In an increasingly cashless economy, merchants and consumers alike have a fear for fraudulent transactions. How should we balance fraud prevention and customer experience?

I’m sure we’ve all experienced something similar before: at a store counter or at an online checkout, a card payment is rejected for no reason we are aware of.

This can be frustrating – not just for consumers’ shopping and payment experience, but also for merchants. Every rejected payment is a loss of business, especially if the customer is a good paying one.

But banks, credit card companies and merchants all have different risk appetites, with various acceptance policies coded into their POS and backend processing systems. These are all meant to protect them from fraud of every conceivable kind.

Which brings us back to the perennial customer experience dilemma: convenience versus security.

Vesta believes it has a solution. Founded in 1995, the company pioneered fully guaranteed card-not-present (CNP) payment transactions for the telecommunications industry by using its cutting-edge data science and machine learning capabilities to thwart fraud and ensure that more valid transactions are approved.

Today, Vesta processes and protects billions of dollars in transactions annually. It has added a significant presence in Asia Pacific in recent years, with a strategic investment from EDBI and making Singapore its regional headquarters.

Wespoke to Shabab Muhaddes, General Manager, Vesta, Asia Pacific, for insights into regional fraud techniques, and how technology is used to fight back – and helping to take the fear out of fraudulent transactions.

Shabab Muhaddes, General Manager, Vesta, Asia Pacific

With the rise of card-not-present (CNP) fraud and the growth of e-commerce globally, any business that has an e-commerce presence is exposed to fraud. How can merchants and retailers fight back?

Shabab Muhaddes (SM): Vesta works with merchants across various industries across the world, and we have observed an average 30% increase in transactions in the e-commerce segment between 2011 and 2020, and correspondingly, twice as many fraud attempts.

As the pandemic continues to impact shoppers worldwide, CNP fraud will continue to increase. Within Southeast Asia, the rate of attempted fraud is up to 12 times greater than the global average, and online merchants lose an average 1.6% of revenue to direct fraud each year.

This leads to a two-pronged challenge for retailers and merchants: They first have to fight fraud itself and protect both current and future customers by securing their networks and declining fraudulent transactions; at the same time, they have to maximize approvals of legitimate transactions to protect the customer experience and their brand reputation.

To combat this, Vesta encourages merchants to have in place end-to-end fraud prevention solutions that are able to handle every aspect of the process. After all, it is important to be pragmatic and implement solutions for fighting fraud, rather than let the cost of fraud stunt your company’s growth.

Once merchants have strengthened their networks, it is essential to look ahead and anticipate how fraudsters are likely to adjust their attack methods in the years to come, and put in place multi-layered prevention plans that will protect your organization and customers from looming threats.

What are some other major e-payment fraud techniques that merchants increasingly face, and what are the red flags that businesses should be on the lookout for? 

SM: False declines are one of the biggest and most common pain-points for merchants (and I elaborate more on these in the next question), but Vesta is seeing a growing spectrum of fraud techniques that can make it challenging for any retailer with a digital presence in this day and age.

‘Account takeover’ fraud, for instance, is increasing rapidly and is likely to continue impacting merchants during 2021 and beyond. A form of identity theft, account takeovers occur when a cybercriminal gains access to someone’s private account and personal information – common approaches include phishing attacks, or using purchased stolen credentials. Some common red flags to look for that might indicate a transaction could be fraudulent:

  • When an unusual email address is associated with the order – this is often a series of random letters and numbers rather than an easy-to-remember email address that the average person would use
  • When the IP address for the device from which the purchase is made doesn’t match the payment’s billing address
  • Where there are multiple transactions on one card over a short period

The pandemic has accelerated the adoption of mobile wallets – and while these have enabled consumers to make online purchases faster than ever, they are also becoming a target for new methods of fraud attacks.

Fraudsters are taking advantage of the opportunity to target vulnerable companies with weak fraud prevention systems in place, and e-tailers face many new problem areas, including data breaches, system attacks, and the ever-present threat of fraudulent sales.

A key component of preventing payment fraud is learning to recognize suspicious purchase behavior and understand the warning signs – these include scenarios like:

  • A first-time customer placing an abnormally large order and/or ships it to an international address
  • A customer using multiple cards to place orders that ship to the same address

And with the recent surge in online shopping, ‘friendly fraud’ is becoming an increasingly difficult issue for merchants to manage and prevent. A form of chargeback fraud, it occurs when a merchant returns money to a customer, who may have had the ill intent of purchasing something but disputing the payment, and keeping the product or service after their payment is refunded.

While friendly fraud is often a misunderstanding – customers don’t remember making a purchase, or someone else who is an authorized user of their card makes the purchase and they are unaware – merchants can still use special tools to differentiate this type of fraud from criminal fraud.

Red flags include customers who repeatedly try to engage in friendly fraud and file multiple disputes over time; merchants should be on the lookout for these and prevent them from future purchases to protect your business.