Preventing eCommerce Fraud this Holiday Season
Start now to make preparations to protect your online shoppers.
by Jennifer Kijek and Andy Freedman
With the 2015 holiday shopping season starting less than one quarter away, now is the time to start preparing eCommerce fraud prevention teams and systems for the spike in incoming orders. LYONSCG and Riskified have partnered to help prepare eCommerce merchants for the holidays. In this post, we share several best practices to help ensure your fraud operations are ready to handle the extra holiday volume.
The Holiday Rush
More shoppers are making their holiday purchases online. In 2014, online shoppers spent more both in store and online during the holiday season. In fact, according to comScore, Inc., total e-Commerce spending jumped 15% in 2014 for the weeks between Nov. 1 and Dec. 21. Unfortunately, fraudsters also shop during the holidays – and the increased order volume does not make it easier to distinguish the fraudulent orders from the legitimate ones.
Merchants rely on scalable solutions to ensure their business can handle seasonal spikes. Commerce platforms like Demandware, CDNs, payment processors, etc. – all easily scale to support the increase in volume during the holidays. Most fraud prevention tools, however, are not scalable on-demand, leading to backlogs in the manual review queue – ultimately resulting in shipping delays and a less than optimal customer experience.
How can you start preparing fraud operations for the holidays?
Focus on approvals, not chargebacks
Chargebacks are the most visible cost of fraud, and fraud teams and systems are built in order to prevent them. A risk-averse fraud prevention strategy, while intuitive, creates a paradox: The orders that merchants decline due to weak indicators of risk hold more potential revenue value than the actual cost of chargebacks!
Rather than focusing solely on avoiding chargebacks, your fraud team should also aim to approve as many good orders as possible. When it comes to manual review guidelines, it is common practice that only senior analysts are permitted to approve extremely high value orders. However, many merchants allow anyone on the fraud team to decline transactions. We recommend setting limits to declines. It’s best practice to have a senior analyst review the orders junior analysts have planned to decline. This will allow inexperienced team members to avoid false positive declines going forward, and will help ensure you don’t turn away good customers.
Align with marketing
Your marketing team is probably already planning this holiday season’s promotions and ad campaigns. They wouldn’t want to invest time, effort and budgets into expanding into new markets only to have those international orders declined due to fear of fraud. Since marketing campaigns will affect who arrives at your site, sync with them and learn which markets will be targeted and what sales and promotions are being planned.
Based on the input from marketing, you may want to start researching data sources and social networks in new countries and markets. You should also be sure to schedule fraud team shifts to cover peak buying time in the target markets, even if due to time zone differences they are different to your regular work day hours. Knowing where your marketing team is sharing special holiday promo codes and with whom, will allow you to determine how much of a positive indicator those codes are. Terms of your holiday sales and promotions may also affect the shopping cart items mix, the average order value, shipping costs, and other factors that are worth taking into consideration as part of the fraud review.
Prepare to handle more mobile transactions
According to the Demandware Shopping Index for Q2 2015, phones remain on track to becoming the most popular device for driving digital commerce traffic by the end of 2015.
And according to the 2014 Forrester’s Market Overview: eCommerce Fraud Management Solutions, fraud is increasing on channels like mobile. As fraud managers crack down on online fraud, fraudsters move to other emerging channels where fraud management is relatively less mature. Mobile is the most significant example. By 2018, nearly half of EU-7 (Germany, the UK, France, Spain, Italy, the Netherlands, and Sweden) eCommerce sales will take place on tablets and mobile phones. However, despite its growing importance, less than 50% of merchants surveyed in the MRC’s 2015 Global Fraud Survey track fraud separately by mobile channel.
If you are selling via mobile, we highly recommend incorporating the data unique to this channel into your fraud management systems or order review process. GPS location, mobile carrier info, and advanced behavioral analytics can all be used to inform your decisions and boost your fraud detection accuracy. Preparing your fraud protocol for the 2015 holiday season may mean finding new vendors that can handle mobile specific orders our updating the training for your manual review team.
Take action now
There is still plenty of time to get ready for the 2015 holiday rush. But it’s best to take action now. If you want to integrate a new fraud tool, data source, or solution provider, you should do your shopping and implement these solutions soon. Look at your historical transaction data to identify positive indicators that can help drive more approvals, and talk with your fraud team and work together to devise better guidelines to drive efficiency and boost performance.
This post extends ideas first blogged by Andy Freedman on the Demandware blog.
Jennifer Kijek is Director of Strategic Alliances at LYONSCG and Andy Freedman is Chief Marketing Officer at Riskified.