires a thoughtful, nuanced strategy to combat it.

The Email Risk Score combines the power of the dynamic data associated with a customer’s email address and omnipresent machine learning to provide enhanced transparency and confidence that an account’s identity remains uncompromised. This technology increases authorization speed while decreasing customer friction and works to minimize the risk of guest checkout fraud.

As a result, out-of-the-ordinary customer behavior associated with a person’s email ad dress will percolate to the top of your risk management team’s attention so that you can identify guest checkout fraud sooner.

New from Emailage is Portal 3, which provides a robust dashboard for all of your risk management strategies. Your company’s risk management team can better monitor potential guest checkout fraud risks by running the previous seven days of queries from every channel. The ability to synthesize data from many channels in one place improves accuracy while saving your team time and money.

Emailage risk management technology is scalable for any industry and employs the power of network reporting. Combined with machine learning, network reporting creates an industry-leading deterrent against guest checkout fraud.

A welcome guest

Guest checkout is a necessary feature for many merchants. Allowing these transactions can increase business, decrease cart abandonment, and encourage repeat business and customer loyalty. With the right risk management technologies in place, your company can enjoy the welcome guest checkout transaction without the additional threat of fraud.

Learn how the power of Emailage network intelligence can help your company outsmart guest checkout fraud.

Visit emailage.com to get started.