Are Frictionless Payments An On Ramp To Fraud?

The latest research shows the growth of eCommerce fraud rising nearly 100 percent, but could misplaced merchant focus be the reason for the spike? Ralph Dangelmaier, CEO of BlueSnap, sat down with MPD CEO Karen Webster to discuss how shifting the conversation with the merchant could hold the key to combating the work of fraudsters.

It’s not exactly breaking news that payments fraud is a hot topic, especially in the run up to the Oct. 1 liability shift. And, just last week, the True Cost of Fraud 2015 Study from LexisNexis found total retail fraud accounted for 1.32 percent of total retail revenue, marking a 94 percent increase from last year.

But BlueSnap CEO Ralph Dangelmaier tells MPD CEO Karen Webster that there are two reasons why fraud, and in particular fraud online and via mobile devices, may be spiking: Past breaches give cybercriminals new tools to use online, and more importantly, initiatives to enable “frictionless” transacting are being prioritized at the expense of a focus on fraud detection and prevention.

“Everyone is really bent on trying to have a real frictionless, simple checkout experience online and using the mobile device. Well, the less data that a consumer enters at checkout, the better the customer experience but the harder to track fraud. There’s simply less data to go on to authorize the customer, ” Dangelmaier explained.

Dangelmaier pointed to the fact that it may be a case of what merchants don’t know they don’t know; many just aren’t asking the right questions when initially establishing their payment gateway relationships. Product and marketing execs place a high value on having a frictionless checkout first and only begin to address fraud-related issues after they recognize they have a problem. And since many online fraud systems are not upgraded to catch the latest tricks and traps used by fraudsters, the problem is only compounded.

At the same time, going to the other extreme — tightening up fraud protection all the way around — can also backfire but for different reasons. False declines increase the odds that legitimate customers could get rejected, leading to a lot of frustrated customers. This same LexisNexis study found that nearly 25 percent of all transactions are false positives, and many of those who are declined are lost forever to that merchant.

[bctt tweet=”Nearly 25 percent of all transactions are false positives; many declined consumers don’t return.”]

While Dangelmaier admitted addressing false declines is still a “work in progress” for merchants, it really requires having a command of all the data in order to truly tackle the problem.

“The logic of having a really good rules engine, while also continuing to tweak those rules on a weekly basis, is really the answer here. This can allow merchants to minimize expensive and time-consuming manual reviews and avoid delivering a bad customer experience,” he said, further emphasizing that these types of tools are “well worth the investment.”

But not all merchants have to sacrifice a positive mobile checkout experience to fraud. Dangelmaier stated that BlueSnap offers its customers a number of best practices that have reduced their fraud rates as much as 86 percent year to date.

Those best practices, Dangelmaier suggested, start with a few things that may at first blush seem blindingly obvious: monitoring the activity of fraudsters and instituting the necessary rules to detect it. But activities such as checking that card information isn’t stolen, tracking trends in fraud usage behavior and reviewing unauthorized or questionable transactions in real time are all technology-enabled tools that are easy to implement and are effective .

[bctt tweet=”Focusing solely on customer experience can come back to haunt a retailer.”]

Perhaps the most important element in the fight against online fraud requires shifting or refocusing the priorities of the merchant early on — something Dangelmaier says is a “tricky proposition” given the marketing and product team’s focus on implementing “cool and slick” first.

“It isn’t always an easy conversation because they don’t want to talk about it,” he added.

To put it simply, Dangelmaier said, putting too much attention on the customer experience is one that can come back to haunt the retailer, unless fraud tools and analytics are a part of the conversation right at the start.

At the end of the day, Dangelmaier says, it falls back to education — providing merchants with the knowledge they need to make informed decisions about the balance between keeping payments secure and ensuring transactions don’t bear too much of a burden on consumers.

“Cool and slick and secure and fraud-mitigating [mobile checkout solutions]” Dangelmaier said, “don’t have to be mutually exclusive.”