How to optimize the management of payment fraud?

With the health crisis, e-commerce continued to settle in the lives of the French. 64% of them buy at least once a month online according to a study conducted by Adyen, the financial technology platform and the Ipsos institute. When shopping on their computers or phones, the security of the transaction is their first concern. It is their first criterion of choice to buy online, even before the delivery options or the available means of payment.

For brands, keeping fraudsters at bay will therefore be as essential to protect their customers as they do themselves. Several of them opt for technologies like Adyen’s in order to optimize their fraud management, while maintaining high authorization rates for them and their customers.

Complement fraud management with technology

In recent years, the digital payments industry as a whole has undergone a major transformation. New technologies have emerged to secure online transactions and prevent the many types of fraud that exist, such as account hacking. Hackers create e-commerce sites that look like a legitimate branded site, lure a user in, and steal their buyer credentials.

Nowadays, refund fraud is also very common. Fraudsters are building sites and offering reimbursement services to individuals. They then pose as the buyer and falsely report the “fraud” on their behalf.

Another very common technique is gift card fraud. These are more difficult to trace and less regulated than debit or credit cards. A fraudster can then use stolen payment data to purchase a product on the internet and subsequently return the merchandise for a refund on the gift card.

Chargeback fraud is also very common. A customer places an order on an e-commerce site and initiates a chargeback procedure by asking his bank to cancel a transaction initiated when he has already received the items.

Card tests add to the list of types of fraud that exist. In some cases, fraudsters test stolen cards to see if they are active and sell the information on the Dark Web.

There are therefore very varied and complex bank fraud techniques. The Payment Security Directive (PSD2), a European regulation that entered into force in 2019, was put in place to counter them. It aims to create a more open and secure payment system in Europe. It requires the payment service provider to better secure online payments through strong authentication.

DSP2 leads to two protocols:

  • Strong Customer Authentication (SCA), which meets the new requirements of the new regulation. This technology prompts shoppers to authenticate using something they know (such as a password or passphrase), whether they are (for example through facial or voice recognition) or who ‘they own (like a phone). The aim is not only to reduce fraud, but also to secure Internet and contactless payments;
  • 3D Secure 2 (3DS2), a security protocol that works to protect against possible fraud during online payments. To do this, he invites the payer to verify his identity, for example using a code received by SMS, a notification on the banking application or authentication by fingerprint.

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Although these technologies are effective in protecting against fraud, they are not waterproof. As Adyen explains: “ It is a common mistake to believe that two-factor authentication is a fraud-proof solution, as scenarios like social engineering, phishing attacks and refund fraud are on the rise. “.

The current strong authentication standards therefore represent only one stage in the transformation affecting the world of payments. Once this level has been passed, they can be used as part of a more robust payment solution that will benefit both customers and the company and its performance.

To avoid financial losses, customer attrition or even a negative impact on your reputation, you should opt for an efficient and complete risk management solution like Adyen’s, called RevenueProtect. Like the 3DS2, it protects online shoppers, complies with DSP2 and SCA standards, secures enhanced data, provides a good customer experience and decreases the number of fraudulent payments.

However, the 3DS2 has certain limitations. For example, he doesn’t understand refund fraud like Adyen’s solution does. In this sense, it pays to use 3DS2 with the added security of a comprehensive risk management tool, like RevenueProtect. In addition to the advantages of 3DS2, Adyen’s solution offers key benefits:

  • protection against a large list of types of fraud, including prepaid and non-reloadable cards;
  • global activation;
  • adaptation to internal business rules of a company;
  • handling of gift card and refund fraud;
  • card and card testing to deal with threats from automated bots;
  • protection against resale abuse and policy abuse.

It uses methods such as advanced algorithms, machine learning and behavioral analysis of customers, to which brands can combine their risk rules in order to build a solution that best meets their needs. For example, it is possible to select risk profiles by sector and customize its parameters by adding or creating risk rules and block lists.

Quickly distinguish fraudsters from real buyers

One of the challenges remains to minimize fraud without affecting genuine transactions, which is also addressed by Adyen’s ShopperDNA, an intuitive tool that is part of RevenueProtect’s program. It offers more details as to the context, allowing buyers to be identified regardless of their IP address, the card used or the country where they are located. The data is anonymized to meet the general data protection regulations (GDPR). Within moments, fraudsters are identified without hindering the purchase of genuine customers.

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In this sense, strong authentication can be requested only when it is really needed. The valid payment card of a buyer who regularly visits the same e-commerce site will be recognized, and payment will be simplified. For example, it will no longer be necessary for him to go and find his phone and enter the received SMS verification code on his computer. The purchasing process of legitimate customers is then streamlined, making it possible to increase the conversion rate of their baskets while avoiding fraud.

Succeed in avoiding chargebacks / unpaid bills

A solution like Adyen’s will therefore improve the customer experience, and thus reduce chargebacks (or unpaid bills). Concretely, it is when a customer asks his bank to cancel an initiated transaction, sometimes when a brand refuses to grant him a refund. This process protects buyers from fraudulent practices.

When a business receives a high volume of chargeback requests, this can quickly become a problem, as the fees associated with chargebacks are much higher than those for refunds, making them very expensive to process. To prevent them from becoming a source of frustration and threatening a company’s income, several of its practices should be reviewed. Among them, the optimization of its risk management processes, which help fight payment fraud.

To avoid bad debts, it is also necessary to ensure to offer an optimal customer experience by guaranteeing good delivery times and by anticipating refunds in the event that products and services cannot be delivered on time. The quality of customer service must also be exemplary in order to respond effectively to customer requests. In the event of a problem, it may be wise to offer them alternatives, for example in the form of discount vouchers or credits and, when necessary, to reimburse them quickly.

In any case, it is important to remain vigilant in the face of the many types of fraud that exist, in particular by choosing a payment partner with solid experience in the fight against fraud, such as Adyen, as Hunter did. The boots brand has dramatically reduced delinquency fraud with the RevenueProtect risk management tool. ” We succeeded in lowering our delinquency rate from 2% to 0.2%, or an overall decrease of 90%. At the same time, we have managed to keep our clearance rates high. Explains Hunter.

With Adyen’s RevenueProtect tool, payment data is also an advantage for fraud management at Tape à l’œil, the ready-to-wear brand. It helps to ward off fraudsters while streamlining the journey of legitimate recurring customers. ” Data is also at the service of our risk management. A card that comes on our website but that we have already seen in the store, we know how to recognize it and assess it in terms of risk », Indicates the brand.

Finally, any e-commerce company must set up a risk management solution, or its performance may be strongly impacted. Discover Adyen’s tools, which will help you minimize fraud, learn more about fraudulent methods used on your sales channels, and maximize your authorization rates.

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