How to Reduce eCommerce Fraud Risk.
With the eCommerce industry booming, there is an increased need for electronic payment solutions. As a result of an increase in electronic payments, there is an increased risk of fraud and chargebacks, since a majority of consumers use credit cards when shopping online. Credit card companies allow customers to refute charges in the event of a fraudulent activity and request chargebacks. With the escalation in the volume of e- and m-commerce transactions, it is highly likely that the volume of chargebacks will rise. So, merchants must figure out how to reduce eCommerce fraud risk but keep customers happy too.
The shift to EMV standard promised to protect consumers from online fraud, pushing opportunistic fraudsters to CNP or Card Not Present transactions. However, CNP fraud is expected to rise from $3.1 billion in 2015 to $6.4 billion in 2018. As a result, any increase in CNP fraud will cost merchants dearly, from bearing the cost of goods sold, to handling charges, shipping cost, and even fines in the event a threshold is reached.
Related: 7 Tips to Reduce Chargebacks
According to a new study by Javelin on fraud and chargeback management, fraud prevention cost and chargeback management both account for 13% to 20% percent of the total operational budget of a merchant. This means that the merchant has to spend one out of every five dollars on non-revenue generating efforts in order to reduce eCommerce fraud risk. This affects the bottom line!
Additionally, staff training in chargebacks and fraud prevention is another burden that merchants must bear, which accounts for 36% to 41% of the overall expenses. Any significant rise in the sales volume will require hiring of additional personnel, further adding to the total related expenses and making it difficult for the merchant to redirect these dollars toward revenue generation.
The study adds that when Compared to physical goods merchants, digital goods merchants employ five times the number of dedicated fraud-prevention personnel.
Fraud Management Risk
Many merchants resort to increasing the transaction denial rate in order to reduce eCommerce fraud risk. But doing so may inadvertently amount to rejecting legitimate consumers. Some other merchants request customers to submit additional personal information. Customers look for instantaneous transactions and may prefer to abandon sales if they are asked to spend more time inputting further personal details. Customers don’t like to deal with additional paperwork!
The Starting Point
How can merchants make it seamless for customers to make online purchases while taking steps to reduce eCommerce fraud?
- How much have you spent on chargebacks and fraud prevention initiatives in the last five years? Is there any increase in the cost? The analysis will provide you with valuable insights into the cost trends.
- What’s your five-year growth plan? What steps are you taking to grow your online business? The greater the growth initiatives taken by you, the more the chances of scaling up your fraud prevention efforts and chargeback.
- What are your current and anticipated chargeback and fraud mitigation costs? What are the resources you plan to deploy in the future? Do you need a larger budget to reduce eCommerce fraud and chargebacks? How do you plan to deal with a large fraudulent transaction? Projecting your cost efficiencies, operational budget, and headcount growth.
- What are the implications of building an internal fraud prevention team? How much it will cost to outsource the same? Javelin study reveals that two-thirds of merchants are in favor of outsourcing chargeback and fraud mitigation. One of the benefits of outsourcing is lower headcount and operational cost. Expert professionals in the industry can more efficiently and cost-effectively manage the risk of fraud and chargebacks.
eCommerce is a widely growing industry and offers merchants exciting growth opportunities for both local as well as international markets. However, anticipating and tackling challenges head on can reduce eCommerce fraud risk and facilitate business growth.
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