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Client Connect 2013 - How to Beat Fraud and Boost Sales
FRAUD HURTSBUSINESS“I don’t have a fraud problem.”There are two types of business:1. Those that have been hit by fraud.2. Those that will be hit by fraud.
BOOST SALES, BEAT FRAUDRecognizing Symptoms of FraudChargeback rate above .5% or 50 basis pointsReturn rate higher than 1%Rejection rate higher than 1%Abandonment after submitted transactionHigh affiliate turnoverManual reviews above 10%Too many rules for catching fraud
CHARGEBACK HELLWhat is “Chargeback Hell?”The surprise chargeback reportNot being able to determine why you’re getting thechargebackKnowing why you get the chargeback but not being able todo anything about itNo/ineffective system in place to stop or reducechargebacks and manage fraudA personal invitation to the “Excessive Chargeback Club”
FRAUD HURTS BUSINESSMerchants deploying more tools to try to compete with theincreasing fraud threat. More tools, complexity, increased costOver 50% of all charge backs are the direct results of fraudRefunds can be equal to or greater than cost of charge backsAverage order rejection rate in U.S. is 2.4%, 7.8%internationallyManagement, reviews and escalation of suspect transactionscost make up nearly 70% of fraud preventionCustomer satisfaction, conversion and brand reputation,Aberdeen GroupCost of Fraud
Merchants are trying to keep up with fraud to protect theirbottom-line and their customersMerchants use up to 8 fraud prevention/detection toolsManual review of suspect transactions is costly and time-consumingMost of the time merchants don’t realize they are beingattacked by fraudsters until they get their chargeback reportwhich can be 30–90 days trailing transactionsIncreases in eCommerce are driving increased fraudulent activityFraudsters move fast and hone in on vulnerable opportunitiesMost merchants are not fraud expertsProblemFRAUD HURTS BUSINESS
TYPES OF FRAUDMRC 2011 Annual e-Commerce Paymentsand Risk ConferenceHow a Remote Town in RomaniaHas Become Cybercrime Central
TYPES OF FRAUD• Botnets• Malware• Trojans• Phishing/SPAM• Criminal Networks• PPD• Mobile• Social• Data Breaches• Affiliate• ID Theft• Payment• Account Takeover• Account Origination• Virtual Currency• ????
BOOST SALES, BEAT FRAUDFraud Problems• Affiliate-generated quality leads/sales (or lack thereof)• System-gaming, card testing• Organized systematic site infiltration• Friendly fraud• Average chargeback rate• Fines for entering Visa and MasterCard charge backmonitoring and RIS programs• Acquirer and Amex reserves
BOOST SALES, BEAT FRAUDMerchants are not fraud experts• How can I reduce my fraud exposure?• Do fraud programs negatively effect sales?• Where should my chargeback rate be?• How well is my fraud strategy working?• Will my current attempts to manage fraud scale?• What about international expansion?• Affiliate programs seem too risky
BOOST SALES, BEAT FRAUDTypical Remedies• Turn off affiliate marketing• Turn off IP-addresses on a continent-wide basis• Suppress or constrain global expansion• Create multiple merchant accounts to ‘hide’ chargebacks• Try to build custom fraud screening – or deploy minimalfraud tools (CVV, AVS) – in-house.• Cross fingers
BOOST SALES, BEAT FRAUD• High chargeback rate, 2%+• Growth slowed due to fraud• Internal system was not reducing risk• Manual reviews reduced sales conversion• Little internal info of customersCase Study – BustedTees.comSituation
BOOST SALES, BEAT FRAUD• Implemented complete fraud managementplatform in less than two weeks• Monitored and customized over six weeks• Customized rules, reporting and business strategies• Enacted new tacticsCase Study – BustedTees.comSolution
BOOST SALES, BEAT FRAUD• Reduced chargebacks to lowest level ever,under .25%• Reduced manual reviews and time for manualreviews• Increased areas of opportunity, expanded into newmarkets• Saw as much as a 30% - 40% increase in salesCase Study – BustedTees.comResults
BOOST SALES, BEAT FRAUD• “Fraud was costing us hundreds of thousands of dollars a year, lost revenues,stolen merchandise and chargeback fines,” Schwartz says. “Afterimplementing a comprehensive fraud solution we’ve turned that around tothe point that we are now generating more revenue because we cancapitalize on opportunities we used to see as too risky.”Adam Schwartz, GM, BustedTeesCase Study – BustedTees.comResults
BOOST SALES, BEAT FRAUDCase Study – CDBabySituation• World’s largest online distributor of independent music- Helps artist sell to iTunes, Amazon and Facebook• Paying out 75% commissions• Over $200 million in commissions paid• Fraudulent artists & affiliates• Charge backs/Fraud 2.5%+, $26,000 lost in one month• Reputation at stake with some partner brands
BOOST SALES, BEAT FRAUDCase Study – CDBabySituationFraudster posing as an artist postmusic for sale on CDBaby.com1
BOOST SALES, BEAT FRAUDCase Study – CDBabySituationFraudster posing as an artist postmusic for sale on CDBaby.com1Fraudster joins CDBaby affiliateprogram, receives 75% commission2
BOOST SALES, BEAT FRAUDCase Study – CDBabySituationFraudster posing as an artist postmusic for sale on CDBaby.com1Fraudster joins CDBaby affiliateprogram, receives 75% commission2Using stolen credit information, Fraudsterpurchases music from affiliate (Fraudster)3
Case Study – CDBabyResult• Reduced fraud by 96%• Results in less than 30 days• Fraud losses average $850/mo.• NO loss in revenue• Enhanced marketing opportunities• Great relationship with iTunesBOOST SALES, BEAT FRAUD
FRAUD DETECTIONNew / Dynamic Fraud Performance Criteria• Speed and flexibility• Perform comprehensive fraud control checks• Interlock across a range of customerinteractions
BOOST SALES, BEAT FRAUDSummary• Several data points can help determine fraud• Managing fraud requires a complete strategy,not more tools• Fraud management should not be inhibiting yourability to sell more- It should allow you to expand into new markets and channelswith increased confidence- Fraud management doesn’t need to be a cost center