14 Aug 2017
Online Retailers Look to Tackle Fraud Without Deterring Buyers
- Photo: Remote credit-card fraud: The number-one problem for e-commerce operators and online shoppers. (Shutterstock.com)
- Photo: Chargebacks911: Cutting back on chargebacks.
- Photo: Worldplay: Piloting a big change to CNP payments.
- Photo: VisionLabs: Stamping out online fraud with biometrics and facial recognition software.
The problem facing remote retailers is how to deliver secure, fraud-free transactions without imposing onerous security protocols likely to deter buyers, fortunately exhibitors at the recent Card Not Present Expo claimed to have the answer.
There is a fundamental dilemma facing many remote retailers – on one hand, they are ever aware of the need to combat the rising threat of credit card fraud while, on the other, they know only too well that the dwindling attention spans of many online shoppers will not weather protracted security protocols. In short, vendors have to find ways to minimise credit card 'chargebacks', while streamlining the overall purchase process in order to reduce the number of transactions abandoned by impatient purchasers.
In order to help resolve this issue, an entire sub-industry has evolved, with any number of companies now offering help with payment processing, fraud prevention and the resolution of chargeback disputes. This has also led to the Card Not Present (CNP) Expo becoming the annual gathering place for many such businesses.
Over recent years, changes to credit card technology have accelerated the interest in CNP fraud prevention across the US, an area where the country is seen as somewhat behind a number of the other developed economies. Highlighting this, Colin Westlake, Chief Executive of Syntec, a London-based card processing services provider, said: "The UK is about 16 years ahead of the US in terms of chip and PIN. The adoption of chip and PIN in many countries has seen fraud ceasing to be a face-to-face phenomenon and, instead, it has moved into the CNP environment. As a result, we expect there will be a vast increase in CNP fraud in the US, which is why we're here."
Overall, many of the exhibitors at the expo were focused on delivering fraud-prevention measures without imposing excessive delays or obstacles. Some companies, though, took it a step further and claimed to be able to identify potentially fraudulent activity before a transaction had even begun. One business to make this particular promise was Next Caller, a New York-based telecoms company. Justifying his company's claim, Business Development Manager Jacob Wilson said: "When a call comes into a call centre, we are able to tell them before the call proper begins whether or not that particular inbound call is fraudulent.
"In order to achieve this, we look at the metadata of the call. By analysing millions of calls, we're able to tell, based on the information passed into the call centre, whether or not the call is originating from the physical device that it is supposed to be. If there is any sort of caller ID manipulation occurring, we're able to detect just what's happening."
As well as reducing fraud, which is a big boost for the call-centre operator, Wilson believes this also benefits consumers, saying: "The time and the cost are the big savings, while another comes in terms of customer experience. No caller likes to have to answer 12 questions about who they are in order to find out the state of their bank balance. We can help get some of that authentication out of the way beforehand, ensuring that the customer doesn't have to deal with it."
For Evi Triantafyllides, Marketing Director of PAAY, a New York-based secure-payment specialist, speed is also one of the most important elements of the consumer experience. Expanding on her own company's approach, she said: "For us, it's all about educating merchants, explaining to them that our technology won't impact on their level of cart abandonment. If they show a pop-up requiring consumers to enter details, it does delay the processing time by a few seconds but, because we start the authentication process as soon as the consumer starts checking out – from the time they start typing, we start authenticating – they don't really feel it.
"At the end of the day, the merchants can control how long they want the authentication process to last. They can say to us: 'I just want to attempt authentication for this many seconds'."
Even with increasingly sophisticated CNP fraud-prevention measures, though, a certain proportion of transactions inevitably end up as chargebacks – whether through illegal activity, error or because customers simply change their minds. Among the companies at the show specialising in this area, the focus was very much on shifting responsibility (and cost) from the retailer to the card provider.
