A CHASE PAYMENTECH WHITE PAPER Expanding internationally: Strategies to combat online fraud
Fraud impacts nearly eight in every ten international online retailers 1. It hampers prospects for growth, restricts profitability and increases overheads. But with the right tools, intelligence and strategy, e-tailers can be more effective in their efforts to keep the fraudsters at bay and can expand their business into new countries and markets. According to Chase Paymentech, international fraud is a challenge for at least a quarter of CNP (customer-notpresent) retailers and with good reason. Companies that trade internationally are three times more likely to experience high levels of CNP fraud than domestic retailers 2. In addition, international fraud has a greater impact on large retailers, those with overseas offices and those with a high percentage of CNP sales 3. Because there are no common card verification methods at work across different countries, there is no simple solution to the threat of international fraud. Fraudsters never rest. They are continually evolving and adapting their behaviour to exploit new opportunities, channels and payment methods. International fraudsters know no boundaries and the threats faced by online retailers in France are the same threats facing e-tailers in Russia, Brazil, China or the USA. Wherever you choose to trade, the fraudsters are waiting. So, what can you do to help mitigate fraud effectively, efficiently and simply? We offer five approaches to help keep fraud down and grow your business at the same time. The scale of international fraud The issue of international fraud is rightly considered a significant challenge to CNP sales by 27 per cent of international retailers. International retailers are three times more likely to experience higher levels of CNP fraud than domestic merchants 1. 100 = 270 Initial cost Final cost For every 100 involved in a fraudulent transaction, a merchant actually loses 270 once chargebacks, fees, interest and lost and stolen merchandise is factored in 12. 2
Safeguard against fraud: Five strategies 1 Unmask even the most determined fraudsters International fraud is often perpetrated by criminal gangs rather than opportunistic amateurs - and the tactics employed by these groups are highly organised and sophisticated. One frequent technique used by fraudsters is to use an internet proxy server to mask the location of each transaction, making it appear that the buyer is in the same country as the registered billing address for the stolen credit card. The latest fraud tools can detect this deception, using advanced technology such as proxy piercing and device fingerprinting to pinpoint the true location of every computer or mobile device used to make a payment. This empowers retailers to compare a customer s registered or shipping address in real-time with their current location, enabling you to establish automated rules to filter and block suspected transactions. 2013, Chase Paymentech Europe Limited. All rights reserved. chasepaymentech.co.uk White Paper 3
How fraud restricts international expansion According to a Chase Paymentech survey, 77 per cent of international retailers have been adversely affected by international fraud when entering a new market 5. In particular, companies identified: Lost revenue (32%) Increased overheads (28%) Rising volumes of fraud to be reviewed (24%) More difficult fraud management (22%) Hampered international growth (20%) More difficult fraud management 22% Hampered international growth 20% Lost revenue 32% However, since international fraud knows no boundaries, retailers were equally affected whether they traded predominantly in Europe, the Middle East, Africa, Latin America, North America or Asia Pacific. Rising volumes of fraud to be reviewed 24% Increased overheads 28% 2 Manage risks country-by-country As more online retailers look globally for growth, the ability to assess fraud risk on a country-by-country basis becomes essential. However, one in five international retailers say they cannot filter transactions from a given country or region automatically 4. Fortunately, the latest IP geo-location tools offer retailers the ability to identify breaking threats and block transactions from known high-risk countries. Fraud screening enables retailers to develop specific rules and fraud scores for each country to reflect the level of risk. The ability to target fraud in one country while allowing orders from neighbouring countries also improves profitability. Even certain areas of the United States can be considered high-risk, indicating that attractive markets are often found in high-risk regions. 3 Use your data to detect clean fraud Until recently, the use of card verification, alongside account information and order history checks were, in most cases, sufficient to identify a fraudulent transaction from a genuine order. However, the tactics of the fraudsters have become so sophisticated that even fraudulent attempts can appear clean. In addition, new types of fraud are emerging and retailers need to consider other attacks, such as account takeover, identity theft, skimming and friendly fraud. While strong tools for fraud detection are now considered essential, there is no substitute for conducting detailed analysis of your data to identify fraudulent behaviour. Since a significant proportion of your chargebacks will be related to fraud-related codes, you can start by analysing your chargebacks across criteria such as country, product and channel (i.e. mobile versus ecommerce). Use this combined intelligence to spot trends and identify patterns in fraudulent behaviour that you can use to refine your response. 4
Are your current fraud tools sufficient? When Chase Paymentech surveyed international retailers about their experience when entering new international markets, less than one in five (19 per cent) considered their existing fraud tools to be completely up-to-the-job. Nearly a quarter of those surveyed (24 per cent) said their tools were only slightly up-to-the-job, while five per cent admitted they were not able to cope at all 7. Many retailers could clearly benefit from improving their fraud prevention measures if they are planning further international expansion. 19% 24% 5% 4 Monitor and review multiple channels According to our survey, retailers operating through multiple channels are more likely to lose revenue as a result of fraud (36 per cent) compared with companies that sell through a single channel (16 per cent) 6. Work closely with your payment provider to analyse your payment data and identify fraud patterns by sales channels. If necessary, implement additional tools to capture more information about the device being used. Keep your screening criteria updated to reflect the needs of each individual channel to prevent fraud through a mobile site or app, and to help manage fraud across multiple channels. 