Is Your Fraud Strategy Ready for the Rise of eCommerce?

October 20, 2017
Read time: 7 min
Cybersource Team
Cybersource Team
Global Experts

Brick-and-mortar purchases may still account for the overwhelming majority of total retail sales, but there is no question that eCommerce has emerged as the true engine for retail growth.

In the first half of 2017, while physical sales grew by less than 3 percent, eCommerce sales increased by 16 percent, according to the United States Census Bureau1.

Behind the growth in eCommerce

What’s driving this growth? Well, a little bit of everything. New shoppers continue to feel more comfortable shopping online and in doing so increase transaction volume and put more into their online shopping carts. New online business models are also driving growth in eCommerce. In fact, total U.S. eCommerce sales are expected to grow by a whopping 64 percent from 2016 to 2020, advancing from $385 billionto $632 billion2

Mobile commerce is also driving eCommerce growth, providing consumers the ability to purchase anytime and anywhere. According to our 2017 North American Online Fraud Benchmark Report, mobile commerce sales increased from 25 percent of total online sales in 2014 to 33 percent in 20163.

As mobile channels become more convenient–thanks to factors such as digital wallets, one-click checkout, connected devices that make up part of the Internet of Things (IoT) and more robust and secure mobile networks–mobile commerce has taken off like a rocket. BI Intelligence forecasts that mobile commerce could come to account for nearly half of all eCommerce sales by 20202.

Fraud is up, but loss rates hold steady

While the growth in eCommerce sales has been great for retailers, it’s been accompanied by a corresponding rise in online fraud. According to Experian, U.S. eCommerce fraud rates jumped by 33 percent in 20164. Fortunately, despite that increase, overall fraud loss rates have remained essentially flat, at 0.9 percent in 2016 compared to 0.8 percent in 2015, as reported in our 2017 and 2016 North American Fraud Benchmark Reports3,5

The best way to keep your fraud loss rate stable, or even drive it down? Paying close attention to your fraud management strategies and continuously optimizing them to reduce both fraudulent orders and false positives among your legitimate customers. 

Fraud management requires a deft hand 

Fraud management can often seem like a balancing act. You have to guard against fraudulent orders while maintaining a positive customer experience and keeping operating expenses as efficient as possible. 

Furthermore, overbearing fraud prevention policies can cost your business significant revenue. False positives lead to immediate lost sales, as well as a longer-term drag on loyalty and retention.  

According to Javelin Strategy, 30 percent of eCommerce shoppers stop returning to a merchant altogether following a false positive and order rejection. An additional 36 percent make fewer purchases than they had before the rejection6.

Fraud management is critical, particularly for online retailers, and a commitment to continuously improving your process can help you keep your fraud loss rate down, while simultaneously maintaining a positive experience for your customers. 

Improving your fraud management approach 

What can you do to improve your fraud management process? Your best option is to embrace new advances in online fraud detection. Data intelligence and sophisticated machine learning, paired with robust datasets, can lead to better transaction analysis. This in turn leads to better results and less of a manual review burden. 

A fraud management solution should provide automated fraud processes powered by data intelligence, as well as rules you can manually tune to better suit your business or adapt to changing fraud patterns. Ideally, such rules optimization will also feature back-test capabilities that let you game out different strategies on past transactions before you deploy them. 

Of course, you don’t have to start your search from scratch. 

Cybersource–an established leader 

Juniper Research routinely evaluates the fraud detection and prevention landscape, and has recently named Cybersource one of the established leaders in the category. 

What sets Cybersource apart? First, the extent of our data intelligence network. Our Decision Manager platform leverages to draw on the more than 68 billion transactions processed annually by Visa and Cybersource. To this massive dataset, we apply advanced machine learning algorithms to find cause-and-effect relationships, and detect nonintuitive patterns, allowing us to extract and constantly update valuable insights to improve transaction analysis and verification.  

Furthermore, our rules-based engine helps ensure that you are the ultimate decision maker, with the flexibility to set and adjust rules at any time, then easily see what rules were triggered in any decision. Merchants can draw on standard rules and risk models, or customize their own, based on more than 260 fraud detectors, including device fingerprinting and IP geolocation. 

Another useful feature of our Decision Manager platform is what we call Decision Manager Replay, the industry’s first fraud tuning analytics tool. With Decision Manager Replay, you can back test different rule sets and optimize your fraud management strategy over time. 

You have many options when it comes to fraud management and prevention, and for the sake of your business, it is worth it to do your research. If you’re interested in exploring Juniper’s evaluation of Cybersource to determine if it may be a good partner in your fraud management process, click here to read the full report. 

1. United States Census Bureau – Quarterly Retail eCommerce Sales – 2Q 2017

2. Business Insider – Feb 2017

3. Cybersource 2017 North American Online Fraud Benchmark Report

4. Experian – Mar 2017

5. Cybersource 2016 North American Online Fraud Benchmark Report

6. Javelin Strategy – Overcoming False Positives – Sep 2015