Consumer trust is what every business strives for, but as companies continue to expand and increase their payments volume, tackling online fraud — while maintaining consumer confidence — is becoming increasingly difficult.
A recent study from the Ponemon Institute, commissioned by PayPal, sought to gauge the many challenges global risk professionals face when mitigating fraud, as well as the key issues around it — cost, types of data at risk, structuring the right tech stack, just to name a few.
Overall, the research shows that online fraud is a big issue for many businesses. To put into perspective just how costly it is, the businesses represented in this study reported an average loss of roughly $3.7 million per year because of fraudulent online transactions. What’s more, on average, these businesses had 8.78 million online transactions annually, and roughly 2.5 million were compromised.
Why Mitigating Online Fraud Is Tough
One of the biggest challenges in combatting online fraud is dealing with the increasing sophistication of fraudsters. In fact, 63% of respondents in the PayPal study — the largest share of respondents — said so. Not having the right technologies in place is another key obstacle that more than 50% of respondents cited, while slightly fewer (43%) said mitigating online financial fraud is just not considered a priority.
“You can’t plan for everything, but you should plan for what you can control,” said Sandipan Chatterjee, Senior Director, Optimization Services at PayPal.“Focusing on products that have built-in fraud capabilities can help set a baseline for your security posture and should be the minimum. No business should go online without some kind of risk mitigation system enabled.”
What many businesses struggle with when tackling online fraud and minimizing their revenue losses is knowing where to begin. According to PayPal, prioritizing customer data is crucial. This is especially true as more than half (56%) of respondents are concerned about the theft of customer data due to the increasing sophistication of fraudsters.
But the good news is that many businesses are taking the necessary steps in ensuring customers’ trust. The study found that 69% of respondents have policies to guarantee stringent security safeguards are in place. Additionally, 59% of respondents said they’re transparent about the sensitive data that are used in online financial transactions, while slightly fewer (53%) said they perform regular assessments of online security risks for customers.
Customers want to transact with businesses they trust, and it’s important that all payments are processed in a seamless and secure manner. By investing in robust fraud mitigation solutions, businesses stand to earn customer trust and loyalty, thereby securing a customer base that will shop with confidence. A solution such as PayPal Fraud Protection gives merchants more visibility and control over the transaction decisioning process, while its Fraud Protection Advanced solution goes a step further to equip a merchant’s fraud team with the right tools to identify and investigate suspicious transactions, as well as analyze patterns and look for key insights to help mitigate fraud losses.
Tackling Charge-back Fraud
When businesses are looking for the right fraud solution, there are many factors to consider, but one primary area of focus should be on preventing charge-back fraud.
Every month roughly 679 chargebacks occur among those surveyed, and the time spent investigating and responding to these charges averages 31 hours. One of the most significant reasons there’s a surge in chargebacks is the continued impact of the pandemic. More consumers are shopping online, and this influx in online shopping means there’s also an increase in bad actors looking to steal consumer data and commit other fraudulent acts. Moreover, supply chain issues, which are contributing to significant delays in shipment and deliveries, are also causing many charge-back disputes.
According to the PayPal study, businesses are taking necessary steps in fighting against chargebacks. Nearly two-thirds (65%) of respondents said they use clear merchant descriptions, while nearly as many (64%) have clear and flexible return policies. A little more than half (51%) of respondents reported that their businesses are equipped with evidence.
When it comes to fighting chargebacks, the most effective tools and resources include those that have machine-learning capabilities. To help both detect and mitigate these types of fraud in real time, it is best to use a combination of traditional rules-based fraud prevention along with adaptive risk solutions. Nearly eight in ten respondents have said that using adaptive machine learning has resolved their fraud challenges, while 64% said they plan to invest in this technology next year.
In addition to leveraging technology such as machine learning to protect online transactions, businesses should consider collaboration. In fact, mitigating risk should never be done in a silo. Partnering with industry partners and in-house experts can significantly enhance the time in detecting fraud and reducing costs.
For example, merchants using PayPal’s Dispute Automation solution don’t have to worry about spending an abundance of time and effort problem-solving transactions or disputes — or even taking on the losses that may come as a result of not being able to fully handle the situation.
What’s more, teaming up with the right partner that can anticipate what’s coming next through various datasets is fundamental. PayPal has one of the largest global payment datasets and its global commerce can help businesses expand their operations more seamlessly.
“Merchants — especially those selling across borders — are looking for a partner that can help predict and manage risk and can provide a unique skillset enabled by high-performance computing power,” said Chatterjee.
Addressing Fraud to Drive More Seamless Customer Journeys
Today, shoppers expect a very smooth and seamless online shopping experience. And they expect that their personal financial information is stored securely and kept safe — regardless if this is their first time shopping with a merchant or their 100th time. Therefore, businesses need to make sure they’re set up nicely to prevent any potential online fraud.
But according to the PayPal study, many have a way to go. The research found that just 42% of respondents said their business has the necessary in-house expertise to not only identify e-commerce fraud, but also prevent it. That means that more than half are struggling with this.
As previously mentioned, it’s important for businesses to make sure they’re partnering with the right providers to help them navigate fraud protection. A company such as PayPal can help businesses accept transactions, or block them, with the help of continuous feedback loops. Technology such as automation, artificial intelligence (AI), and machine learning are also valuable solutions that are producing favorable results.
It all comes down to prevention. It’s through prevention that more businesses will retain their earnings and their customers and protect sensitive information.
“Our story-based approach helps us better understand individual customers’ journeys, behaviors and needs,” said Chatterjee.