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Merchant Fraud

Can a merchant’s fraud rate ever fall to 0%?

For every online business, minimising the amount of fraud it suffers is a priority. But is it possible for online businesses to be completely fraud-proof, and if so how can this be achieved?

The methods used by criminals to dupe online retailers and commit card-not-present (CNP) fraud are still essentially the same now as they were two decades ago. They steal other people’s log-in details to make purchases disguised as bona fide customers. Or, they take others’ card details and payment information to set up accounts themselves.

Unless merchants take steps to stop criminals in their tracks, fraud can have significant negative effects on merchants’ profit margins when the consumers hurt by the fraud pursue chargeback claims to retrieve the money they have lost. If too many chargeback claims are made against a merchant it could be considered too high risk by card issuers, and therefore be in danger of losing its association with Visa and Mastercard. This would severely impact the businesses ability to process card payments.

So how can merchants tackle this issue? And is it possible for an online business to reduce its fraud rate?

1. Learn to spot the signs

All CNP fraud has tell-tale signs – essentially, if you see a payment that is too good to be true, it possibly is. For instance, a high value transaction from a repeat customer that doesn’t usually pay that much could be suspicious, and should be followed up on to ensure it is a genuine purchase.

With this in mind, it is crucial that merchants monitor and analyse transactions to flag any suspicious purchase. This, of course, can be a complex challenge for newly-launched merchants. Smaller businesses can be over enthusiastic about accepting transactions, as they are keen to maximise their sales and revenue. They may not realise that taking this approach may damage the long-term success of their business, by risking losing revenue to chargebacks, or by harming their reputation with card schemes.

2. Getting the right support

By working closely with their PSPs, online busineses can ensure they understand the challenges they face when it comes to payment fraud. With this knowledge, they can take steps to minimise the risk of allowing fraudulent transactions to take place, without creating friction in the purchase process that can lead customers to abandon their shopping carts.

For example, Paysafe has a team of analysts with over 30 years’ experience that provides dedicated fraud prevention support to businesses, including fledgling eTailers. We also offer address verification support to give merchants key information about the card being used in a transaction (like the billing address or card issuing country) that they can use to pinpoint suspicious purchases.

Our fraud monitoring team are also on hand to provide advice and guidance to merchants breaking into the eCommerce space. Crucially, if a merchant is concerned that an order is suspicious, he or she can contact a member of the teams to confirm whether they should accept or reject the transaction. Our teams can even advise on how to spot suspicious transactions before accepting them, such as whether the order is of an unusually high value, or if the billing address differs from the delivery address.

3. Addressing fraud claims

No fraud defenses are entirely secure, and even the most diligent merchants can fall victim from time to time. A chargeback claim from a customer is often the first indication merchants have that there has been a fraud event, and this situation can be a challenge for retailers to tackle on their own. However, whilst it is an indicator of online criminal activity, a chargeback can also be seen a positive if it is used to identify any weaknesses in processes and helps to formulate plans to protect against future fraud.

In addition to using incidents of chargeback to strengthen the security of the checkout, PSPs can offer support with tackling chargebacks and helping to minimise revenue lost in disputes. Specialist chargeback teams provide in-depth advice to a merchant to help it defend against a chargeback claim, by tackling friendly fraud, for example, or by proving that the merchant is not to blame for the chargeback.

Time to take fraud seriously

It is not possible to be completely immune to fraud, but there are things merchants – whatever their size – can do to keep fraud to a minimum.

Retailers need to take responsibility, by learning to understand how bona fide customers and fraudsters interact with their business and by developing ways to distinguish between genuine purchases and fraud. They can also keep pushing their fraud rates lower by using occurrences of chargeback to adapt their systems accordingly as fraud trends are identified.

In selecting a payment provider capable of providing the tools they need to prevent fraud in the first place, merchants can be confident they are taking fraud seriously, and acting to mitigate the impact of those few fraud cases that get through.

Hi, I’m Simon.

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