Stopping More Fraud & Accepting More Good Transactions
International e-commerce merchants are under more pressure than ever before as they try to strike a crucial balance: reducing fraud losses while accepting more domestic and cross-border transactions.
As recent industry studies (CyberSource 2013 Online Fraud Report & CyberSource 2013 UK eCommerce Fraud Report) have affirmed, fraud screening budgets and staffing levels are not expected to increase despite higher transaction volumes and rising fraud levels. Consumers are increasing the volume – and value – of transactions they are making in the e-commerce environment. Unfortunately, this channel attracts a naturally higher rate of fraud.
As the volume of legitimate transactions increases, ultimately e-commerce fraud will continue to rise along with it. When it comes to cross-border e-commerce, international order rejection rates are often two to three times higher than domestic rates, and also incur the additional cost of more stringent manual review.
As merchants’ international expansion plans accelerate, the additional resources required to screen cross-border orders will put even more pressure on existing fraud screening operations. Finally, the expectation that global EMV migration will drive fraud to online channels is motivating many merchants to take a hard look at current fraud screening systems.
Many merchants will choose to manage this increased risk by tightening fraud screening and order review processes – a move that could prove counterproductive to accepting more domestic and international orders. Higher order rejection rates will invariably lead to higher false positive rates. Failing to catch – and rescue – falsely rejected orders is a big contributor to total fraud cost that is significantly under-represented and under- appreciated. For many merchants, it’s difficult to measure the real economic impact of rejecting these good orders and the ‘customer insult’ damage that goes along with it. While rejecting one good order is a problem, rejecting a loyal customer’s lifetime of good orders through customer insult is potentially catastrophic.
According to CyberSource fraud studies, North American online merchants reject, on average, 2.9 percent of all orders, while UK-based merchants reject four percent of all orders. Ethoca recently conducted a case study with one major U.S-based e-commerce brand and one major U.S.-based card issuer and found that 19 percent of rejected orders were actually good. That’s a number that makes merchants sit up and take notice. If recovered, those orders could result in revenue gains of 0.6 percent or higher. With the cost of fraud loss avoidance (both domestic and cross-border) increasing every year, that’s revenue online merchants simply can’t afford to give away to competitors.
While the opportunity for cross-border expansion is an attractive lure for online merchants, fraud mitigation must be carefully balanced with transaction acceptance. While there is an increasingly sophisticated array of fraud tools to choose from, more effective collaboration – especially between merchants and issuers – is the way of the future. Without it, the growth opportunity for cross-border e-commerce will remain frustratingly unfulfilled.