Combatting payment fraud: a big challenge for online merchants

July 27, 2021

Combatting payment fraud_a big challenge for online merchants

Jonathan Kriegel


The FIS Worldpay Global Payment Risk Mitigation report provides crucial insight into global payment fraud that eCommerce merchants can learn to safeguard their revenue. It found that 38% of online merchants lose 6% or more of their turnover to payment fraud, with many also seeing increased operational expenses and customer churn as a result. Consequently, over half of the merchants (52%) are forced to spend 1-5% of their profits fighting and managing payment fraud, and 44% spend over 6%.

Payment fraud inevitably increased in parallel with the sharp rises in eCommerce transaction volumes and value during the pandemic. Consumers were left with little choice but to purchase more goods and services online in the face of widespread store closures and social distancing restrictions in 2020 – Statista estimates that global retail eCommerce sales consequently surged almost 28% over 2019 to reach US$4.3tn.

Over 80% of respondents in the FIS Worldpay survey reported the same or higher volumes of all payment fraud types during the same period. The majority (59%) were hit by more significant volumes of “card not present” incidents, for example, and one in five cited significantly higher volumes of consumers disputing valid charges. Synthetic identity accounts takeover, identity theft and new account fraud also rose in 2020, highlighting how important it is for merchants to strengthen their customer authentication processes.

Merchants face cost and complexity challenges

The FIS Worldplay report also indicates that eCommerce merchants can find it hard to install, manage and configure the security mechanisms needed to prevent fraud and comply with industry regulations. Almost a third (30%) highlighted IT upgrade costs as their single most significant payment-related challenge, with 25% concerned about the cost of accepting payments, such as interchange, processor and network fees.

The implementation of security mechanisms such as tokenization and the 3DS2 multi-factor authentication protocol used to confirm digital identities during check out was cited as a challenge for 25% of respondents, for example. Many also encountered difficulties accommodating new and emerging payment types and managing chargebacks, with 21% facing higher volumes of sophisticated payment fraud such as card testing, which sees criminals try to validate computer-generated credit/debit card numbers.

Around a third of digital retailers find the complexity of managing partnerships with multiple payment solutions and partners very challenging. Integrating payment solutions across different channels is equally as hard for the same number. Yet, at the same time, eCommerce merchants are increasingly required to meet rising customer expectations around payment choice and accommodate different payment types to satisfy that demand. Navigating local payment-related regulations was found to be a significant headache for 30% of respondents. Over a quarter (27%) cited a lack of local market support, and 29% were hampered by the absence of internal payment expertise within their organization.

Cutting edge technology, best practice and partnerships required

Merchants do not have to face these challenges alone, though. Partnering with a specialist third party payment service provider like DOCOMO Digital can go a long way to helping them strengthen their fraud prevention capabilities and leave them free to focus on their core retail business activities.

Satisfying customer demand for multiple payment methods can also encompass carrier billing, which funds eCommerce transactions from customers mobile phone accounts rather than credit/debit cards which are more susceptible to fraud. Modern smartphones also have biometric authentication mechanisms built-in, which tie the user to the device, with further multi-factor authentication (MFA) controls available in PINs and passwords sent to the mobile device.

Third-party payment service providers have also built sophisticated anti-fraud engines which use machine learning to analyze customer transactions in real-time and block those which seem suspicious based on previous purchasing patterns. DOCOMO Digital also has a dedicated team of experts available in multiple countries worldwide to help merchants understand local compliance regulations and handle customer refunds following “friendly” fraud or chargeback incidents.

No let-up in payment fraud expected

The increasing sophistication of payment fraud attempts and the rising number of attack vectors are highlighted in a recent report from Juniper Research. The company’s most recent report – Online Payment Fraud: Emerging Threats, Segment Analysis & Market Forecasts 2021-2025 forecasts that businesses in eCommerce, airline ticketing, money transfer and banking services will cumulatively lose over $206bn to online payment fraud between 2021 and 2025.

In particular, the increasing volume of digital payments continues to expand the attack surface for fraudsters significantly (read more in my recent blog on the role carriers can play in supporting KYC here). In turn, merchants need to fully explore all the options for fraud prevention available to cut their losses and reduce the considerable amount of time and money they spend fighting the problem.

Surveys were conducted in December 2020 by Forrester Consulting on behalf of FIS Worldpay the Global Payment Risk Mitigation report surveyed 617 executives responsible for their organizations’ customer-facing security, fraud detection and ID verification efforts. Respondents hailed from 11 countries – Argentina, Australia, Brazil, Canada, France, Germany, Japan, Mexico, Singapore, the UK and the US – representing a mix of airlines, dating apps, financial services, hospitality, insurance, logistics, retail, education, gaming, transportation and travel industries.

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