Fraudsters and those looking to protect businesses from them are engaged in an escalating battle. On the one side, merchants, banks and fraud protection providers work to improve transaction fraud detection to catch fraud before or when it happens. For their part, fraudsters are employing a myriad of tactics to commit fraud against unsuspecting victims. Ensuring the safety of financial transactions through bank transaction fraud detection, which can include fraud transaction detection using machine learning, has become an essential part of online business.

Given the importance of fraud protection, we’ve written this guide to unravel the intricacies of the threat landscape, highlighting the latest in transaction monitoring and chargeback prevention to secure online purchasing activities. Dive in to understand how the world of fraud detection in online transactions is shaping the future of ecommerce and what it means for you.

What is transaction fraud from a merchant’s perspective?

Transaction fraud occurs when deceitful actors exploit vulnerabilities in the payment process. The end result is often a painful chargeback for businesses. And these aren’t confined to just stolen credit card details. Sophisticated fraudsters are adept at mimicking legitimate purchases, only for them to be disputed later. Each chargeback means more than lost revenue; it also potentially erodes the trust merchants have fostered with their customers.

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The change to Visa’s Compelling Evidence rules came in response to a significant increase in first-party fraud — once known as friendly fraud. The idea behind the changes was to standardize the process and to give merchants a more predictable path to raising objections. The new rules also provide an opportunity to shift the financial liability from the merchant to the credit card issuer.

And how’s that working out? Glad you asked.

We now have the data. Well, some data. Signfiyd’s Tara Mitchell and DoorDash’s Nick Hoover will present early findings on Compelling Evidence 3.0 on Sept. 19, at MRC Santa Clara ‘23, a gathering of fraud and risk professionals.

DoorDash and Signfiyd run down CE 3.0 by the numbers

Mitchell, senior director, chargebacks & abuse recoveries, and Hoover, strategy and operations associate manager, will dig into before-and-after win rates in various retail verticals — including grocery, apparel, home goods and electronics. They’ll talk about whether the new rules are affecting small and medium-sized businesses differently from how they are affecting enterprise brands. They’ll look at digital goods and physical goods.

And they’ll have stories. MRC events work that way. They are incredible educational opportunities, both for those just learning about fraud and risk and for industry veterans. They are a chance to network and a chance to reconnect with long-time friends and former colleagues. And they are a chance to tell war stories — war stories in the corridors between sessions or over a meal or a drink at the end of the day.

Stories animate first-party fraud data

Of course, MRC events are also a chance to tell stories from the stage, stories that bring to life fraud data, best practices and the constant cat-and-mouse game between fraud and risk professionals and those who seek to defraud and otherwise take advantage of merchants.

Consider, for instance, food delivery and fraud. It’s a reminder that there are few bounds to the ingenuity of fraudsters and consumers with ill intent. If you can buy and sell it, someone can think of a way to steal it or illicitly squeeze the value from it.

Fraudsters’ cunning is boundless

With food delivery, it’s not so much that fraud rings are using others’ credit cards to buy a pasta dinner from that quaint Italian joint down the street so they can resell it on a marketplace. Although, don’t underestimate the criminal mind.

Instead food delivery fraud more often involves first-party fraud — the scourge that Visa’s new compelling evidence rules are meant to curtail. For instance, a customer might order a meal, eat it and decide it didn’t entirely hit the spot. Rather than work their way through the regular channels to have their complaint addressed, they take the easy route and file a chargeback saying the meal never arrived.

The DoorDash version of dine and dash

Or there’s the digital version of the old “dine and dash,” in which a diner would skip out on a check at a sit-down restaurant. Online, the miscreant doesn’t need to dash at all. They can simply finish up their meal and file a chargeback claiming they never ordered the grub. No need to even push away from the dining table.

Which is not to say there isn’t more industrial-sized fraud when it comes to the gig economy. Online food delivery services are targeted by unauthorized resellers, who go after non-perishable goods and set up a business reselling them at a profit.

There are operations with scores of stolen credit card numbers that insert themselves in the middle of food delivery — a classic triangulation scheme with a culinary twist. Customers order bargain-priced meals from, say, a social media site. The fraud ring fulfills the order with stolen financials and has the meal delivered to the customer.

And while the stories of criminals and hooligans are engaging, riveting even, the stories of how the best in the fraud business go about stymieing the attacks are the real value of an MRC event.

Photo by Getty Images

MRC Santa Clara ‘23 is open to MRC members – register here. 

