Although growing e-commerce and m-commerce sales are great news for businesses, they’re accompanied by a downside: fraud. Statista reports that global online payment fraud increased to more than $20 billion in 2021, a 14 percent increase year over year. Moreover, as PYMNTS points out, the fraud-to-transaction ratio is steady, so merchants can expect fraud totals to increase proportionately as they sell more online. Juniper Research predicts that online payment fraud will top $206 billion cumulatively from 2021 to 2025, a colossal reason to use a payment fraud prevention solution.
Online fraud can take several forms. For example, bad actors can use stolen identities to open and use credit accounts. In addition, hackers can steal credit card numbers and verification information. However, one of the most common schemes is “friendly fraud.” Consumers use their credit or debit cards to make purchases but then initiate chargebacks to recover the funds. According to Statista, 40 percent of merchants worldwide have been targets of this type of crime.
Over the past few years, merchants have been occupied with responding to changing consumer behaviors by expanding their businesses to provide customers with the convenience of digital engagement. But they may have also inadvertently created new opportunities for fraud. In some cases, they may even be unwittingly aiding fraud.
For example, fraudsters may test cards by making online charity donations before using them to acquire goods, such as jewelry, apparel, electronics, and beauty, health, and wellness products, for resale on the black market. Additionally, fast buy online pickup in-store (BOPIS) fulfillment gives criminals a quick getaway with products purchased fraudulently.
Fraudsters may also target any business that offers gift cards, knowing they’re usually untraceable. They sell ill-gotten cards on the black market at a discount to make a tidy, illegitimate profit.
Make Payment Fraud Prevention Technology Your First Line of Defense
Because there’s no human interaction with online purchases, they are inherently less secure than engagements in a brick-and-mortar store. A merchant’s employees don’t see a physical card, an EMV chip reader doesn’t verify the transaction, and no PIN is required. In some cases, card verification values (CVV) or ZIP code confirmation are suitable online fraud prevention methods, but they do little to stop friendly fraud.
Fortunately, merchants can leverage technology to validate card-not-present transactions and mitigate fraud. One solution is using a rules-based tool. With these systems, transactions that deviate from rules, such as a minimum or maximum transaction amount, allowed/blocked IP addresses, the country where the transaction originated, or names or credit card numbers associated with past fraud, are flagged or declined. NMI’s proprietary fraud prevention tool also enables merchants to set daily, weekly, or monthly limits and flags transactions if, for example, a consumer has changed credit card numbers more than a set number of times within a period. NMI moves those transactions to a “waiting for review” page, empowering merchants to stop risky transactions. Additionally, the NMI tool allows merchants to make exceptions, such as allowing purchases from customers they trust in other countries.
ISVs, ISOs, and merchants can also use artificial intelligence (AI) in the fight against online fraud. Kount’s Adaptive AI solution compares transaction data to transactions in the Identity Trust Global Network, based on information from more than 50 payment providers and card networks, 17 billion devices annually, and 2.7 billion fraud signals per transaction. The solution generates an Omniscore, providing merchants with insights into risks associated with the transaction. This intelligence allows them to make informed decisions to minimize new account fraud, gift card fraud, coupon and promotions abuse, and friendly fraud and chargebacks. Additionally, Kount is designed to minimize false positives, so merchants can optimize customer experiences when fraud is not a factor.
Use Every Option Available
With NMI’s new partnership with Kount, merchants can use both NMI’s proprietary fraud prevention system and Kount’s AI solution, providing ISVs, ISOs, and merchants with an enhanced ability to detect and prevent fraud as e-commerce activity increases.
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