During the COVID-19 pandemic, eCommerce retailers all over the world saw a tremendous spike in business. And although most observers expected things to more or less level off as the pandemic waned, there's little sign of that happening yet. Instead, eCommerce sales have continued to grow throughout 2021.
But the growth hasn't come without challenges. And the biggest among them may be a concurrent spike in fraud that's costing the industry billions. This year, industry analysts expect that fraud will cost eCommerce businesses over $20 billion – a jump of 18% over last year.
There are a few reasons that this is the case. One is that fraud is typically a crime of opportunity – and with more sales come more chances for people to cheat. And the second is transaction processing volume. With eCommerce vendors processing more transactions than ever before, fraudsters know they have a better chance to evade detection.
But there's some hope for the industry on the horizon. And it's coming in the form of automation, which is reinforcing existing anti-fraud measures and helping affected businesses fight back. Here are the three ways that automation is helping eCommerce retailers combat fraud in 2021.
Providing an Opportunity for Process Review
One of the major ways that automation technology is helping to fight eCommerce fraud actually isn't the result of automation itself, but rather is a side-effect of the implementation processes. Because automating existing processes can only happen once they're documented, working to add automation to the anti-fraud mix is causing retailers to review the way they look for fraud.
As they do this, many are rethinking some of their existing anti-fraud measures. As an example, it's common for eCommerce businesses to set a threshold for purchases before they trigger extra scrutiny. So if someone buys a $10 item, it won't be reviewed by staff or the payment processor. But if they bought something for $100, it would.
The pending addition of automation is allowing eCommerce businesses to lower those thresholds because they will no longer be bound by the human element. This means they can now scrutinize a larger proportion of sales, making it more likely that they'll notice fraudulent transactions in time to stop them.
An Entry Point for AI Analysis
As eCommerce businesses turn over a greater portion of their transaction monitoring to automated systems, it's also putting them in position to deploy AI tools to augment their fraud detection processes. And vendors like IBM are leading the way in helping businesses train and implement machine learning solutions that can recognize transaction patterns that indicate fraud. In this way, eCommerce is finally beginning to catch up with the methods used by consumer financial fraud protection services. They've been using similar technology for years to identify financial trouble signs for individuals all over the world.
Such solutions are seen by industry experts as the future of fraud protection. Major credit card providers are experimenting with the technology, and some, like Visa, already rely on it. Their ML-powered Visa Advanced Authorization platform has already prevented at least $25 billion in fraudulent transactions since it went online. And as eCommerce businesses increase their adoption of automated anti-fraud technology, they're getting closer and closer to having similar capabilities.
Improving Chargeback Resolution
One of the biggest single types of fraud that eCommerce businesses deal with is called chargeback fraud. This is when someone makes a purchase and then instructs their credit card provider to refuse payment to the seller. Sometimes, this isn't intentional. A customer may simply not recognize a charge on their statement and initiate a dispute. But sometimes it's done as a way of defrauding sellers by refusing payment on legitimate purchases.
The problem eCommerce businesses face is that they have to investigate the situation every time a chargeback occurs. If they do nothing, they'll lose out on the money they're owed. But if they're too aggressive with customers, they'll lose business. And on top of all of that, eCommerce businesses with high chargeback rates may be dropped by their payment processor – so they can't simply ignore the problem even if they're willing to take the financial losses that come with it.
But with automation, it's possible to configure complex rule sets that govern how chargebacks get handled. Businesses might, for instance, simply opt not to fight chargebacks below a certain transaction value. Above that number, they may create an automated process to score transactions based on their specifics to spot chargeback fraud. And when it's identified, automated processes may even handle gathering the evidence necessary for the representment process.
The Bottom Line
At the end of the day, it's clear that the problem of fraud faced by the eCommerce industry isn't going away. On the contrary, it's only going to get worse as online sales continue to rise. But in making the move to automated anti-fraud solutions, eCommerce businesses are rising to the challenge and beginning to stem the tide against fraudsters.
And as the technology they use improves and is augmented by additional AI and machine learning systems, the industry may reach a tipping point where it finally has the advantage – for the first time in its history. That's a good thing, not only for the affected businesses but also the customers they serve. It would mean lower prices and better overall service. And since that's the main selling point of eCommerce, to begin with, that would be a major win for everybody – except the bad guys.
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