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Enterprise fraud management solutions are evolving and adapting to the ever-changing world of fraud and chargebacks. It’s not just about playing defense anymore. The game has shifted from merely blocking fraudulent transactions to comprehending the sophisticated patterns behind them. The implementation of intelligent transaction monitoring systems is key. Think of them as the Sherlock Holmes of the digital era, deciphering clues, identifying trends, and predicting where the villain might strike next.

Why should merchants care? Well, the threat of fraudulent activity isn’t merely a shadow lurking in some dark corner of the business world. It’s an omnipresent menace that casts its pall over industries far and wide. From the bustling corridors of financial institutions to the virtual storefronts of small retailers, no one is immune. And let’s face it, when it comes to establishing trust and enhancing the customer experience, security isn’t just paramount, it’s sacrosanct.

Consider this: 74% of consumers agree that security is the most crucial factor when deciding to patronize a business. That’s not just a statistic; it’s a proclamation: a clarion call to businesses that safeguarding transactions isn’t a luxury but a necessity. In an age when potential fraud lurks at every click, ensuring the integrity of every purchase isn’t just good business sense; it’s the cornerstone of customer loyalty.

What is a fraud management solution?

The digital marketplace reminds us a lot of the high seas—full of opportunity but with its share of challenges. For businesses, a fraud management solution acts as the trusted compass, ensuring we don’t stray off course.

What does a fraud management solution do?

Navigating the complexities of modern commerce requires precision, and that’s where a fraud management solution comes in. High-quality solutions are able to:

1. Identify evolving fraud patterns: Through machine learning, these systems refine their detection abilities. As transaction behaviors morph, the solution adapts, keeping up with fraudulent tactics.
2. Provide immediate transaction monitoring: In the digital age, every second counts. Real-time monitoring picks up risky transactions, allowing legitimate transactions to flow effortlessly.
3. Integrate with diverse payment platforms: Payment methods have diversified, and fraud management solutions haven’t missed a beat. Be it credit card payments, digital wallets, such as PayPal, or other evolving channels, the system ensures scrutiny across the board.
4. Promote a seamless customer experience: Balancing security with efficiency is an art. The faster genuine transactions are recognized and processed, the smoother the journey for the end user.

Why is fraud management important?

As business leaders, we’re all keenly aware of the ever-changing terrain of ecommerce. Here’s why fraud management remains an imperative:

1. Tackling the rise of payment fraud: The ongoing digital commerce growth spurt brings with it the specter of payment fraud. Proactive measures ensure businesses are not caught off-guard.
2. Upholding trust in financial institutions: While the heavy lifting of financial security often falls to merchants’ banking counterparts, the responsibility of maintaining the online storefront’s integrity is the merchant’s and fraud solution providers. It’s this shared responsibility that reinforces the industry’s foundation.
3. Cultivating customer confidence: As we mentioned, 74% of consumers prioritize security. This is not just a statistic; it’s a call to action for businesses to prioritize security in their strategy.
4. Safeguarding against account takeover: Financial repercussions aside, data breaches and account compromises can erode trust. 57% of businesses reported significant hits from account takeovers.

Seeing a fraud management solution as an ally is pivotal. It’s more than a tool—it’s a partner in ensuring that online commerce remains both secure and profitable. It’s like having a trusted navigator, always guiding toward success.

Benefits of implementing a fraud management solution

The bustling world of ecommerce has its own set of labyrinthine channels. Sometimes, merchants find themselves in the unenviable position of holding a treasure map—where X marks the spot of great profits—while being trailed by digital pirates. Here’s where a fraud management solution becomes that invaluable guide, navigating treacherous waters and helping businesses land ashore safely.

Why do I need a fraud management solution?

In the digital age, the question isn’t if you’ll encounter fraud, but when. Navigating the complex landscape of online transactions and customer interactions demands vigilance. Let’s unpack a few reasons why:

1. Fraudsters are constantly evolving: Fraudsters today aren’t like the pirates of your grandparents’ day. They’re stealthy and cunning, adapting and evolving, always looking for the next vulnerability. The modern fraud management solution has matured too, continuously refining its tactics to match wits with these agile opponents.
2. Global ecommerce is expanding: As businesses open digital doors to international markets, the potential for cross-border fraud increases. A robust fraud management system isn’t just about keeping threats out; it’s about welcoming genuine customers from any corner of the globe with open arms.
3. Enhance the shopping experience: It may sound counterintuitive, but the right fraud prevention mechanisms can actually streamline shopping. By quickly and efficiently sifting out genuine transactions from suspicious ones, customers enjoy a frictionless purchase journey.
4. Future-proof business operations: Implementing a fraud management solution today is a strategic move for tomorrow. As businesses expand, upgrade, or diversify, having a secure foundation ensures that transitions are smoother and risks are minimized.

