Beating fraudsters at their game – How to address the challenges of online fraud

The growth of e-commerce in Asia Pacific (APAC) has been well-documented. One only has to look at investments in, and sales recorded from, annual shopping events such as Alibaba’s Singles Day sales, to get a sense of how popular e-commerce has become.

As technology evolves, online shopping will continue to surge, with consumers turning to mobile devices for added convenience. According to a recent report by GfK, over a third of consumers in APAC are already indicating a preference to shop on smartphones.

While, this surge in e-commerce is good news for online retailers, it also brings with it the growing risk of online fraud. In Singapore, a report by the Police Force identified e-commerce scams to be the top scam in the country in 2018, with more than 2,000 cases reported last year.

In fact, the online fraud landscape is becoming increasingly sophisticated. In the past, point of transaction was the only part of the customer lifecycle a retailer had to worry about. However, now, fraudsters can strike at accounts in numerous ways, including account takeovers, policy or compliance abuse, and coordinated attacks executed by fraud rings. Forter’s 2019 Fraud Attack Index found an increase of 45% in account takeover attacks, 6% in fraud rings, and 170% in policy abuse, over 2018.

Addressing the challenges

Unfortunately, in the era of digital transformation, customer interactions have become transactional, with little to no communication between buyers and sellers. This absence of human connection breeds distrust and causes barriers to go up, hitting the e-commerce world especially hard.

When shopping online, consumers want to feel safe and trusted, while still receiving a seamless experience. And, although there are fewer fraudsters than legitimate buyers, the few bad actors can threaten the flexibility, speed and convenience e-commerce offers.

This means that merchants and e-commerce players need to reinstate trust into the ecosystem, in order to keep barriers at bay, satisfy the consumer, and create growth opportunities. 

As such, a traditional anti-fraud strategy that only looks at historical data and patterns on the surface, may be unsuccessful. There’s a risk of blacklisting genuine customers due to false positives, which can be a significant loss to the business. In developing a strategy to combat fraud, it’s important to ensure that the fraud prevention strategy is not a roadblock to the business’ expansion.

For larger merchants with international footprint, it is also key to consider the differences and nuances within markets. An understanding of the potential customers’ behaviour is imperative to identify fraudsters and reduce false positives. For instance, mobile-commerce is a rising trend in markets such as China, India and Indonesia, highlighting the need for a unique prevention strategy for mobile fraud. Essentially, the fraud technology needs to be tailored to the right customer profile for the right territory, taking into consideration various aspects including platform, payment system, user details, and more.

This means a shift from outdated rules-based anti-fraud technology, to an identity-based approach that can easily distinguish the good customers from fraudsters. In any dynamic business, there are far too many variables for a rules-based engine to effectively filter out real customers and catch the bad actors. Reviewing each transaction manually to look for fraudulent patterns can also be time consuming, costly and cause friction for customers.

In a scenario where customer expectation levels are consistently high, and payment processors such as Visa are demanding higher standards of fraud prevention, merchants need to look at better ways of using smart technologies that automatically identify fraudulent transactions in real-time, without impeding transactions from genuine consumers.

Building a holistic strategy for fraud

Fraud doesn’t just impact the risk department. It can disrupt the customer experience journey, affect marketing investments, create security and privacy concerns, and have significant financial implications. In order to remain competitive and provide high quality services, merchants need to build a holistic fraud strategy, that is part of the overall business strategy.

Speed and accuracy in identifying fraud are key components of this strategy, so that the business can remain competitive and provide high quality services to customers. By employing a real-time anti-fraud solution, merchants can continuously improve their anti-fraud strategy without risking any transactions or losing customers. In addition, smart anti-fraud solutions, that leverage machine learning and artificial intelligence, get smarter and more effective as the company continues to grow.