The global outlook on the growing trend of consumer credit card fraud is grim, especially concerning eCommerce businesses and card-not-present (CNP) payments. A 2016 report published by Juniper Research found that eCommerce transactions to account for up to 70% of all credit card fraud globally.
Ecommerce merchants in the United States are specifically targeted by fraudsters. American merchants took up to 52% of the total online payment fraud attacks in 2014 according to data via a RSA Security analysis. Furthermore, business owners in high-risk payment industries, like in online airline booking, faced roughly half of those attacks.
Consumer Fraud and its Impact on eCommerce
Over the past five years, the raise of EMV chip cards have forced fraudsters to focus their cons on CNP transactions. In fact, a Payments Forum report predicts losses due to CNP payment fraud to more than double from $3.1 billion in 2015 to $6.4 billion by the end of 2018. Credit card fraud, on average, takes about 7% of SMB eCommerce merchants annual revenue.
Recent surveys have shown that 1 in 5 eCommerce consumers have had their identities and debit or credit card data stolen through corporate breaches or personal attempts at hacking and scamming. When fraudulent charges are made, the subsequent chargeback cost falls on payment processors who will, in turn, raise credit card processing rates for eCommerce merchants.
For eCommerce business owners, finding solutions for fraud prevention can be costly, but not as costly as the losses faced from fraud. A common solution is seeking fully guaranteed CNP payment solutions through third-party providers.
Leading the fraud prevention for eCommerce charge is software solutions company Vesta. We spoke to Vesta COO Tracy Metzger about the mounting threat small to medium eCommerce businesses face due to credit card fraud and what they can do to reduce losses.
When it comes to eCommerce merchants, using aggregate merchant accounts like PayPal, Stripe, or Square, fraud is a particular concern. “Risk managers are challenged with having to maintain compliance with card brand rules surrounding the aggregate levels of chargebacks both in the number of transactions and dollar volume,” Metzger told eCommerce Daily News. “The internal expense of risk departments, chargeback write-offs, and third-party tools also mount quickly to compound the impact of fraud on these CNP merchants.”
Vesta offers eCommerce and CNP merchants their patented Guaranteed Payments fraud prevention software. Metzger explained their fraud prevention SDKs use data to make calculated risk decisions for individual payment transactions, which allows the company to shoulder the risk of a chargeback due to fraud even before the transaction is processed.
“The technology and guarantee process results in 2 major benefits for CNP merchants:
The guarantor only gets paid on accepted transactions so, in the case of Vesta, we have the incentive to raise acceptance rates which equal more top-line revenue. Some may think this may end up in higher chargeback rates but in actuality, the technology is highly tuned and is proven to lower the chargeback rates. The merchant will lower their operating expenses by eliminating third-party tools, chargeback write-offs and in some cases reduce their risk teams size.”
The basis of Vesta’s fraud prevention software is Machine Learning and Artificial Intelligence. “Data scientists that are trained in artificial intelligence and machine learning are constantly modeling learnings across a broad and diversified customer base operating in multiple regions of the world to detect good from bad transactions. The use of historical data aids the scientists in testing the effectiveness of their models aimed to increase acceptance rates and lower operating costs. These technologies when deployed allow CNP merchants to focus on their core business and not have to be bothered by the overarching perils of fraud,” Metzger told us.
For many eCommerce and CNP merchants, the growing threat of consumer fraud is something too large to ignore. More than ever, technology like Vesta’s Guaranteed Payments and data science are needed to get ahead of fraudsters before they get ahead of merchants.