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Payments and Fraud: The Paradox Twins

Payments and Fraud: The Paradox Twins

Digital commerce through web and mobile is where merchants predominantly experience shopper growth today.  This has become a hugely important domain for their focus.  It offers a means for international growth, new market penetration and a way to engage with shopper-hungry Millennials in their culture.  Merchants frequently adopt a Digital-First, eCommerce-First or Mobile-First strategy to ensure full corporate buy-in to this strategy.

The challenge for Digital-First when expanding globally can be stated in simple terms:  Operate a business that can sell internationally in local language, with local currency and fulfil the orders to those markets.  There’s logistical complications to be managed for delivery into foreign markets and there’s also the challenge of selling effectively: maximizing customer sales while minimizing associated costs.

From a payments perspective, maximizing customer sales equates to being able to offer customers the opportunity to pay simply and friction-free.  The checkout process needs to be quick and intuitive and the payment methods on offer need to appeal to the shopper.  In many countries, that could mean multiple payment methods in multiple currencies.  That’s in addition to traditional card payments.  These “alternate payment methods” appeal to different people based on a range of factors like locality, currency, trust, trends, service (instant credit, pay on delivery) and cultural popularity (Alipay).

International retailers need to support a critical mass of these payment methods to maximize their market penetration and customer conversion.  47% of customers abandon online shopping baskets and shop elsewhere as a result of their preferred payment method not being offered [per research by PPRO Group].

Customer conversion is the hot topic for many global retailers.  Those lost baskets add up over a year.  Some customers decide not to buy and some get distracted.  Retailers can chase those who may have nearly completed their purchase and incentivize them to come back, but even the brick-and-mortar stores get full baskets left on the shop floor.  But if retailers don’t have the payment methods required in those markets, they don’t even give themselves a chance to maximize customer conversion.

And being able to take the payment is not enough.  The flip side is being able to accept the payment.  Assuming a retailer can serve its global customer base with the necessary payment methods, they also need to be able to determine whose money they want to take, especially in the wake of increasing digital fraud.

So merchants that have the payment methods in place to serve their customers still have to turn away shoppers because of the risk of fraud.  Fraud is the enemy of payment acceptance.  It’s common to hear fraud management talked of in terms of a means to stop fraudulent payments.  That’s not wrong, but there’s an alternative philosophical approach to considering this.

Fraud management is a way to continue to maximize basket conversion.  The better the fraud management service, the closer aligned it’s to a retailer’s customers, its payment methods and the shopping process, and the more customers the retailer can accept payments from.  It’s no longer a case of determining that you don’t trust someone enough to risk accepting the order.  It’s a case of identifying the shopper based on statistics that fraud management systems can now pull from many sources, including the device used for the payment and where it’s been used before.  Even after the payment is accepted and the order fulfilment process commences, there’s a short window for order review.  The payment can be analyzed after the event, the customer’s profile can be looked at in more detail and before the goods are shipped; there’s an opportunity to reject it, saving on the costs of lost goods and the consequential chargeback process. 

To an extent, fraud is a cost of doing online business.  It’s a barrier to entry in new markets where a retailer may have less local experience; but a good fraud management accounts for these costs, allows that barrier to be crossed and allows new business to be secured profitably.  Fraud management is an opportunity for new business growth, not just a threat to it.  Fraud management is the twin of payment acceptance and not the enemy.

For more information about Merchant Payments, visit our Retailer industry page.