Risks of not using a fraud management solution

Neglecting a robust fraud management strategy can expose businesses to unforeseen perils. If you’re still weighing the pros and cons, consider these potential consequences of not having a dedicated fraud prevention mechanism in place:

1. The financial toll: Let’s talk numbers.Chargebacks, and fraud-related losses can drill a hole in the finances. It’s not just about refunds; there’s the added costs of investigations, compensations and potential regulatory fines.
2. Reputational risks: In the ecommerce theater, reputation is king. A single misstep, one security breach, or a smattering of negative reviews about compromised security can lead to a mass exodus of loyal customers. Once trust erodes, rebuilding it is an uphill task.
3. Operational hiccups: Without the right checks and balances, businesses may find themselves embroiled in constant firefighting. Whether it’s chargeback disputes or addressing customer concerns over security, the absence of a fraud management solution can mean endless operational challenges.
4. Lost opportunities: On the flip side of enhancing the shopping experience, not having an efficient fraud system can deter genuine customers. Think about it: if legitimate transactions are wrongly flagged or if the purchase process becomes cumbersome due to overbearing security protocols, customers might just hop over to a competitor.

In essence, while the digital market’s siren song is alluring, it’s crucial to have the right crew and tools aboard. A fraud management solution isn’t overhead — it’s an investment in smoother sailing and long-term success.

Key features of an effective fraud management solution

Imagine walking into a high-end tech store. Everything sparkles, each gadget calling for your attention. But you’re here with a mission: to find the most reliable, multifunctional tool for your needs. Similarly, when diving into the vast ocean of fraud management solutions, it’s essential to have a checklist of must-haves. Not every shiny feature counts; what you need is a tool that fits perfectly into the unique puzzle of your business.

Fraud management solution software features

Navigating the maze of fraud management software can feel daunting, especially when the stakes are so high. To demystify the process, let’s dive into the essential components that set apart top-tier solutions from the rest of the pack. Here are the pivotal features to keep on your radar:

1. Real-time alerts: In the digital age, timing isn’t just everything; it’s the only thing. A solution that provides immediate alerts can be the difference between a secure transaction and a costly oversight.
2. Machine learning: The power of machine learning is its ability to evolve. By learning from historical data and ongoing transactions, the software can make sharper, more accurate fraud predictions.
3. Integration capabilities: Like a new member in a jazz band, your fraud management solution should sync seamlessly with your existing systems, especially credit card processes. If it’s out of tune, you’ll know (and so will your customers).
4. Customization: One-size-fits-all is a myth in the world of business. The right solution offers a level of customization, allowing it to cater to the unique rhythm and needs of your enterprise.
5. Data-rich dashboards: Information is power, but only if it’s accessible. A user-friendly dashboard, brimming with insightful data, can help businesses make informed, proactive decisions.
6. Financial guarantees: Leading solutions often come with a pledge: if they approve a transaction that turns out to be fraudulent, they’ll shoulder the cost. It’s more than just tech — it’s a partnership, signaling confidence in their system while bolstering merchant confidence.

What to look for when selecting a fraud management solution

Selecting the right fraud management solution isn’t merely about checking off boxes on a feature list. It’s about aligning those features with your business’s unique needs and vulnerabilities. To ensure you’re making an informed decision that bolsters your defenses and instills trust, consider the following key aspects:

1. Reputation in the market: If you were hiring a security chief for your organization, wouldn’t you look at their track record? Similarly, research customer reviews, expert opinions, and case studies when considering a fraud solution.
2. Adaptability over time: Fraud tactics change faster than fashion trends. An ideal solution won’t just be effective today but will be able to adapt and remain relevant in the ever-shifting fraud landscape.
3. Cost-effectiveness: The price tag matters, but so does the ROI. Balance the initial costs with the long-term value the solution brings in terms of protection, customer trust, and operational efficiency.
4. Support and training: A robust support system ensures that if you ever hit a bump or find yourself puzzled, there’s someone to guide you. Plus, training ensures that your team makes the most of the solution.
5. Compatibility with global regulations: With businesses reaching global audiences, it’s crucial to ensure that your fraud solution complies with international regulations. This helps avoid legal pitfalls as you expand.