Billing itself as the "ultimate chargeback management solution", Florida-based Chargebacks911 sees itself as very much at the forefront of this particular sector. Outlining the scale of the problem, Ben Scrancher, the company's Client Relations Director, said: "If you are getting 1,000 chargebacks per month of, say, US$100, that's $100,000 of exposure. You might have a team of three people working on it internally and you might win 12-18% of the time, which is the average win rate.
"When we come in, we say we're going to contractually guarantee you a win rate that is higher than that and this is the fee that we are going to charge you for doing it. On top of that, you've got all of our reporting and analytics facilities, all of which will help with the prevention of chargebacks in the future.
"If I was an issuer and I was filing chargebacks against you and you are not disputing them, what am I going to do? I'm going to keep on doing it. If you turn around and start winning half of the cases against me, it's a very different message that you're sending out."
In addition to its secure payment facilities, PAAY also offers chargeback services. Explaining its particular approach, Triantafyllides said: "We shift liability for any fraud away from the online merchants and on to the card issuer. The way it differs from other fraud detection/prevention tools is that, instead of telling you which transactions to decline in order to avoid chargebacks, we advise you to accept all transactions.
"Once authenticated by our software, we may then get chargebacks, but this will be on the card issuers' side, so they're going to be held liable for it. In addition to that, we qualify transactions at a lower interchange rate, which means you pay a lower processing fee for every transaction."
The rapid advance of smartphone technology and video messaging has also made a new layer of personal identity security viable for mass-market use. In line with this, Moscow-based VisionLabs made the 18,000km round trip to Orlando to present its facial recognition software system at the show.
Introducing the system, Alexander Khanin, the company's Chief Executive, said: "We are a visual recognition company and we provide biometric solutions for ID management, fraud prevention and access control. The key difference offered by our platform is that it can enrol and recognise a face from any device. It's not just from mobile and it's not just from security cameras. Instead, it's a platform for all kinds of front-end applications.
"One of our customers is Equifax, the credit reporting agency. It is now using our software on a national scale to prevent loan-application fraud. By using the system, it has reduced fraud levels to almost zero."
Although its approach is very different, Khanin sees VisionLabs as delivering the same benefits as the other technologies serving the CNP sector. Expanding upon this, he said: "For clients, there are two areas of interest. The first is reducing fraud, ideally to an inconsequential level. When you are fighting fraud, it is very easy to calculate your return on investment.
"The second priority is increasing the speed of customer service, while enhancing customer experience. You can genuinely enrich the customer experience by using facial data. It cuts down the duration of the transaction and customers don't need to remember complex passwords. All they need is their face."
Although reducing CNP fraud was a recurrent theme at the event, there were also concerns over the larger scale hacking of customer data. In the case of call centres, Syntec maintained it had a solution that would remove any such risk, while also cutting audit costs.
Outlining this particular aspect of the company's business, Westlake said: "Part of what we do is enabling secure payments in contact centres. This sees a customer able to pay over the phone by keying in their card data on their touchtone keypad. We then strip the DTMF tones out of the phone conversation and authorise the card on behalf of the agent. In this way, the agent never gets to see or hear any of the card details.
"If a call centre doesn't have this kind of system, they will be obliged to undergo costly audits as a consequence of having card data stored on their phone recordings. The other benefit is, if they don't have the data on their system, there is nothing to be hacked."
In an industry as fast as online retail, it's almost impossible to predict what the next big thing will be. This, however, didn't deter Patrick Keaney, Business Development Manager of Worldpay, the Georgia-based payment-processing specialist, from asserting that a number of big technology companies are on the verge of fundamentally changing the way CNP payments are made.
Expanding on this, he said: "The biggest thing we are seeing right now is browser-based payment. This sees your browser – whether on your phone or on your PC – holding all your personal card details. It's no longer a website or an app that gets that data, just the browser.
"This is something we are working on with a big group of technology companies, including Microsoft and Google. Our involvement is primarily with regard to the technological and security aspects of the system."
The CNP (Card Not Present) Expo 2017 was held from 23-26 May at the Rosen Shingle Creek Resort Conference Center in Orlando.
James O'Donnell, Special Correspondent, Orlando