Preventing fraud across multiple purchasing channels is the next major paradigm shift for bank card issuers and merchants.
The growing proliferation of card-not-present (CNP) transactions has attracted as many fraudsters as shoppers. Meanwhile merchants and bank card issuers extol the virtues of a “frictionless” cardholder purchasing experience. Yet a new reality is quickly approaching. The easier it is to make a purchase the easier it is for the perpetrators to commit fraud.
At some point fraud costs will outpace the benefits of a one or two-click buying process. Balancing purchasing ease and convenience against security needs across multiple shopping channels and buying methods will become a paramount topic for bank card issuers and merchants alike.
However, market players are beginning to recognize that detection solutions and back-office attempts to thwart the fraud have proven insufficient, are expensive to operate, and often have negative cardholder consequences. Not only are there limits on how much fraud detection solutions can actually stem, detection solutions sometimes adversely affect the cardholder shopping experience, causing cardholders to abandon purchases and cards in their wallets. Nor do the detection solutions always work across multiple purchasing or payment channels.
One of the side effects of detection solutions is declined transactions that should have been approved. These declined transactions often referred to as false positive card declines, serve to frustrate and sometimes even anger cardholders. Imagine the cardholder who goes to the grocery store, buys food and uses his or her payment card. The cardholder walks out of a store content and with goods in hand. Then within hours the same cardholder shops online with the same card that was just used to purchase groceries and gets turned down after hitting the buy button on the merchant’s check-out screen. Suddenly, that one small act has changed the consumers’ mindset.
The cardholder could stop shopping at that online merchant, call the bank and get more frustrated, or even worse cut up the card. Industry data suggests that the card authorization approval rates at the physical point-of-sale (POS) are 10 to 15% higher than for CNP purchases.
What consumers really want is to know is their card information is being protected when, where, and however they shop, without interruption. Today’s detection based solutions sit behind the scenes at a financial institution (FI) or a merchant. That means when consumers shop at a merchant they have no clue what is being done to protect their data.
There are also no standards from one merchant to another or one FI to another. The small merchant that offers an online shopping portal is unlikely to have the same resources and capabilities that a major retail chain can afford to deploy.
That same concept holds true with FIs, which deploy many different fraud solutions. That’s why it is important for bank card issuers to take control of fraud prevention, and give that control back to the consumers. Doing so will build consumer awareness that there is a system in place to protect them and will ultimately build trust that the FI has the consumer’s best interest at heart.
Also, while newer prevention methods such as biometrics are being introduced to the market, they are far from being the end all and be all to solving the today’s problems. While biometrics are great in theory, the technology has limitations and is a long way from achieving widespread consumer adoption.
First and foremost, the biometric technologies tend to be channel specific. For example, capturing a photo or a thumb print may be limited to smart phones and may not transfer over to when a consumer shops with a computer or completes a purchase by calling a customer service representative. And biometrics is not necessarily dynamic data and therefore can be copied and reproduced.
Additionally, consumers may feel giving up biometric data could be inherently risky. Storing biometric data at an institution for a consumer may be analogous to storing social security numbers. Consumers don’t want to give out social security numbers or identity information to institutions they do not trust. That could deter consumers from adopting the technology.
FIs would be better served by deploying more consumer based prevention tools that work across channels and purchasing methods, do not rely on biometrics, or depend on merchants doing the work. Evidence in the market suggests consumers are worried about fraud and in the absence of better fraud prevention systems are changing their shopping behaviors.
New industry data from companies such as LexisNexis indicate that once a consumer has had a payment card compromised, more than 40% of those consumers reduce usage for that card account, or worse don’t use the replacement card, and may even close the account. Additionally, cybercrime and data breaches have increased consumer worry about identity theft and payment data being stolen.
In spite of these circumstances the CNP channels are seeing double digit growth, which in turn creates significant increases in fraud, chargebacks, and security expenses for organizations. Therefore, what is really needed in the market is a secure prevention solution that fits with consumer lifestyles, is holistic in nature, and easily adopted without increasing perceived risk.
Madeline K. Aufseeser is CEO and Co-Founder of Tender Armor.