Choosing a fraud management solution isn’t just a task on your to-do list. It’s a commitment to the safety of your business and customers. It’s akin to choosing the best captain for your ship—one who knows the waters and ensures that your journey, no matter how turbulent, is always on course.

How much does a fraud management solution cost?

Ah, the age-old question! It’s akin to asking, “How long is a piece of string?” or “How much should one spend on a good bottle of wine?” The answer, invariably, is, “It depends.” But let’s unpack that a bit, shall we? Investing in a fraud management solution isn’t just about seeing dollar signs; it’s about understanding the intricate dance of costs, benefits and potential risks.

Typical pricing factors of fraud management solutions

Navigating the pricing landscape of fraud management solutions can feel like a tightrope walk. With various pricing models and influencing factors at play, understanding what drives these costs is crucial. Before you dive into the numbers, let’s break down the typical components that could affect your final bill:

1. Business size and volume: It’s simple math, really. A bustling online marketplace with thousands of daily transactions may require a more comprehensive solution than a niche boutique.  As a business grows it naturally wants to acquire more features to manage risk and pursue higher rates of return on that higher-volume traffic.
2. Industry specifics: If you’re in an industry that’s particularly appetizing to fraudsters, say luxury goods or high-end electronics, expect to invest a bit more for higher-risk traffic.
3. Solution complexity: It’s a buffet out there. From basic packages offering foundational protection to premium suites with all the bells, whistles, and harmonicas, your choice dictates the price.
4. Integration needs: Want your solution to play nicely with your existing systems? Integration can be smooth sailing or require some intricate choreography, affecting the price point.

Cost benefits of using a fraud management solution

When considering the investment in a fraud management solution, it’s not just about the upfront costs. There’s a bigger picture to focus on — the long-term financial and reputational savings that come with a robust defense against fraudsters. Let’s unpack some of the substantial benefits your business stands to gain by making this strategic move:

1. Long-term savings: Think of it as buying an umbrella before a forecasted downpour. A one-time investment can prevent the financial floodgates from opening due to fraud.
2. Enhanced customer trust: When customers enjoys a a good shopping experience, with a product that works, they’re more likely to stick around, resulting in lasting customer loyalty. The ROI on customer loyalty? Priceless.
3. Operational efficiency: With a robust system in place, your team can shift from firefighting fraud to focusing on growth strategies. Time saved is money earned.
4. Reputation management: In the digital age, word travels faster than light. One significant fraud incident can become tomorrow’s headline, but with a stellar solution, you safeguard your brand’s reputation.

Cost of not using a fraud management solution

Opting out of a fraud management solution might seem like a cost-saving measure at first glance. However, when you peel back the layers, the potential financial repercussions and other pitfalls become glaringly apparent. Here’s a deeper dive into the substantial costs you might incur by not having a fraud protection strategy in place:

1. Direct financial losses: With every fraudulent transaction, there’s a dent in the cash reserves. And let’s be honest, those dents can accumulate into a chasm pretty fast.
2. Operational hiccups: Handling chargebacks, reconciling accounts, and damage control? They’re all time-consuming and a drain on resources.
3. Reputational hits: No one wants their brand associated with security loopholes. The cost of rebuilding trust once it’s lost? It’s steep, both financially and in terms of brand equity.
4. Lost opportunities: While you’re busy playing catch-up, competitors might be sprinting ahead, capitalizing on market opportunities and expanding their customer base.

Peeling back the layers, it’s clear: the cost of a fraud management solution isn’t just about the initial price tag. It’s a strategic investment, one that weighs immediate costs against future gains, potential risks, and the undeniable value of peace of mind. Because, at the end of the day, can you really put a price on a good night’s sleep?

Conclusion

Navigating the complex world of fraud prevention can seem daunting, especially with the ever-evolving tactics employed by sophisticated fraudsters. But as we’ve outlined, investments in a robust fraud management solution not only protect your bottom line but also fortify your brand’s reputation and customer trust. The potential losses and long-term repercussions of not implementing such a system are far more significant than the upfront cost. The call is clear: For businesses seeking sustainable growth and a stellar reputation in today’s digital age, prioritizing and integrating a solid fraud prevention measure isn’t just advisable — it’s imperative.

Did we mention that Signifyd is a fraud management solution?

The post The importance of a fraud management solution: Protecting your business and customers appeared first on Signifyd.

