Why it's difficult to prevent online fraud at Financial Smarts
Credit card fraud affects many stakeholders. It’s damaging not only to consumers, but also to merchants and financial institutions. In addition to losing money, credit card fraud can ruin a customer’s relationship with a retailer as well. But with advancements in card security like having a chip and PIN, how does fraud continue to be such a big problem? How can Canadians protect themselves? What can retailers do to limit their losses? Well, our guest today thinks that fraud prevention is most successful when all parties work together.
Rafael Lourenco is the Executive Vice-President for ClearSale. ClearSale focuses on credit card fraud prevention for online stores. The company operates globally and Rafael says that although Canada has implemented more modern technology when it comes to card security, this advancement increases risk in a different area: card-not-present purchases.
“Card-not-present fraud” means exactly what the term says. It’s theft that impacts retailers online or over the phone, where the physical credit card isn’t present and the process of punching in a PIN doesn’t take place.
According to Rafael, it’s a huge problem:
An average North American merchant loses on average 0.9%, meaning 90 basis points of its revenues in chargebacks and fraudulent losses.
That may sound like a small percentage, but retailers tend to only have margins from 4 to 8%. So, if they’re losing 1% out of 4 or 5, you’re looking at a 10% loss of profit just from fraud.
To counter this problem, retailers then implement stricter measures online, which can create a negative customer experience:
Retailers will be afraid of losing this amount of money and eventually will implement systems, rules, policies, whatever, to block some orders to avoid this cost to happen. And when they do that, eventually they won’t do it properly and they will block transactions that shouldn’t be blocked.