The e-commerce industry has completely revolutionized a consumer’s shopping experience. All facets of the e-commerce industry now strategically plan for spikes in consumer transactions like the ever-popular Black Friday or Cyber Monday. But what most industry professionals should be preparing for is October 2015.
Come October, The U.S. will join the global market as one of the last countries to migrate to EMV. Industry professionals are predicting a dramatic increase of fraud for card-not-present businesses, following the pattern that occurred when the shift was made in the UK. In the UK, CNP fraud rose by 79 percent in the first three years, according to Aite Group. EMV’s weak point, however, is card-not-present transactions, with no security strategy in place. Come October 2015, there will be a liability shift for all merchants selling in the e-commerce space.
There is a noticeable pattern of rising card-not-present or CNP fraud in countries that adopt EMV, or more formally known as “chip and pin technology.” The U.S. may very well be in the company of those countries, as issuers and retailers rove towards this technology. Although this tool provides security for point of sale transactions, fraudsters will only shift their focus from in-store to online transactions—adjusting their tactics and tools to diminish an online merchant’s revenue. With the implementation of EMV, individuals of the payment-processing world are wondering, “Why are fraudsters easily outwitting online retailers?” The answer is simple: as consumer behavior changes and adapts to new devices of technology for transactions, fraudsters are following the trend and fixing their strategies based on the consumer.
“The U.S. has proven to have gaps within its payment chain and changes are being made in an attempt to rectify that,” said Monica Eaton-Cardone, cofounder of Chargebacks911. “However, EMV cards only offer a defense for point-of-sale purchases.”
A major problem in the payments industry is a lack of communication; there is no differentiation in fraud strategies for online versus point-of-sale merchants. The allure of EMV is its capability to be a major weapon in the fight against fraud, but not for those merchants selling online. Issuers need to reach out to online retailers accepting their accounts and understand that their partnership is being looted due to fraudulent actions that their services may not cover on an online scale. What the payment industry does not feature enough is the repercussions of consumer behavior. When the consumer fraudulently participates in friendly fraud—commonly known as chargeback fraud—the merchant is then fined and penalized. Consumers are actually attributing to the fraud scheme by giving the fake perception that all fraud is only credit card fraud based, when in actuality 70 percent to 80 percent of chargebacks are filed due to the consumer implementing fraudulent transactions, and no chip or pin will protect against that action.
New tools such as “Chip and Pin Technology” may only help certain members of the transaction process, and merchant awareness is key to restructuring online businesses when October 2015 rolls around.
Here are the top 10 tips that online merchants should follow to adapt to “chip and pin technology” and avoid fraud at all costs.
1. Adhere to Best Practices
One of the best ways to reduce the risk of fraud is to adhere to the best business practices. For instance, follow rules and regulations implemented by payment networks.
- Never accept an expired card.
- Only process payments once.
- Grant credits and cancelations when a customer requests them; so credits are not actually processed as a charge.
2. Identify Potential Fraud
Reducing your risk of fraud means identifying potential harm. Preventative efforts only go so far, and you have to be in tune with the mindset of fraudsters and how they will try and attack your business. For example, online merchants should note if fraudsters are making multiple orders on one credit card but shipping to several different addresses; this could be a fraudulent scheme. Also, if fraudsters gain access to an array of credit cards, they will attempt to purchase products or services on each of them. Therefore, it is crucial to watch for multiple cards using the same IP address.
3. Validate Orders
If online merchants grow suspicious of an order, calling the customer or sending a letter to their billing address with specific questions only they can answer will help alleviate the worry. Merchants should not reach out to the shipping address given, but rather the billing just in case the fraudster is using the shipping address to fraudulently scheme an order.
4. Generate a Blacklist
Online merchants should heavily work with their processor to create a “no-sell” list or otherwise known in the industry as a blacklist. This list can block fraudulent criminals trying to diminish a merchant’s business.
5. Generate a Whitelist
Continue to service the loyal customers who do not partake in fraud; create a whitelist that allows for only customers from regions of fraud-free purchases.
6. Use Delivery Confirmation for Larger Ticket Items
Although consumers may find delivery confirmations annoying, this suggestion actually helps the online merchant significantly. Customers cannot use the fraudulent angle that their product was never received because the merchant has confirmation of delivery, saving them the risk of a chargeback.
7. Monitor Sales of Digital Goods
Digital services or goods are huge targets for fraud, and online merchants may then be penalized with a chargeback. Merchants should consider using electronic signatures to confirm the customer agrees to the specific terms and conditions aligned with purchasing the product. Online merchants can even utilize text messaging by sending verification codes to customers to make sure their account information is accurate.
8. Fulfill Cancellation Requests of Products or Services Promptly
Online merchants should grant dissatisfied consumers of their cancellations or refunds as soon as possible. Efficient customer service will give a merchant’s business a positive reputation and the customer will handle their dissatisfied experience through the business rather than filing a complaint or chargeback with their bank.
9. Use Address Verification Service (AVS)
This automated fraud prevention program will help reduce the risk for merchants selling in the card-not-present realm. AVS checks the billing address listed in the transaction against any other address registered with the issuing bank. Merchants should request both billing and shipping addresses of the consumer so an AVS check can be conducted before a transaction is processed.
10. Employ the Help of a Risk Management Firm
Merchants should team with risk management firms so they do not have to spend all of their efforts trying to prevent or fight fraud. Payment Acceptance Technology can only progress in 2015, and the industry has to understand that there are layers of security that must be implemented to stop fraudulent transactions. There is a possibility that the U.S. will lead the way in Payment Acceptance Technology, (like Chip Innovation or EMV) due to already existent fraud prevention tools for card networks. However, there will not be a cease in online transaction fraud unless payment individuals work together for better solutions.
Photo by Anusorn P. Nachol/FreeDigitalPhotos.net
Stacey Cox is media coordinator at Chargebacks911.