A chargeback in online retail amounts to an un-conversion. A transaction that was a sale suddenly isn’t anymore. Not only that, but a chargeback transforms a money-making event into a cost to the business. It’s no wonder then that merchants are constantly looking for the best way to avoid chargebacks — and when that isn’t possible the best way to eliminate the cost of chargebacks to the business.

In 2023, the surest way to accomplish both of those things is through fraud protection for merchants that offers a chargeback guarantee.

What is a chargeback guarantee?

A chargeback guarantee is a contractual promise from a fraud protection vendor that it will reimburse a merchant for an approved order that turns out to be fraudulent. One important factor to note is that different fraud protection providers add different conditions to their chargeback guarantees, which in some cases limit the protection a merchant enjoys with a given provider.

And many providers don’t offer a guarantee at all.

To better understand the concept of a chargeback guarantee, it’s important to understand what a chargeback is and how they originate. The most commonly discussed chargebacks occur when an unauthorized charge is made on a consumer’s credit card. Such charges are generally the result of criminal activity. Fraud rings, for instance, use stolen credentials available for purchase on the Dark Web to make online purchases for which they’ll never be billed. 

Who pays for a chargeback?

The legitimate cardholder in such cases is billed for the fraudulent order and that’s when the consumer takes corrective action. Often that action is to bypass the merchant and directly contact the bank that issued their credit card to report the fraudulent order.

At that point, the bank issues a chargeback — essentially a refund on behalf of the merchant. The bank then requires the merchant to reimburse the bank for the payment it made to the consumer. In such cases, both the merchant and the consumer are victims, but only the merchant is responsible for making things right. 

The chargeback process and response is unique to online orders — known as card-not-present transactions. When a credit card is used fraudulently in a store — a card-present transaction — the card issuing bank takes on the liability for the fraudulent activity. That’s not the case for an online order. 

Are there other types of chargebacks

While orders made with stolen credit cards or credentials are among the most common chargebacks, chargebacks come about in a variety of ways. Consumers will sometimes request a chargeback from their card-issuing banks because of a dispute or mishap involving a merchant or a delivery company. 

For instance, a consumer might request a chargeback for a package that never arrives — a circumstance known as “item not received” or INR. Or a customer might be disappointed in a product that arrives, arguing it is different or lesser than what was described on the website. Or a product might arrive damaged or missing parts or pieces. In those cases, the term used is “significantly not as described” or SNAD.

Chargebacks fraud can also result from cases of “first-party” fraud (sometimes called “friendly fraud”) — or cases in which the legitimate cardholder claims they did not charge an item they did charge. Other times a member of the cardholder’s household or family charged an item without the knowledge or permission of the cardholder, which leads to a chargeback. 

Who decides a chargeback is warranted?

In those cases, some consumers will go straight to their bank and request a chargeback rather than contact the merchant in an effort to receive a satisfactory outcome. These claims — and claims regarding fraudulent orders — can become tricky when it isn’t clear whether the legitimate cardholder is being truthful. The responsibility for proving a chargeback is not warranted falls to the merchant — and to any third-party provider they might work with to mitigate fraud and/or to manage chargebacks. 

How big of a problem are chargebacks in ecommerce?

Chargebacks are a bigger problem than they were a year ago, which was a bigger problem than the year before that — and so on. As ecommerce becomes a bigger portion of retail sales, online fraud becomes a bigger — and more expensive — problem. Both the volume of fraud and the cost of each individual fraudulent order are on the rise.

Fraud pressure — or the increase in presumably fraudulent orders on Signifyd’s Commerce Network — rose 34% in 2022, according to Signifyd data reported in “The State of Fraud 2023.” 

And the total cost of fraud — which includes things like shipping and fulfillment costs, chargeback fees, sales taxes, etc. —  rose nearly 6% in 2022, increasing from $196 for every $100 in fraudulent orders to $207 for every $100 in fraudulent orders. 

Furthermore, first-party fraud is also on the rise — outpacing the growth in traditional payment fraud. The type of fraud that includes false complaints about items not received or goods received in poor condition was up 36% in 2022. 

Does a guarantee cover more than the cost of goods?

Again, different fraud prevention companies provide different levels of coverage. Some cover not only the cost of lost goods, but also shipping fees, sales taxes, chargeback fees and related costs. Many, however, don’t provide any financial guarantee. Some limit the goods a guarantee applies to and some limit the size of loss they will cover. Some providers guarantee some types of chargebacks, but not others — they might not cover chargebacks related to first-party fraud for instance. 