5 Track potential friendly fraud Friendly fraud is a growing problem for some retailers with those trading internationally or through a mobile channel perhaps being more at risk. Such fraud is hard to detect in advance because transactions are made using a legitimate card and billing address. However, once the product or services have been dispatched, the cardholder denies placing the order or they falsely claim that the product never arrived or was faulty. In other cases, a friend or a member of the cardholder s family uses their card without their knowledge. This results in costly chargebacks as well as rising overheads. Individual problems can often be addressed by talking tactfully to the cardholder - but a regular analysis of specific chargeback codes will help to identify recurring patterns of fraudulent behaviour over a period of time. This data may be used to build an order history of friendly fraud that can be used to prevent further fraudulent attempts from the same customer, card number or shipping address. 2013, Chase Paymentech Europe Limited. All rights reserved. chasepaymentech.co.uk White Paper 5
Achieving a balance between security and customer experience Chargebacks, the cost of stolen merchandise and lost revenue are not the only costs of fraud. Inefficient fraud prevention can affect your profitability by having an impact on your customers shopping experience, leading to cart abandonment and lost sales. In our survey, over half of international retailers said their fraud and authorisation processes were a barrier to delivering a favourable customer experience across multiple channels 8. Questions online retailers may want to consider include: How much information should you collect from mobile shoppers? One way retailers try to maintain a seamless shopping experience on mobile devices is to collect less information when an order is taken. However, this can make it more difficult to identify potential fraud. Are your shoppers frustrated by additional authentication methods at point of sale? While common in Northern Europe, additional verification methods can lead to lower cart conversion in other parts of Europe. Even in the UK, 20 per cent of users across all ages find such methods frustrating 9. Conduct usability or split testing in each country to assess local consumer reactions and any potential impact on sales completion. Does your fraud screening turn away genuine orders? A lack of accurate and automated fraud filtering can lead to genuine orders being flagged unnecessarily for manual review. This results in increased manual review costs and customers may choose to take their business elsewhere. Analyse and improve your fraud screening rules to keep incorrectly assigned orders to a minimum. The cost of turning away genuine customers Inaccurate fraud screening can have an immediate effect on your company revenue by preventing genuine customers from completing their payment. Among pure-play online retailers, 37 per cent are convinced they lose money this way, with a further 51 per cent suspecting this might be the case 10. A superior fraud prevention strategy considers how many authentic orders are being incorrectly rejected on suspicion of fraud in order to help convert these genuine orders into sales. 90 90 per cent of retailers surveyed by Chase Paymentech suspect their fraud management rejects genuine online customers. While the majority think that they may possibly have lost revenue, 20 per cent are certain that this is the case 11. 6
Additional steps... Talk to your payment provider Depending on your fraud strategy, fraud prevention methods can hinder or support your plans for international growth. You need increasingly sophisticated tools to identify today s fraudulent transactions in real-time. You also need a balanced view of fraud to avoid deterring genuine customers. Your payment provider should be able to offer advice on the latest fraud detection tools. They should help you analyse your fraud and payment data to identify fraud patterns and highlight potential improvements. Many Chase Paymentech customers have seen a 30-50 per cent reduction in chargebacks as a result of implementing our advanced Safetech SM Fraud Tools. Our single-source payment system integrates fraud and payment processing to offer enhanced intelligence and a global picture of your potential fraud exposure. We also work with retailers to improve the accuracy of their fraud screening to help reduce the overhead costs of manual review and improve productivity. Our team of in-house fraud specialists are on-hand to provide practical recommendations, advice and support that will help you identify fraud within countries and across borders. We will also support your expanding international business with simplified management of sales and chargebacks, enabling you to better manage growing international volumes. About Chase Paymentech Chase Paymentech is a leading provider of payment processing and merchant acquiring services. We help merchants enhance their payment infrastructure through an integrated suite of solutions spanning payments, business analytics, fraud detection and data security. In 2012, Chase Paymentech processed 29.5 billion transactions with a value of $655.2 billion, including an estimated half of all global Internet transactions. To learn more about effective fraud prevention, contact: UK: 0845 399 1120 or the rest of Europe: +353 1 726 2950 or visit www.chasepaymentech.co.uk References 1, 3-11: Dynamic Markets: Putting Customers First? (March 2013) 2: Dynamic Markets: The Changing CNP Payment Landscape, (March 2012) 12: Lexis Nexis (Example costs shown converted from US dollars) (2012) Disclaimer Chase Paymentech Europe Limited, trading as Chase Paymentech, is a subsidiary of JPMorgan Chase Bank, N.A. (JPMC) and is regulated by the Central Bank of Ireland. The information herein or any document attached hereto does not take into account individual client circumstances, objectives or needs and is not intended as a recommendation of a particular product or strategy to particular clients and any recipient of downloadable document shall make its own independent decision. This downloadable document and the information provided herein may not be copied, published, or used, in whole or in part, for any purpose other than expressly authorised by Chase Paymentech Europe Limited. 2013, Chase Paymentech Europe Limited. All rights reserved. 2013, Chase Paymentech Europe Limited. All rights reserved. chasepaymentech.co.uk White Paper 7