Fraud Severity and Prevention Strategies [A Q&A]
As the busiest time of the year for Internet retailers quickly approaches, the issue of fraud (and how it can be prevented) takes center stage. To keep our community of Web professionals in the know, Website Magazine reached out to ask Rafael Lourenco, the VP of U.S. Operations for ClearSale (which just this week released its new Mapper product) to help us understand just how severe fraud is on the 'Net today and what, if anything, can be done to prevent it during the 2016 holiday season and beyond.
WM: Provide Website Magazine readers a sense of how severe the problem of fraud is within the digital ecosystem.
RL: Fraud and data breaches are a pressing issue. As online sales are rising (projected to reach $523 billion by 2020), and nearly half of all websites experiencing some kind of data breach, fraud security is becoming on the forefront of a lot of retailers minds. Most people know the direct impact of fraud in the digital ecosystem, but there are also some indirect factors that many people end up ignoring. One major industry problem is rampant “false declines,” or when a good transaction is declined due to suspicion of fraud. It is estimated that false declines will cause a loss of $8.6 billion in 2016. Losing good clients due to fear of fraud can cost merchants dearly, not just in loss of orders, but also in brand damage and client loyalty cost. Our fear of fraudsters has caused merchants to become overprotective and fraud companies to implement very conservative machine-learning systems that decline good transactions. This is why we have always focused on balancing high conversions while simultaneously minimizing fraud losses. We are dedicated to giving business owners the “freedom to sell” without the stress of dealing with fraud.
WM: What should e-commerce merchants, even "low-risk" sellers, know about preventing online fraud?
RL: Fraudsters will usually target high-cost products like smart phones, high-end jewelry, adult items, and clothing as they are easy to resell. If you sell this type of merchandise, you must take extra precaution to have your fraud management tools in place. However, in a lot of cases, fraudsters will attempt a low-risk product just to see if the credit card is valid. They will target low-risk sellers under the assumption that they are the least protected. We have seen a lot of fraudsters try to obtain items that are generally viewed as low-risk like books, diapers, and even gardening products in an attempt to see if their newly-obtained stolen credit cards are working.
WM: What are the most significant benefits of outsourcing fraud management?
RL: Business owners should always be aware of the fraud risk of their company, but we firmly believe that every retailer would benefit from an outsourced fraud management system. Doing your own fraud management can be costly in time, staff and distraction from your core business. On top of that, it should not be a merchant’s responsibility to keep on top of the newest and best technologies for fraud prevention, which are always changing. Your fraud management partner should presumably always be researching the most efficient methods and technology available to approve orders and detect fraud. If you and your outsourced provider are on the same page, you’ll never have to compromise your business goals to focus on risk management even during times of peak sales again.
WM: Should fraud management rely more on manual processes, technology, or both?
RL: It should be a balance of both. If you rely too much on manual processes, you may risk losing clients who grow impatient waiting on you to decide whether or not to approve their transaction. On the opposite end, if you rely too much on automatic processes, you may end up losing money as a result of false declines which can also damage the reputation of your company. That’s why ClearSale believes that the best way for a merchant to optimize their conversions while keeping the fraudster away is achieved by combining automatic processes and an expert team of fraud analysts that can go through risky transactions and accept good transactions that any 100% automatic system would decline.
WM: How is ClearSale preparing for the continual adjustments and evolution of fraudsters?
RL: I will say that fraudsters definitely keep us on our toes. They are smart and fast, and they know when they are being blocked, so they change their approach and try again. I’m proud to say that our team has managed to always stay a step ahead of most CNP fraud tactics. Since fraud is our core business, we have built a staff of over 200 people with extensive knowledge of fraud prevention, whose sole responsibility is to research and familiarize themselves with the latest fraud practices daily and create new technologies that allow ClearSale to combat them. Beyond that, we have over 500 seasoned fraud analysts who know how to spot fraud even in the most mundane of transactions. Being proactive in our approach has aided us in combating the ever-evolving field of fraud for the past 15 years.