Are all chargeback guarantee solutions the same?

It’s important to research, ask questions and fully understand just what is covered by any provider you’re considering. Signifyd, for instance, is the only provider that offers a guarantee on all manner of chargebacks – both fraud chargebacks and non-fraud chargebacks. 

It’s also important to understand just what costs the chargeback guarantee covers. Is it just the cost of the product? Signifyd’s guarantee provides reimbursement for the product and associated costs, including the chargeback amount, shipping fees and associated processor fees.

The best chargeback coverage also manages the chargeback process for the merchant. Contesting a chargeback involves a quasi-judicial process that relies on documentation and other evidence to determine whether the chargeback is legitimate or not. 

How did the chargeback guarantee come about?

Chargeback guarantees were first offered by a few pioneering fraud protection providers, including Signifyd, beginning in the 2010s. Signifyd co-founders Raj Ramanand and Mike Liberty, for instance, both worked in risk intelligence at PayPal. 

Signifyd CEO Raj Ramanand

They were rankled by the fact that when credit card fraud was committed in a store, the issuing bank took on the liability for the loss, but when credit card fraud was committed online, the merchant took the loss. 

The bifurcated system seemed inherently unfair and they sought to find a way to relieve the financial burden of fraud from online retailers and brands. They came up with the concept of guaranteed fraud protection, in essence, a chargeback guarantee.

How does a chargeback guarantee work?

As we said, a chargeback guarantee is pretty much what it sounds like. But there is a little more to it. First of all, in order to offer a financial guarantee for approved orders that turn out to be fraudulent, a provider must be supremely confident in its decisions. 

And on the merchant’s side, a brand must have strong reassurance that a fraud protection provider isn’t going to be meek and turn down any order arriving with red flags simply to avoid having to pay the merchant for the cost of fraud. Mistakenly declining an order for fear of fraud — a false decline, in other words — is a merchant’s worst enemy. 

Merchants relying on legacy fraud prevention systems, whether they depend largely on manual review or heavily on static, rules-based systems — can lose more money due to false declines than they do to fraudulent orders. The loss of revenue spirals when you consider the insult rate — a certain percentage of customers whose legitimate orders are turned down will refuse to shop again with the merchant who improperly rejected their business. 

How can a fraud protection vendor afford to guarantee decisions?

Fraud protection with a chargeback guarantee is typically structured to align the financial interests of the merchant and the provider. Signifyd, for instance, only charges for orders it approves. If it doesn’t approve an order, it doesn’t receive any fee. Therefore, it’s in the best interest of both the merchant and Signifyd to ship every legitimate order, so as not to turn away customers who are willing to pay for what the merchant is selling. 

But that revenue model doesn’t work for every fraud protection provider. Some have recently moved away from guarantees and adopted a “best effort” model after initially providing chargeback guarantees. Poor decisioning can be extremely costly and result in a business model that is not sustainable.

If not guaranteed fraud protection, then what?

The retreat has given rise to performance service level agreements (performance SLAs or performance guarantees) and a sales narrative that pits performance SLAs against chargeback guarantees. 

Performance SLAs promise a certain level of performance around metrics such as approval rates, chargeback rate and fulfillment time. Unlike chargeback guarantees, performance SLAs don’t include a financial guarantee

The downside to performance SLAs lies in the options available to a fraud prevention provider to meet them. One way to meet chargeback guarantees is to become more conservative and decline more orders to make sure they are not later subject to chargebacks. This leads to false declines or false positives.

Or consider the need to meet a certain approval rate. What happens when the merchant is the victim of a fraud attack? Online merchants can see dramatic waves of fraudulent orders when they are under attack. A performance SLA provider would have a hard time meeting an approval rate SLA when a significant percentage of incoming orders are fraudulent. The temptation would be to approve the orders to meet the promised level of approvals. 

What does it take to be a successful guarantee provider?

Building a successful chargeback guarantee business requires vast amounts of transaction intelligence and superior machine learning models. Without those two things, a provider would find itself paying too much and too often for fraudulent orders that evade their automated systems. 

Signifyd, for instance, makes its ship-or-don’t-ship decisions based on a global Commerce Network of thousands of merchants accepting millions of transactions from hundreds of millions of consumers. Its Commerce Protection Platform consists of powerful machine-learning models that instantly sort fraudulent orders from valid ones, ensuring that legitimate customers are not frustrated by being incorrectly declined when they click the buy button. In fact, Signifyd has seen elements elsewhere on its network included in 98% of the orders placed with any given merchant on its network. 

