A farmer’s lesson from a crazy fox (II)
Picking up from where we left off
Dear farmer, in the last article you read about the important decision of the pros and cons of chasing after the fox (or putting fraud prevention protocols in place that the customer can see). Today we will talk about being vigilant in not letting that chase burn all your harvest.
Method 2: Now you don't
The other type of fraud prevention tools conduct transaction screenings behind the scenes, based on some fancy algorithms. What do these algorithms check? This all depends on which tools you choose, but some common features are:
Well, first of all if it’s a first-time customer, we ought to be uber careful, returning customers are more trustworthy. One point for you (customer).
Are you a returning customer but buying from a different device or IP? Eyebrows raised.
Are you making a randomly frequent purchase one after another? Hm…suspicious.
Is each order being sent to a different address or even different country? Even more fishy.
Once these fishy transactions are identified, either the decision to accept or reject the transaction could be done through automation and Machine Learning, or it could be done manually. Either way, there is a cost involved in managing this. The reason why many merchants still have a human to review these transactions, is to prevent false declines. Machines are machines, without you specifically telling them they cannot know that it’s Christmas season, so people buy things for others, called gifts.
Gifts get sent to different addresses and even countries, and a very loyal customer could be making multiple purchases because they like your brand and want everyone to try it out.
With everyone working from home, it’s also likely that purchases will be made from different IP addresses and devices, even at different hours, because it’s no longer a quick-sneaky-online-shopping-break when the boss isn’t looking. It’s an official lunch-long online shopping break to try and disconnect from the endless “WFH” days.
All of this leads to falsely rejected transactions that could have been good sales.
I recently heard that the trick to guesstimate what you’ve been missing out from false declines, is to take your rejected credit card transactions (take out the ones that were rejected due to insufficient funds ), multiply what’s left by 65%, and you will have an estimation of the opportunity cost of good transactions that were turned away from fraud scanning algorithms that are “too robust”.
The balancing act: Foster loyalty and trust
One final point that I would like to make here is that loyalty is another key to fraud prevention and revenue optimization.
Needless to say, we all love returning customers. False declines are bad for revenue but also bad for reputation, it will put all the efforts in converting the customer to waste and would be exceedingly difficult to win the customer back again. To prepare for the changes in consumer patterns this holiday season, it would be important that you review any tools that you have in place to try and adjust the validations accordingly to try and avoid burning all the crops from the harvest by trying to take revenge on the fox.
According to the September 2020 edition of insights from Visa, loyalty is the foundation of driving sales recoveries for merchant as demonstrated in their global consumer spending patterns, which in the past few months has given merchants a 17 percentage point of competitive advantages over those merchants that have a lower loyalty ranking with their customers.
What’s more? Over repeated purchases merchants can also gain trust and confidence from returning customers, as the chances of fraud will be lower from a loyal customer. So it is a win-win situation to be in if you work on careful measures that will not drive your loyal customers away and build new ones during this holiday season.
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Wishing you a prosperous holiday season ahead, and if you need some help and advice in how to work on your seasonal marketing, business and payment strategy, tailored to your specific business needs, feel free to get in touch with us at email@example.com.
- Balancing between fraud prevention and sales optimization (I)