eCommerce retailers rightfully pour their hearts into creating beautiful and relevant customer experiences, designed to keep digital shoppers coming back time and again.
So it’s a little crazy to suggest that these same eCommerce retailers would turn around and insult their customers.
Call us crazy.
We’ve spent some time digging into the true cost of online fraud. And it turns out that while the obvious costs of fraud — chargebacks, lost merchandise, shipping fees, taxes etc. — are bad enough, there is a higher cost that doesn’t get the same attention.
The bigger financial hit comes not from bad orders that merchants ship, but from good orders that merchants don’t ship. In fact, legitimate orders that are incorrectly
declined by merchants because they are afraid the orders are fraudulent are costing retailers nearly one-and-a-half times more than the bad orders they do ship.
And that’s before you add in the damage done to the merchant’s relationship with the customer who was wrongly declined.
On a macro-level the problem with false declines is considerable:
So, what’s going on here? It’s not that merchants have become hysterical. Fraud is a big deal and it’s getting bigger every day. A recent “Cybercrime Report” by ThreatMetrix reported that the number of cyber attacks that the device identity firm identified and thwarted doubled in two years.
The relationship between the rising number of breaches and online fraud was no mystery, according to ThreatMetrix: “Fraudsters capitalize on the new blood of fresh credentials, acting fast with mass identity testing bot attacks, using validated credentials to take over trusted user accounts, open fraudulent new ones and make a vast swath of bad payments with stolen credit card data.”
The escalating assault of fraudsters has caused merchants to become more conservative when it comes to shipping orders. After all, if you don’t ship any orders, you’ll never suffer fraud.
In fact, according to an Experian survey of 500 businesses, 67 percent of retailers err on the side of declining suspicious orders, even though they know a portion of those orders are legitimate.
And while those merchants are knowingly leaving money on the table from lost sales, they’re killing their revenue in another way that might not be as obvious. Think about the customer, or more likely the former customer, on the other side of those declined orders.
They responded to the eCommerce retailer’s efforts to provide a beautiful and relevant experience. They found a product that matched their need or desire, just as the online merchant hoped they would. And they clicked buy.
What happened next? They were told no.
“I can’t really think of a much worse customer experience than getting the buyer all the way to check out and then you don’t let them complete the purchase,” says Lee Hadsock, Signifyd’s head of partnerships. “There is a 50-50 chance they’ll never come back.”
It’s a shame to think that all the time, money and effort that went into acquiring that customer was a waste. Not to mention that while the lifetime value of a customer is different for each retailer, it’s always more than having no customer at all.
So, what to do?
Forward-thinking merchants are taking a new approach to fraud, an approach that attacks the problem of false declines and shifts the liability for fraud loses away from retailers and onto fraud-protection providers.
The approach is called guaranteed fraud protection, a fraud management strategy that relies on big data and machine learning to sort fraudulent orders from legitimate ones. It offloads the work of manual order reviews onto the fraud-protection provider and comes with the promise that the provider will make the merchant whole for any chargebacks and fraud costs on any approved order that later turns out to be fraudulent.
The 100 percent financial guarantee not only offers a merchant peace of mind, it changes the way an online retailer looks at fraud and false declines. With the guarantee in place, it actually makes sense for a retailer to ship some orders that it is fairly certain are fraudulent, rather than withhold orders it is pretty sure are legitimate.
By shipping orders that appear to be fraudulent, the merchant is training the machine that makes yes-or-no decisions on millions of orders across a network of thousands of merchants.
If the order is shipped and it is fraudulent, it reinforces the machine’s decision. If the order is shipped and it is not fraudulent, it tells the machine that its model is overly conservative in cases like the one shipped. It draws a clearer line between what is and what isn’t fraud.
The merchant is protected from fraud costs in either case and ends up with a better-performing fraud system in both cases.
Not a bad way to support all the effort that goes into building a meaningful customer experience, while avoiding the poor form of insulting the customers who want to buy your stuff.