Monday, 23 May 2016

Online fraud is evolving, what can you do to beat it?

What does online fraud mean to you - is it an opportunity for change?

If you are an online retailer, the chances are the fraud you encounter is in the form of chargebacks. (If you don't know what a chargeback is - read here.) Chargebacks are the symptom, the fraud disease is far more complicated than that. But with every cloud, there is a silver lining. If you evolve and get on top of fraud, you can get ahead of the competition.

A giraffe head pokes through clouds, the body is not visible

From friendly-fire to cyberbots

There are various levels of criminal activity that effect online businesses. Some are even referred to "friendly fire" showing us that fraud is so widespread and normalised that low level crimes by individuals are sometimes ignored. At the extreme end of the fraud scale are cyberbot attacks, accessing millions of online accounts and operating at a scale that just a few years ago was unimaginable.

Fraud is international, non-discriminatory, and it is hard to beat. Regulation is always catching up with the latest scams. There's light years between government activity to combat financial crime, and activity to combat intelligence based crime. Government departments are set up to combat fraud, but they are inevitably on the back foot, so dealing with online fraud can be a very lonely journey for a retailer.

Anti-fraud systems range from super-tight to wide enough to put a truck through

Regardless of the country you operate in, the financial service industry will be working to simultaneously combat fraud and respond to evolving legislation. This can make anti-fraud measures seem piecemeal and confusing. There is no standard. For example, at the UK Internet Retailing show in May 2016, anti-fraud varied from complex systems that safeguard billion dollar industries with 700+ fraud detection measures per transaction, to payment systems that just had a white list and a black list and left anti-fraud to the gateway systems.

Online retail and online fraud are evolutionary partners - it's a food chain

As retail systems get better at fraud screening, so fraudsters get better at getting around the new barriers. There's a natural market force for fraudsters, software developers like us, and online businesses.  The software developers get better at blocking scammers, multi-million dollar retailers invest in new systems, fraudsters move down the food chain to "smaller" retailers who are softer targets. What do you think? Are you a soft target for fraud?

It helps fraudsters that we are all buying more stuff online. Transactions are multiplying exponentially. The market is growing and the rewards are growing too. The underlying fuel for fraud is stolen credit cards. Fraudsters need to hide behind stolen identities and stolen cards. There are sites, (which we won't provide links to) where it's easy to buy a stolen credit card - or a thousand stolen credit cards. Thieves can choose countries, gender, duration that card has been active, type of card... Heck they can even choose which charity to support when they steal your card and become you for a while.

If you beat fraud better than competitors you can gain a competitive advantage

The market for fraud is dynamic and like every market force that provides a competitive edge, it will hurt the organisations that aren't fleet of foot and don't stay up with the game. Take Vistaprint for example. If you want to be surprised at how a big retailer fails to invest in security, read the link at the foot of this article.

What is your fraud pain point?

Systems have been developed to combat fraud. They aren't free and they started where the big money is - high end online retail and gaming.

You need to work out what fraud costs you and how much you can spend in time, change processes and money in order to combat it. There will be a tolerance level where you accept a bit of fraud and take steps to block the rest.

The fraud pain-point calculation: what does fraud cost you?

This simple equation can help you think laterally about the impact of fraud on your business. 

LR = Lost revenue as a direct result of chargebacks (read here for our 13 measures of chargebacks)

VT  = Financial value of time spent dealing with fraud, meetings, process changes, customer services resource, dealing with banks etc. not to mention the time spent NOT doing other good stuff because you've got resources focused on fraud. Can you measure this?

OCR = Opportunity cost of revenue you lose because your only response is to get your gateway to set the anti-fraud barrier so high that good people get fed up trying to buy from you. What is the long term impact of would-be customers walking away? What does it cost to get them back? How much have you wasted attracting them in the first place, only to switch them off with heavy-handed shopping cart rules?

LR + VT + OCR = ?

How big the number is gives you the cost. So how much would you spend to get fraud to a level you can cope with? That is your fraud pain point. It gives you your budget to fight fraud.

In time all things change

In time, competition in the market for fraud systems will increase and anti-fraud systems will become mainstream and inexpensive. They will be integrated as standard with online systems. Right now, there are very few companies supplying affordable, effective anti-fraud services to the mass market.

So why are we writing about this? We've been blocking scammers for years. Our mission continues to be to provide software that is both affordable and excellent. Future releases of our software will continue to offer specialist software that saves money, takes away pain and enables our customers to do what they do best and leave scammer-blocking to us.

Fancy being part of the next generation of anti-fraud software? Sign up for our BETA group here.

Read about Vistaprint's nightmare. It's a technical article but you don't need to be a developer to get the scarey point.

Read information from ThreatMetrix, a cyber security company that has just been advising the National Crime Agency

Learn what a chargeback is and how to put a measure on the cost of fraud to your business

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