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A farmer’s lesson from a crazy fox (I)

Starting with an Aseop fable

fraud prevention - fox

During harvest season, there once was a farmer who caught a fox. He tied a rope that was dipped with oil to its tail and set it on fire before letting it go, in defense of his crops and taking revenge to the fox that caused damage to them.

The fox ran around his field and set fire to all his harvest, leaving the man helpless and harvest-less.

We, business owners, are the farmer.

Christmas seasons is now just around the corner, even the most equipped e-commerce platforms need to start carefully planning out their seasonal strategy, not to mention those businesses that had to quickly get their products and services online in the speed of light out of survival throughout the last few months.

This is our harvest season and we strive to make this the best one yet.

Does fraud impact me?

There is going to be more traffic in the “shop” that prompt us to be prepared with better stock planning, fine tuning seasonal delivery and return policies, a full-on marketing strategy for releasing special offers, gift vouchers, and maybe even the small touch on gift wrapping…All of these things that apply in the shop whether its built on concrete or in the clouds. There is one thing, though, that is much more difficult to manage online than offline, and that is credit card chargebacks. Being an online business, credit card is one of our main payment channels.

In most face to face transactions, especially in Europe and increasingly popular in the US, credit cards nowadays are equipped with a Chip & Pin that creates a secured transaction. This heavily reduces the merchant’s risk of landing on a chargeback. However, in a Card Not Present (CNP) environment, the chargeback situation becomes more difficult to remedy, given that it’s much more difficult to prove that the transaction was genuinely made by the cardholder over the internet.

Fraud is a real thing, this Nielson report says that 27.85billion USD dollars was lost to fraudulent transactions in 2018.

It should therefore be in everyone’s seasonal strategy to prepare for credit card fraud prevention, making sure that your sales will not land up in the hands of criminals and fraudsters. But how careful is careful enough to scare away the fox and not accidentally setting fire on all our hard-work-harvest?

It’s all a balancing act between fraud prevention and the customer experience.

There are many fraud prevention tools and providers that help merchants (you) prevent fraudulent credit card transactions from taking place. Choosing between the tools is an important decision to make. From my perspective there are those that the customer sees, and others that work behind the scenes.

Method 1: Now you see me

3D Secure is one of the examples that the customer sees. It is a secure transaction protocol that is becoming increasingly mandated for online transactions, as Strong Customer Authentication (SCA) becomes a regulatory requirement in many countries, it is also one that provides a lot of protection to merchants from chargebacks with a liability shift, and for some merchants you can strike a better deal with your acquirer as well. The easiest way I remember what a 3D Secure transaction is: the protocol will always validate the payer by asking for three things:

  • Something you know (i.e. a passcode), given to you through…
  • Something you own (i.e. your mobile decives, or bank token), and accessible only with…
  • Something you are (i.e. the fingerprint that unlocks your phone, or those fancy ones that have facial or voice recognition on their devices)

It sounds great, but merchants typically do not like these because it interrupts the customer experience at check-out and could cause sales being dropped during this process. Traditional 3D secure transactions typically take the user outside of the website, to a redirected site for the customer to go through the validation above (These sites typically have a super pixelated image of the bank or issuer’s logo. They could really use a web designer to make it look more legit!). Once that’s done, ideally, the customer would get redirected back to the merchant’s website to complete the order.

All the efforts to make a perfect shopping experience has been interrupted and more than often pop up browsers or phone browsers may cause errors in the redirecting, leaving the customer unsure whether the order was completed all the trouble (and they tell you NOT to refresh the site or hit “back” you keep starring at the pixelated logo) this is how orders could get abandoned at check-out. On this blog, the author makes reference to up to 22% of sales that go through a 3D Secure authentication process get dropped.

Some businesses choose to use this only for high value purchases unless it is required by law.

Stay tuned for the next article where we talk about the other type of fraud prevention tools – those that work behind the scenes.