FIGHTING ONLINE FRAUD TOGETHER

The challenge has never been greater, writes Max Roberts, UK Country Lead at Stripe

Max Roberts, Stripe

Businesses that sell online face more fraud risk than ever before.

In Stripe’s recent fraud trends survey, nearly two-thirds of business leaders said it’s becoming increasingly difficult to combat e-commerce fraud, and roughly the same proportion expect to lose more money to fraud this year than last. Juniper Research also found that merchant losses to online payment fraud will exceed $200billion between 2021 and 2025.

Fraud trends you should know about

By analysing billions of payment transactions which Stripe processes every year, we can reliably identify new fraud patterns and trends.

Card testing attacks

Some fraudsters obtain long lists of stolen credit card data on the dark web or using phishing or spyware. In order to check whether these credit cards are still active, they use botnets to make small purchases on websites – thousands of purchases over a very short period of time, leading to a surge of traffic on affected websites. The attacks can negatively impact businesses in ways including higher payment processing costs, failure risks, or simply by immobilising their websites under heavy traffic.

Geography matters

Businesses in Europe had substantially lower fraud rates compared to North America last year, which likely reflects the impact of Strong Customer Authentication (SCA) in Europe. SCA mandates businesses to add two-factor authentication to their checkout flow for certain online transactions. While the regulation has introduced new friction to the user experience, it has been effective in reducing fraud. We expect two-factor authentication to become more widespread, including tools like 3DS or CAPTCHAs.

Business type

Some types of businesses are more vulnerable than others. We found that subscription businesses – specifically B2C companies – struggle the most with fraud.

That’s because a subscription to a streaming service, for example, can be quickly bought and resold by fraudsters, without any shipping time involved.

Why fighting fraud is hard

More stringent fraud prevention measures often deliver more false positives and a worse overall customer experience. False positives can cost a business money and damage its reputation. One in three consumers say they wouldn’t shop again at a business if their payment is declined without a legitimate reason. The lost revenue from blocking too many legitimate customers may not be worth marginal reductions in a business’ fraud rate.

What can be done

Machine learning and big data can help optimise a fraud detection model. More specifically, it’s useful to have a payments partner that can train a model with a lot of data. From the vast amount of transactions we see, we can identify new fraud patterns and trends with the help of machine learning, and act accordingly. This might sound abstract, but it’s not unlike an experienced shop owner who has learned how to spot potential shoplifters. The difference with machine learning at Stripe is that it works on an entirely different scale.

But businesses shouldn’t rely on their payments provider alone. Here are a few more ways to reduce the impact of online fraud on your business:

■ Collect more relevant information during checkout, which will help you better verify a customer’s legitimacy. Collect the customer’s name and email address as this additional information can result in better machine learning detection of fraud and give more evidence to submit during a potential dispute.

■ Explore other payment methods. The right set of payment methods can offer flexibility to customers and reduce the risk of fraud. Digital wallets require additional customer verification (such as biometrics, SMS, or a passcode) to complete a payment, resulting in lower dispute rates. Similarly, most bank debits add an extra layer of security and reduce the possibility of disputes.

■ Manually review suspicious payments, which will help you take action before a potential dispute occurs. If you’re unsure about a payment when you’re reviewing it, contact the customer by phone or email. Or, if you suspect a payment is fraudulent, refund it.