Payments Fraud and Friction: A Delicate Dance
One of the biggest challenges for retailers, at least when it comes to payment acceptance, is the need to provide a frictionless customer experience that does not come at the cost of customer security. Additionally, retaining a competitive and distinctive edge requires flexibility across markets and segments.
While customer centricity and frictionless payments are two of the buzzwords that we’ve heard a lot about over the past couple of years, these are not goals that can be pursued in isolation. They must be closely tied to fraud prevention efforts – which protect the customer and the business whilst still ensuring a sale is made.
As recent data breaches have repeatedly demonstrated, there is a clear need to ensure the security of customer information. However, there’s also the need to authenticate the consumer to protect the business against fraud. Both processes are essential, and can have a direct impact on brand reputation, customer relationships and the ability to grow. Both processes must also be fast, robust and seamless, so that there is no negative impact on the customer experience.
Keeping control of these processes can be a challenge for major retailers, with responsibility for payments and fraud varying across different departments of retailers that we recently surveyed. Responsibility may sit with the eCommerce team, accounts team, IT, or the customer services centre. Couple this with the fact that different departments have a different focus, depending on their end goal, and can become more difficult to strike that balance between payments security and a smooth customer experience.
How can retailers balance fraud and a frictionless experience?
Our recent survey, in partnership with Internet Retailing, found that fraud prevention is usually prioritized over a frictionless experience – with only 22% of merchants actively working on a compromise between customer experience and fraud prevention.
The problem here is that many merchants will be losing out on revenue and growth opportunities by employing overly stringent fraud measures, or worse still, relying on ineffective fraud tools and getting hit from both sides. In fact, with the right data, tools, profiling processes and closely tailored fraud strategies, fraud prevention solutions can be geared to support conversions and growth.
One illustrative example of the conflict between fraud and friction is 3D Secure, which – although helping to protect the retailer from fraud – can put off the customer completely since it can disrupt what might otherwise be a fairly frictionless experience. As a result, many retailers choose to take the risk and not utilize the authentication measure, rather than suffer the expense of lower purchasing rates. A retailer that we interviewed said, “we turned off 3D Secure for all payments under £50, as it was killing conversions.”
Each individual retail business needs to decide what level of fraud risk is acceptable to them – some will tolerate higher risk to secure more orders; others will take a more conservative approach. At an absolute minimum, retailers must understand card scheme requirements and the level of fraud at which penalties are applied, and stay at or below the industry average for fraud and chargeback rates. But better still, retailers should look at how to fine-tune their fraud controls to support their payments strategy, to get multi-channel sales really singing.
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