Retail fraud is inevitable when transactions are conducted remotely and rely on each party trusting the other to carry through on their commitments for the transaction. Unfortunately with the growth in e-commerce and mobile commerce, the problem is getting worse. Businesses as diverse as Ice.com, Expedia and Footlocker have reported growing magnitude of friendly fraud chargebacks. Online insurance companies are exposed to misrepresentation fraud or even money launderingthrough their web sales channels. It is not just the large billion dollar corporations who are exposed to fraudsters. The problem is equally relevant to small and medium businesses (SMB’s).
Fortunately there are some simple tactics to control your risk exposure. Your people, processes and technologies should work together in addressing the problem. We explain how you can get the required capabilities in-house.
- Build an organizational urgency: Fraud is not a small or an acceptable cost of doing business. The impact is not only a direct hit to revenues, there are indirect costs that add up. For example, Lexis Nexis estimates the “true” cost of fraud to merchants is $2.33 for every $1 lost in fraudulent transactions. A retailer without adequate risk management controls in place needs to hike reserves to handle chargebacks. An online insurance not only takes the direct hit on its premium collections when folks misrepresent themselves to get lower premium quotes, they also corrupt their book of business and resultant actuarial models. Our solution has worked best when there has been an organizational mandate and a dedicated team tasked with curbing transaction fraud.
- Break down silo’s: Analysis is only as productive as the data that feeds the process. We have found organizational barriers in sharing data on sales, customer transactions with the investigating team. The investigator can only probe on specific behavior if she has a clear and complete view of the customer’s transaction history. For example, knowing that a disputed transaction originated from the same TCP-IP address as a customer’s other transactions helps the investigator in the situation assessment. Add information on past cart abandonment as part of your purchase profiling. Integrate information from telesales with the web channel.
- Establish and monitor recovery processes: Organizations can invest a lot of money in an IT infrastructure over several years. This typically includes basic fraud management rules and processes for diagnosing transaction fraud and investigation. However, technology alone does not recover the monies. You need to have an empowered and informed contact center team dedicated to taking action on leads. Furthermore, these processes must adapt over time and need to be reviewed to make sure they are still effective. Ideally the processes should be self-adaptive around the (economic, technology and consumer) environment but you should plan for a refresh at least every quarter.
- Lead from the top: Sales and IT resist the sharp focus that analytics throws on their function. There is the belief that any aberrations reflect negatively on operational managers’ abilities or is a bottleneck on the sales process. This should not be the case. However good an operational team, they are so deep in the weeds that they cannot see the big picture. The effective organizations have a dedicated function for audit analytics and the chain of command does not necessarily go through (say) online sales. This function should have executive sponsorship and someone from headquarters (preferably someone with a financial background) should be appointed to manage this. This appointee should also directly report up to an executive like the comptroller or the Vice President for Customer Care.Once you have the organization and data pillars in place, you need a solution like Purseine to give tactical direction to the organizational will. Click on the link below to see how Purseine identifies fraud in e-commerce.