Many e-commerce merchants build their websites on the standard platforms offered by popular providers such as Shopify or WooCommerce. However, retailers that are large, unique, or that require a custom approach to sales often find these off-the-shelf solutions too limiting.
These retailers instead prefer to develop highly customized e-commerce platforms that provide a better fit for their unique needs. But custom platforms need customized fraud detection systems, too.
Building a custom fraud solution can be a daunting challenge. ClearSale’s Vice President Rafael Lourenco breaks it down for us here with actionable advice for obtaining internal buy in, analyzing the data, and taking action.
One of the top issues facing these merchants when it comes to implementation, Rafael said, is prioritization.
Why?
When merchants are building their own fraud prevention integration, they’ve got to get their IT teams intimately involved in the process and with the platform provider they’re considering onboarding. That IT team is going to be busy with the tasks related to increasing sales, marketing new website features, and measuring marketing data.
What’s at the heart of an e-commerce business is bringing in new customers and increasing sales.
Merchants might find it hard to sell IT departments on also adding a robust fraud detection solution to the e-commerce platform. After all, it’s not always obvious to IT how a better fraud prevention strategy will improve the bottom line. IT may think fraud prevention is just a technical detail, when in fact it’s a detail that can affect numerous aspects of an online business.
When you choose a managed services solution like ClearSale, for example, they’re going to help the merchants sell to their IT department why they should prioritize fraud prevention. They’ll help IT understand that implementing this new strategy will improve the business as a whole and will boost their bottom line. Here are three ways a robust fraud prevention solution can do just that.
If the IT department seems skeptical about how fraud prevention can increase cost savings, show them how a business is affected by a less-than-comprehensive fraud prevention program. According to Rafael, chargebacks in North America currently represent an average 70 basis points of a company’s revenue. That’s a pretty significant number, considering a retailer’s average margins generally range from 4%-10%. What if you could reduce even 20% of your fraud prevention? That could have a significant difference on general margins.
The wrong fraud prevention strategy also has a significant effect on revenues. An outdated or a generic solution ends up declining more orders than it should, thereby reducing the revenue that would come from the legitimate orders that should have been approved.
With so many online shops for consumers to choose from, the user experience can mean the difference between making a sale and sending the consumer running to the competitor. The wrong fraud prevention system will end up declining good customers and leading them right to social media to post their displeasure. Even worse, 63% of customers report they won’t shop with a merchant again after just one bad experience.
If the fraud prevention solution makes transactional decisions too slowly or requires analysts to call the customer to verify order and credit card information before an order can be processed? That can negatively impact the user experience, too.
When merchants are creating a fraud detection strategy from the ground up or customizing an existing program, they’ve got the flexibility to build in as many (or as few) data points as they want.
When merchants add in more data points, they’re able to acquire not just information about their customers — but the right information about them. And that puts the fraud team in a better place, because it lets them make well-informed, accurate evaluations about the legitimacy of a transaction.
Interestingly, the e-commerce industry is trending toward asking for less information from customers in an effort to reduce friction and cart abandonment. Merchants have learned that the more fields they require customers to complete, the lower their conversion rates — especially as mobile orders rise. Small keyboards and screens and big thumbs make it hard (and annoying) to complete multiple fields. If it’s too challenging for them to place an online order from a mobile device, customers will look for a simpler way.
For fraud prevention providers, however, more data is always better.
Today, there are some data points that the consumer knows is probably being collected when they browse a website. But there’s also a significant amount of data that companies like ClearSale can collect through new technology right from the company’s website that the customer might not realize is being captured. Fraud prevention companies now gather behavioral analytics — like how much time consumers spend on each page of a website before they get to checkout or how the consumer completes fields (e.g., are they actually typing, are they using an autocompleter, or are they copying and pasting data).
A top-notch fraud prevention solution can acquire and analyze a wealth of data like this without having to actually ask for that data from the customer, improving the level of security of each transaction.
Another great thing about adding an outsourced fraud prevention solution to your platform: You don’t have to create your own fraud filters to flag orders for manual review by the fraud team. A robust fraud prevention solution will have the technical expertise to develop and then integrate the fraud identification component.
While most fraud prevention tools available today have public API documentation available, merchants don’t always pay close attention to them. However, e-commerce retailers should be looking at this documentation, especially if they have a custom platform. Here’s why: They can ensure the solution is robust enough for their business, that it will be easy to implement, and that it can help solve their problems.
Fraud affects so many aspects of a business, it’s critical that a solution for a custom e-commerce platform can be quickly implemented to stop fraud losses. If you’re not sure what the data is for your chosen solution, look to see how satisfied other customers were with the implementation process and how long it took, and then talk with other enterprise-level customers to ensure the solution is testing well with them.
When merchants use an out-of-the-box platform, there’s not always much of a decision flow — especially when it comes to fraud prevention. But when you’re talking about a custom platform, merchants can turn fraud prevention into anything they want it to be. Here are three approaches a merchant might take.
Before a customer ever makes a payment, merchants can decide whether or not to approve a transaction. The upside of making this decision early on is that merchants will never face refunds and reimbursements. One of two things will then happen. They’ll be confident in the transaction and approve it — then once it’s approved by the payment processor, they’re all set. Or merchants will decide to decline it, which means the transaction never even makes it to the next step.
The downside is that you’re paying for fraud prevention — whether it’s manual review, data sources or a solution provider — even for an order that would eventually be declined by the payments gateway.
Some merchants opt to wait until after payment processing to perform their fraud review. While merchants wouldn’t have to pay for fraud prevention in the case of a declined payment, they’re still putting themselves at increased risk. After all, when you decline an order that already went through the payments processor, you’ll need to then refund it — which means the customer will see on their statements a charge of the purchase price and a subsequent refund. That can be bad for your brand and ultimately your customer’s experience.
One of the most ideal scenarios for retailers is when merchants obtain preauthorization for a transaction. In this case, merchants contact the card processor to see if the customer has the available funds to complete the transaction. If they do, the merchant can put an authorization hold on the card, eliminating any payment decline risks.
The next step is for the merchant to conduct the necessary fraud prevention review. If the order is still approved, the payment flow can continue. While this is the best of both worlds for merchants, it’s not always an easy process if you don’t have a flexible-enough e-commerce program.
Whether you’re a small business using an out-of-the-box e-commerce platform or an enterprise-level merchant with a customized platform, you must be active in protecting your business against the devastating effects of fraud.
Trying to pick the solution that fits your business and your platform isn’t always easy. That’s why ClearSale created “Is a Fraud Managed Services Solution Right for Your Business? This free ebook looks at the best ways to protect your growing business from credit card fraud and chargeback fees — from simple device fingerprinting to an approach that merges human analysis with artificial intelligence. After reading it, if you’re ready to learn why ClearSale’s fraud managed services solution could be right for your business, contact our trusted team of fraud prevention analysts.