Five Ways to Manage M-Commerce Fraud

Conversions up. Order rejections down. Fraud losses stable.

That’s the findings of CyberSource’s recently published 2014-15 Online Fraud Benchmark Study. The big takeaway is that the majority of merchants have improved order conversions, are experiencing lower rates of order rejection, while keeping fraud losses stable.

That’s actually pretty impressive. It shows that merchants have been successfully managing fraud over the past 4 years while increasing their sales volume. The challenge going forward, however, is to keep that equilibrium in an age where mobile is the way in which commerce online is happening. To identify genuine customers at the earliest opportunity, assess performance in key areas of their operations, and manage fraud effectively, CyberSource examines the process model merchants can follow.

Automated Screening

During the automated screening process, a rules-based system and risk evaluation are typically applied to determine the likelihood of fraud. An effective automated screening process, based on a wide-ranging fraud management solution, will deliver rapid, accurate and efficient decisions about the majority of orders, leaving only the most suspicious orders for the review team to investigate manually, says CyberSource. 

The top three most adopted fraud detection tools, according to the study, include Card Verification Number (CVN), Address Verification Service (AVS), and postal address validation services.

Tackling “Clean Fraud” 

A major issue that’s emerged over recent years is “clean fraud.” It’s becoming much more difficult to distinguish valid orders from fraudulent orders, as fraudsters become more sophisticated. Merchants therefore need to apply more data to identify the subtle indicators of fraud.

CyberSource advocates a multi-factored approach, or using a “layered” set of detectors at the same time, that includes asking for reliable information, adding dimensions of related data, and creating a safety net for fraud risk.

Optimizing the Manual Review Process

After evaluation by an automated screen process, orders with more ambiguous transaction characteristics will be sent for deeper investigation. According to the study, overall, merchants typically spend five minutes manually reviewing a suspicious order.

Review teams often account for the largest share of an organization’s fraud management budget. Therefore, monitoring and optimizing performance is critical, says CyberSource. The following steps to do so are recommended by CyberSource:

1.  Measure key performance metrics to drive effectiveness/efficiency
2.  Use a workflow automation tool like CyberSource Decision Manager
3.  Use a case management system to enabled more structured review and gather KPIs
4.  Ensure fraud teams share knowledge of the latest trends

The study also indicates that 85 percent of the orders that merchants review manually are accepted. In addition, over 70 percent of merchants believe that up to 10 percent of rejected orders are actually valid. This suggests that there is room for improvement or refinement of many merchants’ automated screening processes, , perhaps by analyzing data or fraud patterns on an ongoing basis.

Fraud Claim Management

Fraud is defined as fraud coded chargebacks and any credits issued by a merchant to customers in response to a fraud claim. As a result, fraud rates reported by merchants are often higher than those cited by banks or card networks.

Fraud loss rates can vary by channel, as well as by payment type, which is something merchants need to take into account when tuning their fraud management systems.

Spotlight on Mobile

The mobile channel is seeing increasing adoption by merchants. According to CyberSource, just under half of the merchants surveyed have a mCommerce operation. Merchants must therefore ensure their fraud management processes and systems track and manage mobile fraud risk. Below are CyberSource’s results on the most effective tools for managing m-commerce fraud.

In addition, merchants also perceive that there are different levels of risk association with different operating systems. Survey results indicate that Android was perceived to be the riskiness, while Blackberry had the lowest amount of risk.

Fraud Management Solutions

To help scale fraud management efforts as e-commerce and m-commerce volumes increase, merchants should focus their efforts on automated screening systems. This means integrating new tools like device fingerprinting, tuning their tools and systems to take account of different threats, and using the results of manual order reviews to build new or amend old business rules.

To find out how merchants can help cost-effectively manage online payment fraud in 5 steps this holiday season, click here.