In essence, Signifyd can offer a chargeback guarantee because it understands the identity and intent behind each transaction.  

The story of chargeback guarantees in ecommerce

The notion of fraud protection with a chargeback guarantee came about to address the inequity of who is liable for a loss when a criminal or wayward consumer takes advantage of an online merchant versus a merchant selling in a physical store. 

Rather than saddle an online merchant with the loss when a fraudster makes off with a product, a chargeback guarantee means the fraud protection provider will make the merchant whole — provided that it has approved the order as legitimate. 

The best in the business extend the chargeback guarantee beyond payment fraud to first-party fraud — cases in which the rightful cardholder takes advantage. 

There is more than one kind of chargeback

First-party fraud or abuse can take the form of false claims that a package never arrived or that the product was damaged or otherwise not as described by the merchant. The best coverage also manages those chargebacks for a merchant, handling the requirements for paperwork and essentially building a case. 

The chargeback guarantee model aligns the interests of the merchant and the fraud protection provider. The provider is only paid for orders it approves, meaning that to optimize revenue, both parties want to make sure every legitimate order gets shipped. 

For those reasons, a chargeback guarantee model won’t work for every fraud protection provider. Some have backed away from the model recently, as achieving success requires a vast network that produces voluminous amounts of transaction intelligence and machine-learning models that can keep up with an increasingly diabolical community of fraud rings. 

Why a chargeback guarantee model is valuable for online merchants

Despite the difficulty in providing a chargeback guarantee, the assurance from a commerce protection provider can be extremely valuable from the merchant’s perspective. Such a guarantee means a merchant can ship orders fearlessly, freeing up time, resources and energy to focus on core aspects of its retail business.

The automated nature of most guarantee chargeback models, speeds up orders and dramatically reduces false declines, which means a better customer experience for shoppers on a merchant’s site.

And because chargeback guarantee models typically charge a small percentage of approved orders, the model aligns the interests of the fraud-protection provider and the merchant — both want to ship as many orders as possible while avoiding shipping fraudulent orders. 

That alignment means that the chargeback guarantee model is literally a win-win. 

Feature photo by Getty Images; additional images by Getting Images and Signifyd 

Looking to optimize your revenue with a chargeback guarantee? Let’s talk.

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The strategic partnership also marks a resounding reminder that the future of retail is digital and that the key to the future success of digital retail is providing the highest quality experiences — from discovery though payments and beyond. 

“We have long admired Adobe Commerce’s commitment to providing exceptional customer experience in the online world,” Signifyd Chief Business Officer Indy Guha said in the company’s formal announcement of its new Adobe Technology Partner Platinum status. “As an Adobe Platinum Partner providing commerce protection, Signifyd can now amplify those customer experience efforts by providing unparalleled fraud and abuse protection along with proven conversion uplift.” 

Digital transformation has another chapter to go

It will come as a shock to no one that merchants are feverishly working to build better and more innovative experiences for the customers they have and hope to attract. Digital transformation and seamless customer experience have been rallying cries for ecommerce merchants for years — maybe since the dawn of ecommerce. 

But post-pandemic retail is entering a new era. Think of it as Digital Transformation 2.0, a muscular move to aggressively apply technology in general and AI in particular to all aspects of the buying journey, from discovery, to site experience, to checkout, to fulfillment, to post-purchase customer support. 

Adobe is the world leader in digital experience

And there is no reason Adobe and Signifyd wouldn’t be at the center of that transformation. Adobe has long been acknowledged as the world’s leader in digital experience and virtually invented the digital experience platform. While such claims are always open to debate, there is no doubt that Adobe was a digital experience pioneer when it launched its Experience Cloud more than a decade ago.

At about the same time, Signifyd was pioneering the concept of guaranteed fraud protection — a new form of fraud prevention that opened up seamless checkout by eliminating the fear of fraud among merchants and giving them the confidence to approve more orders more quickly.

It would be unfair to say that up until now “digital transformation” has been more talk than action. But up until now a preponderance of what was being transformed focused on marketing and merchandising, fulfillment and inventory management — all operational aspects worthy of transformation.

Forward-focused C-suites understand the payment layer is a crucial extension of customer experience

But now that some of those flashier elements have been transformed and primarily require periodic updating rather than overhaul, it’s time for brands to dig into core aspects of the customer journey that they might have neglected as the prominence of online commerce raced ahead. 

