Fraud is a serious problem and a constant source of worry for businesses across the board, but it’s particularly concerning for retailers. As operations and payments become more mobile, on-demand and digital, new frontiers have emerged for fraudsters to exploit - a prime example being online transactions. Fraud in this space is called Card-Not-Present (CNP) fraud, which occurs when a transaction is made without a physical card being used. CNP fraud has skyrocketed during the COVID-19 pandemic, with many people stuck indoors and preferring to shop online in an effort to avoid crowded stores and shopping centers. An overall increase in online shopping is certainly good news for e-commerce merchants, but it also means they’re now having to focus on two key things at the same time - delivering a great shopping experience for consumers while simultaneously implementing an effective fraud prevention solution.  

Studies show that 51% of consumers would accept whatever security measures were required to keep their data secure, regardless of how poorly it impacted their user experience. However, a recent report by Experian discovered that consumers consistently said they would abandon a transaction if they had to wait more than 30 seconds for it to go through. 

So what exactly should merchants do? How can they appease these seemingly conflicting consumer demands while also protecting their business from fraud? Sadly, many merchants find themselves in this difficult situation feeling like they have to pick between two sub-optimal options. On the one hand, they can focus on fraud prevention at the expense of the customer experience, leading to unhappy customers and poor brand reputation. On the other hand, they can focus on approving as many transactions as possible, resulting in happier customers but increasing the likelihood of fraudulent transactions and chargebacks.

Fortunately, there is now a third option. Today’s technological advancements have made it possible for merchants to strike an effective balance between minimizing fraud and maximizing customer satisfaction. The following three tips can help companies balance strong payment fraud prevention while providing an exceptional shopping experience.

Utilize solutions that combine both payment processing and risk management

Implementing the strictest rules and filters, while effective for mitigating fraud, can also cause the most friction in the customer shopping experience, as well as cause an increase in automatic rejections of transactions regardless of whether they exhibit clear signs of fraud. That is why it is so crucial to choose a platform that combines risk management and payment processing to create a seamless and fraud-free payment experience for your customers. In the past few years, machine learning has become an essential pillar in the fraud prevention process, and every e-commerce company should be using it to its full advantage. A machine learning-based solution can identify connections between millions of transactional data points in real-time to determine whether a transaction is likely to be fraudulent. This gives merchants a clear sense of whether or not they should accept that particular transaction so they can process legitimate sales without delay and either decline transactions that show signs of fraud or run them through manual review to vet further. This kind of system effectively prevents fraud while maximizing approvals of legitimate transactions and delivering a high-quality shopping experience without sacrificing security.

Establish clear communication between risk creators and risk mitigators

As online shopping increases in popularity, fraudsters will continue to look for and take advantage of vulnerabilities in digital networks. That’s why it’s critical for retailers to clearly communicate fraud risks to employees working in departments where fraud is most prevalent. In the battle against fraudsters, these are the folks working on the front lines, and they need to know what red flags to look out for, be trained in basic fraud prevention skills and know-how to report questionable behavior immediately. This is particularly important within specific departments of an e-commerce organization that can make the business more vulnerable to fraud, such as the marketing and sales departments. In an effort to create stronger brand equity, the team may implement tactics that make small holes in the business’ security systems, such as issuing discount coupons. As a result, the fraud team may submit all coupon entries for manual review, which could damage the customer experience. That’s why it’s important to make sure that these departments are collaborating effectively and in constant communication to reduce risk as much as possible.

Look for trends and identify patterns

It is critical that merchants label all CNP orders that are approved and rejected and commit to diving deeper into these transactional decisions to see why a particular transaction was approved or rejected. When merchants get to the point where they have collected enough transactional data, they will be able to identify trends and patterns in the orders that were either approved and turned out to be fraudulent or were legitimate orders but were falsely rejected. For example, they might find that orders with several of the same items are routinely declined even though they were later found to be legitimate. When digging deeper into these orders, you might find that the legitimate orders are the ones that have several of the same items but in multiple sizes and reflect a consumer who is unsure of sizing, not a fraudster. That is why merchants need to use these trends and patterns to create “shopping stories” that they can then use to adjust their fraud prevention systems dynamically. Additionally, they can use the data to create personalized shopping experiences for their customers that add value and increase brand loyalty.

While CNP fraud is a challenge for all online merchants, fighting it doesn’t have to come at the expense of a great shopping experience. As long as retailers keep the aforementioned tips in mind, they’ll be able to strike the perfect balance between keeping fraudsters at bay and delivering a seamless shopping experience that will keep consumers coming back for more.