Bruno Farinelli
When it comes to increasing sales and minimizing fraud and chargebacks, online merchants must manage a growing number of moving parts. And as e-commerce becomes more popular and fraudsters become more agile, striking the right balance becomes increasingly challenging.
It’s no wonder, then, that merchants are hoping to find a one-size-fits-all solution that can cure all their e-commerce woes.
But when these solutions result in the exact opposite of the desired effect — increased false declines, higher chargeback ratios and declining sales — merchants are left looking for a new approach to this age-old problem. Here are four suggestions that might help.
1. Loosen AVS Filters
When merchants experience high chargeback and false decline rates, their knee-jerk reaction might be to tighten their fraud filters to prevent fraud levels from rising further. But in fact, it might be address verification service (AVS) filters that are already too strict that are causing the rates to rise. When an e-commerce merchant sends a verification request to the credit card processor, the processor compares the numeric portions of billing and shipping addresses a customer enters with those on file with the card-issuing bank. They then either approve or decline the transaction and include a response code that indicates how closely the addresses match.
Merchants frequently assume it’s smart business to decline a transaction with any AVS mismatch; after all, the mismatch raises the risk of fraud — and of a chargeback. But there are numerous legitimate reasons why this data doesn’t always match. For example, think about the customer who has recently moved but hasn’t yet updated their address with their credit card company. They make an online purchase, but if the address on file with the card issuer doesn’t match the address on the checkout form, AVS filters may flag and decline the order.
This transaction — and many others with AVS mismatches — are actually legitimate and safe to approve. So by loosening their rejection settings and automatically approving transactions with specific response codes, merchants can increase their sales without worrying about a corresponding increase in chargebacks.
2. Use Less Restrictive Velocity Filters
When fraudsters purchase large amounts of credit card data from the dark web, they’ll first test those numbers on a merchant’s site, looking to see which cards work. If a transaction goes through, the fraudsters try to max out the card with a quick succession of purchases.
Velocity filters can help prevent these tests from doing financial damage to the merchant or the customer. They monitor the use of specific data elements — like email addresses, phone numbers or billing/shipping addresses — and limit the number of times transactions with these data elements can be processed in a certain time frame. For example, a velocity filter may be set to allow no more than three transactions from the same email address from being processed in one day.
Unfortunately, making these velocity filters more restrictive does little to prevent fraud and chargebacks. All fraudsters need to do to circumvent these filters is place one large order and then change the “customer” data on subsequent orders — or even simply move on to another e-commerce website for their next purchase. By lowering velocity criteria, merchants won’t alienate legitimate customers who make frequent purchases — like the Amazon Prime customer who may make several purchases daily — and can improve sales.
3. Avoid Blacklists
When faced with fraud or chargebacks, retailers add transaction details — like credit card data, customer names and addresses — to blacklists, resulting in automatic transaction declines when and if the customer places a subsequent order. It’s a popular strategy — 96% of merchants surveyed report using blacklists to as a way to prevent online fraud — but is it effective at avoiding fraud and chargebacks?
It turns out that blacklists are great for stopping email spammers, but they’re not so great at protecting merchants from fraudsters. Many of the transactions that blacklists reject are actually legitimate orders that are being falsely declined — resulting in lost revenue and frustrated customers who can’t complete their purchases.
And even if a single transaction is fraudulent, blacklisting an entire physical address — in some cases, an apartment or office building — could result in the e-commerce merchant inadvertently blocking numerous honest customers who happen to live at or ship to a blacklisted location.
Even worse, savvy fraudsters can easily circumnavigate blacklists, continuing to place fraudulent orders and file fraudulent chargebacks simply by changing credit card details or shipping addresses and using proxy servers. That means not only are e-commerce merchants rejecting legitimate customers, but they’re also not deterring fraudsters from placing another order on their site.
The fix is simple: To increase approvals and lower chargebacks, merchants should look at relying on blacklists less and turning to manual review to conduct a more in-depth review of a transaction.
4. Partner With a Robust Fraud Prevention Solution
When it comes to confidently approving sales and reducing chargeback ratios, e-commerce merchants can’t count on unreliable fraud filters or blacklists. Using these restrictive tools alone simply increases the number of transactions that are falsely declined and costly chargebacks, putting your business at risk of losing loyal customers and valuable revenue
Instead, take the time to improve your fraud protection strategy by adding these strategies to a skilled human review and advanced artificial intelligence solution. The result will be a robust program that provides comprehensive protection without rejecting legitimate orders.
This managed services solution may be perfect for merchants looking for this kind of detail-oriented strategy — but is it right for you? Download our “Is a Fraud Managed Services Solution Right for Your Business?” e-book today, and learn how our approach help e-commerce merchants in a variety of industries simultaneously protect against fraud and grow revenue.