5 Ways E-Commerce Merchants Can Combat Identity Fraud
News about identity fraud is nothing new; we’ve heard about it for years. Despite that, the problem is only getting worse. Identity fraud is affecting more and more consumers, but it’s the merchants that ultimately pay the price.
Identity fraud attacks increased sharply in 2016, stealing upwards of $16 billion from 15.4 million Americans. Of course, consumers aren’t ultimately held responsible for losses in most cases. Instead, the cost of fraud gets passed along to the merchants that unwittingly accept fraudulent transactions.
I’m afraid this trend is going to get worse before it gets better, especially for e-commerce merchants. With EMV technology widely but unevenly implemented, fraudsters are turning to online channels to continue their attacks. E-commerce merchants are a “soft target” for identity fraud, as it's much more difficult to verify a buyer’s identity online compared to in person.
This means billions of dollars more per year in chargebacks for online merchants. It’s part of why I anticipate the overall cost of e-commerce chargebacks to reach at least $30 billion by 2020.
How to Respond to the Increased Fraud Threat
Of course, identity fraud is just one of many different potential risk sources. Identity fraud, synthetic fraud, friendly fraud … these all play a role in merchants’ overall chargeback burden. Therefore, the only effective solution for online fraud is a multilayer one that accounts for all these different potential threats.
Any effective multilayer approach should include the following tools and strategies:
1. Adopt card-verification technologies.
Tools like CVV verification and 3-D Secure are focused specifically on intercepting identity fraud attacks. They serve as a barrier against fraudsters impersonating a cardholder by attempting to verify two things: the identity of the individual making a purchase, and that the person is in physical possession of the card.
2. Apply close fraud screening.
Merchants can protect themselves against fraud by creating more complex, dynamic rules for fraud filters. This will allow valid transactions to pass through, but flag suspicious sales to be reviewed manually. So-called “high risk” transactions — e.g., those involving fraud-prone industries or product categories like digital goods or subscriptions — will typically require more manual review.
3. Use delivery confirmation and signature confirmation.
These tools can deter fraudsters who don’t want to be linked to a specific address, especially for high-value transactions. Delivery confirmation can also be useful as compelling evidence if a transaction develops into a friendly fraud chargeback, as it proves that a customer received the item in question.
4. Seek out expertise in loss prevention.
A merchant wouldn’t try to create their own processing account or e-commerce platform because it’s not their area of expertise. Similarly, some revenue-retention practices, like chargeback representment and risk mitigation, are best handled by experts. Partnering with third-party support services will allow merchants to focus their attention where it’s more effective.
5. Embrace two-factor authentication.
Some merchants are hesitant about this idea, as two-factor authentication places an additional barrier between buyers and merchants. However, two-factor methods are among the most effective ways to stop fraudsters, and in some cases, may even make checkout easier for shoppers. Consider mobile payment technology like Apple Pay, for example. This tool requires a user to unlock their device, then authorize a payment using biometric technology. It’s two-factor, but it simplifies checkout at the same time.
No Solution is Perfect
Keep in mind that none of these tools are foolproof. You need to embrace all these methods, and stay on top of developing trends in identity theft and the other myriad forms of fraud. That’s they only way to protect your business effectively.
Monica Eaton-Cardone is an entrepreneur and business leader with expertise in technology, e-commerce, risk relativity and payment-processing solutions. She is COO of Chargebacks911 and CIO of its parent company, Global Risk Technologies.
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