June 02, 2010
How To

Reduce Ecommerce Fraud: 5 Areas for Marketers and Fraud Teams to Target

SUMMARY: Purchases made with stolen credit cards and other forms of fraud can reduce your ecommerce profits and tarnish your brand. But you can fight fraud with some old fashioned teamwork.

We asked several online fraud-prevention experts to describe how marketers and fraud-detection teams can collaborate to fight the problem -- without hampering marketing initiatives or the customer experience. Includes tips on communication between teams, and how to test the potential impact of fraud-prevention rules.
by Adam T. Sutton, Reporter

Ecommerce fraud is an industry affliction -- treatable but not curable. Crooks make purchases with stolen credit cards, avoid detection and leave merchants on the hook for the cost of the items and fees incurred.

Trends are moving in the right direction. American and Canadian online merchants reported an estimated 1.2% of revenue was lost to online fraud last year, totaling $3.3 billion, according to CyberSource’s 2010 Fraud Report. That’s down from 1.4% of revenue for the three years prior.

Fraud is often not a marketer’s direct concern -- especially at larger companies with a fraud team. However, fraud and customer security can impact your brand, as well as your company’s bottom line.

"Marketers are not just selling a product. They’re selling the experience [on a website], and they want that to be a safe experience," says Michael Mara, Program Manager, Merchant Risk Council.

We spoke with online fraud experts to learn how marketers and fraud teams can collaborate to:
o Cut fraud costs
o Minimize risk to marketing
o Test sales process changes

Here are five areas to target for your discussions:

Area #1. Marketing’s potential impact on fraud detection

Online fraud-detection programs vary widely. Many automated programs analyze transactional data against a set of rules. Transactions that follow the rules are allowed to proceed, and those that don’t are either marked for manual review or denied.

Even minor changes to a website’s checkout process can create mountains of work a fraud team, if the site's rules aren’t adjusted to accommodate such changes.

For example, Tom Donlea, Executive Director, Merchant Risk Council, has seen the removal of a required second phone number in a checkout inadvertently cause a fraud system to mark a massive amount of transactions for manual review.

"That had a huge operational impact on the fraud team. Something as simple as that could have been talked through prior, rather than having to go back and make changes," says Donlea.

Other marketing initiatives often targeted by fraudsters, and which could increase work for your fraud team:
o Electronic gift card programs
o Points and rewards programs
o Free expedited shipping

"[Free expedited shipping] has a direct impact on the number of orders that any fraud team will start reviewing, because most of them [create rules around] expedited shipping if they’re selling physical goods," says Mara.

Area #2. Maintaining open communications

Sitting down with your fraud team and learning more about their process will help avoid making minor changes that have a major cost impact down the road. Also, tell them of new marketing initiatives or changes to your transaction process, particularly any that have not been tested previously.

Also, your fraud team should alert you to any changes they’re planning to make, such as additional steps in the checkout process, or delays in order fulfillment for more reviews.

"Without a clear understanding of some of the inherent risks, the [fraud] side can be viewed as sometimes not supportive of marketing initiatives, whereas I don’t think that’s ever the case," says Paul Mackay, Program Manager, Merchant Risk Council. "It’s really more of taking a realistic look at some of the inherent risk in the particular initiative."

Area #3. The fraud detection team’s potential impact on brand

Online fraud management is a data management challenge, says Mike Long, CMO, Accertify. Companies collect and crunch data on customers and transactions to improve detection.

The data your fraud team uses to detect crooks should be well protected. If this data is compromised or leaked, your company can make national headlines for the blunder -- which can have a terrible brand impact.

Talk with your fraud team about the types of customer information they collect and how it is guarded. Don’t be afraid to suggest that more needs to be done to protect customers and your brand.

- The "big brother" perception

Some fraud detection techniques involve building profiles on individual computers, such as with cookies. Collecting additional customer information should be considered carefully. Such systems can be very effective, but you want to avoid creating the perception that your company watches consumers too closely.

- Carefully decide whether to publicize

Some companies choose to publicize their website and fraud security systems through press releases and by adding vendors’ icons to their sites. The hope is crooks will see this information and move on to easier targets.

"Why would these guys waste a bunch of time and energy when they can find a dozen more that don’t have protection?" says Tom Grubb, VP, Marketing, ThreatMetrix.

Other marketers avoid mentioning fraud or website security, as just mentioning the topic might make site visitors less comfortable. You’ll have to choose the right approach for your marketing.

Area #4. Testing website changes that affect the customer experience

When the fraud team wants a change that could affect the visitor experience, you should test those elements to determine the impact on conversions.

- Test page display

For example, if the fraud team wants to add another step to your site’s checkout process, work with them to minimize the additional step’s impact on your conversion rate. You can A/B or multivariate test elements on a page, or when the step is added to the process, to keep the conversion rate as high as possible.

- Test impact on fraud detection

You also can estimate if a change will affect your customers’ orders and shipping times.

Some fraud systems allow analysts to test scenarios and estimate a change’s impact on the site’s current, real-time transactions. This process can answer questions such as:
o How many more or fewer transactions will be marked for manual review?
o How many more transactions will be denied outright?
o How many of these will be false positives?

Area #5. Tracking "good customer" data

Some fraud detection systems are only focused on the bad stuff. They analyze data from bad transactions to find trends. They use those trends to create rules to flag future bad transactions.

However, analysts can also look for trends in good transactions and build rules that help good customers get through the verification process faster and into fulfillment. This is called "positive data."

Rules based on positive data prevent your most loyal customers from having their orders slowed down or denied. Ask your fraud team if their system collects and analyzes positive data. Such a system can reduce the number of transactions they have to review, as well as help keep your best customers happy.

Useful links related to this article

Members Library -- Security Logo in Email Lifts Average Order Value 28.3%

Members Library -- How High-Ticket Ecommerce Site Solved Alternative Billing Problem & Lifted Conversions




Merchant Risk Council


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