Black Friday: How to Combat Online Fraud in E-commerce

Online fraud costs UK e-commerce providers £29.3m in the first half of this year – up a startling 71% on the same period in 2013.

Despite these alarming figures, the solutions implemented by e-merchants for fighting fraud are relatively inefficient.

So, what are the most common fraud management solutions? Can e-commerce companies fight fraud without sacrificing the customer experience?

Can they control operational costs at the same time? Is outsourcing the solution? If yes, what are the benefits?

Significant Operational Costs and Damaged Customer Experience

Fraudsters intensify their attacks during periods of the year when e- are most vulnerable: especially when they have to manage the most difficult operating environments, including holiday periods and sales periods.

To fight "organised fraud" e-commerce firms generally implement some preventive measures.

Among the most common solutions are the manual analysis (up to 40% in some cases), the systematic request to have clients' ID and proof of address (up to 10% of controls) and increasing the part of transactions processed in 3D Secure.

However, the implementation of the solutions that we have just listed increases costs for the e-merchant and damages the customer experience.

Few customers want to endure an obstacle course before they can purchase a product or service, and making them do so damages the image of the online store.

It will even discourage some clients from completing the online payment.

Trends

Two types of strategies for fighting fraud can be distinguished among e-commerce providers.

The first category, which is the most widespread, uses the preventive measures we have mentioned above. Those measures, however, are sporadic and do not provide a long-term solution.

The second category includes the implementation of a comprehensive strategy.

The second category does not focus solely on reducing financial losses due to fraud, but also incorporates the following elements: impact on the transformation rate, operational cost of the process (cost arrears management included) and risks involved in terms of brand awareness and image (especially through social networks).

In our view, only a strategy that takes into account each stage of the purchasing process can be effective in the long term in fighting fraud. This strategy must therefore include each of the following stages: what happens before payment, payment, after payment, and during the investigation phase.

It is then up to the e-merchant to identify indicators of consistent performance across all stages of the process to establish an initial diagnosis.

This in-depth understanding of the process of fraud management enables e-commerce providers to assess the real value added by the implementation of one solution to another.

However, many online retailers still seek to find a "miracle" solution on the market, without a clearly defined strategy beforehand.

Outsourcing is the Solution

More and more e-commerce firms realise that an effective solution to fraud can be conducted by simultaneously improving customer experience and lowering operational costs.

The number of e-merchants who want to entrust their process of fraud management to an outsourced partner is rapidly increasing.

The reasons why companies consider outsourcing are numerous, but the need to be supported in the design of the strategy against fraud is often a decisive factor.

Another reason for encouraging e-commerce firms to consider outsourcing is the need for a "one-stop-shop" solution, which combines the use of real-time detection platform, big data, predictive analysis technologies; outsourcing capabilities for certain activities; accompaniment to have access to an updated expertise and continuous self-learning; and finally, having the necessary approvals to regulations.

Recommendations

For e-commerce providers the key to success in the fight against fraud relies more than ever on the following objectives: have effective protection strategy while managing to reduce operational costs and improving the customer experience.

Based on our experience, as global BPO provider to some of the world's largest and most respected brands, outsourcing is both the fastest and most efficient way to achieve these three objectives.

In the world of online commerce fraud management is becoming a full-time job.

Now online retailers do not hesitate to give this specific activity to specialised companies, since they have the resources, expertise, tools, methodologies, as well as valuable experience in the fight against fraud.

Grégoire Vigroux is the marketing director of europe at TELUS International Europe