Adjust to an Accelerated Fulfillment Schedule Without Increasing Fraud Exposure

In any product category or business model, you’re going to be forced to try and keep pace with trendsetters. With online retail, big names like Amazon.com and Walmart tend to be the ones that set customer expectations for service, price, order fulfillment and more.

Take shipping, for example. Amazon recently announced it's moving to offer free one-day shipping for Prime members. In response, Walmart plans to deliver free one-day shipping with online purchases of $35 or more. Thus, smaller online retailers are forced to offer faster delivery just to remain competitive.

Fast, free delivery is an increasingly important competitive advantage in the e-commerce market, as demonstrated by a recent survey of U.S. adults conducted by the National Retail Federation. Forty percent of respondents said they expected products to be delivered for free and within two days. Nearly one-third of respondents recalled abandoning a purchase after learning that two-day shipping wasn’t an option.

Balancing Speed and Due Diligence

The real challenge is finding a balance between faster order fulfillment and security due diligence. That can be a problem, as you’re tempted to relax payment security and other defense measures to increase conversion and retain as many customers as possible.

Compromising security to speed up delivery isn't the answer. While security checks represent friction that can slow down the checkout process, they’re still vitally important. Without enough security in place, you’re likely to see a sudden increase in chargebacks headed your way.

That said, faster shipping can also reduce chargebacks by disincentivizing friendly fraud. Disputed transactions cost businesses at least $31 billion in 2017, and most of those instances were friendly fraud — a dispute filed without proper justification. Customers claiming to have never received their goods, or that they did not arrive within the anticipated time frame, are among the most common reasons why customers file these disputes.

Therefore, too much friction can cause shopping cart abandonment, customer dissatisfaction and chargebacks. Too little friction, however, can cause fraud chargebacks. How do we solve this puzzle?

Separate Helpful and Harmful Friction Points

It’s not a simple question of “add” or “reduce” friction. Instead, you need to distinguish different points of resistance in the transaction process, then determine which ones help and which ones don’t.

We can pretty concisely separate friction into “positive” and “negative” camps. The former helps prevent fraudulent activity and other abuse with little, if any, impact on the customer experience. The latter places unnecessary obstacles between merchants and consumers. Your supply chain has plenty of both elements. What you should aim to do is maximize positive friction points, while eliminating as many negative ones as possible. This allows you to achieve an optimal balance between faster fulfillment and preserving security.

Examples of positive friction include the following:

• making account creation optional;
• requiring complex, unique passwords;
• offering 3D secure technology as an opt-in service;
• asking buyers to verify an order before completion; and
• back-end fraud technologies like geolocation and IP verification that don’t interfere with the customer experience.

In contrast, here are some examples of negative friction:

• complicated or broken navigation;
• excessive, redundant fields during checkout;
• forcing customers to register for additional accounts before purchasing;
• not displaying shipping information; and
• limited payment methods.

Maximizing positive friction points has little-to-no impact on the overall customer experience. However, it places significant barriers between yourself and bad actors.

It’s not easy to keep pace with brands that have the level of recognition, influence and capability that Amazon and Walmart enjoy. However, streamlining your customer experience and understanding where friction is harmful — and where it’s useful — enables you to make the most of your customer interactions, without exposing yourself to risk.

Monica Eaton-Cardone is a risk management and fraud prevention expert, and co-founder and chief operating officer at Chargebacks911, a global chargeback mitigation company.