The elevation of Signifyd to an Adobe Platinum Partner is clear evidence that the C-suite understands and is focused on the payment layer as a crucial juncture in the buyer journey and one that translates into revenue, customer loyalty and lifetime value.
Successful retail leaders understand that payments is the point at which all the investment in digital experience needs to be converted into revenue and customer loyalty.

They know they can’t afford to turn away good orders, which results in turning away good customers — perhaps for life. They know that orders often need to be delivered in two days or same-day or within hours. That doesn’t happen without machine learning models instantly sorting fraudulent from legitimate orders and further order automation.

Successful merchants build excellent customer experience from start to finish

For instance, Sue Beckett, senior vice president of digital marketing and ecommerce at Lovesac, emphasized the importance of building an excellent customer experience from start to finish when it comes to building loyalty and customer lifetime value. 

“We set out to build an online experience that matched the innovative heritage and premium feel of our versatile product lines while putting consumers’ needs at the center of it all,” said Beckett, Lovesac senior vice president of digital marketing and ecommerce. “Adobe Commerce provides the powerful platform and partnership ecosystem to do that. Add to that Signifyd’s precision commerce protection — which speeds up fulfillment and ensures that good orders are not turned away — and we are able to provide Lovesac customers with the experience they deserve and one that will keep them coming back.”

The Signifyd/Adobe strategic partnership is indicative of the kind of forward-focused commerce strategy increasingly being embraced by online merchants. Brands rely on robust ecommerce platforms that offer a stable of partners comprising the category leaders in specific retail functions. Together the platform and those partners allow merchants to build a flawless experience through the entire course of the buying journey

The Adobe-Signifyd combination is a win for merchants and consumers

“Adobe is dedicated to assembling a partner ecosystem that is second to none,” Justin Merickle, Adobe Experience Cloud vice president of business development, said in today’s announcement. “Signifyd offers our customers the leading commerce protection platform and its laser focus on providing peerless customer experience while maximizing brands’ revenue.” 

Together Adobe, which is a recognized leader in providing digital experiences, and Signifyd, the leading commerce protection provider and one of Fast Company’s Most Innovative Companies in the artificial intelligence space, provide brands with the solutions they need to delight customers.

The two companies have for years been innovating and iterating on artificial intelligence models designed to make online and omnichannel shopping experiences more enjoyable and efficient for consumers — and more profitable for merchants. 

Looking to provide a flawless customer experience? We can help.

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What is shipping fraud with address manipulation in ecommerce?

Fraudsters and fraud rings turn to shipping fraud with address manipulation in order to stay one step ahead of fraud prevention efforts. Those looking to fraudulently buy online, for instance with stolen credit card credentials, enter a delivery address that humans can still read, but that can throw off automated fraud prevention solutions because shipping addresses have been manipulated by strategically adding numbers and other characters to the address. Those added characters mean the legible address is no longer identical to addresses previously recognized by automation. 

Solutions that rely on spotting high-velocity purchase attempts to uncover bot attacks can be thrown off by address manipulation used to commit shipping fraud. Fraudsters and those looking to skirt an online brand’s promotion or reselling policies sometimes use shipping fraud with address manipulation to avoid detection. 

Why all the focus on shipping fraud and whether addresses have been manipulated?

Addresses have always been a key pillar of fraud detection, beginning with the bedrock practice of examining whether billing addresses and delivery addresses matched in online orders. Orders with matching addresses appeared to be a slam dunk for being legitimate, given that the person paying the credit card bill lived at the address where the order was being delivered.  

How has online fraud changed with the growth of ecommerce?

As ecommerce became much more prominent and ordering online became more a part of everyday life for consumers, an increasing number of digital orders became more complicated and varied. 

Friends ordered online and shipped products to friends. Business and leisure travelers ordered from the road or bought online and had packages shipped ahead to the next destination. Brands and retailers that insisted on a match between billing and delivery addresses would be turning away a good portion of their legitimate business. With one fraud-detection guidepost down, fraudsters saw an opportunity. 

How did fraudsters typically get their hands on goods purchased with a stolen credit card?

Fraudsters commonly worked to get around retailers’ preference for a billing and delivery address match by initially having an order shipped to the legitimate cardholder’s address, before redirecting the package after the order was placed. They might send the package to a locker or a PO box or a reshipper, which we’ll get to in a minute. In some cases, a fraud ring would arrange to steal the package off of the rightful cardholder’s porch, but that method is hardly scalable. Fraud rings would also employ “mules,” as go-betweens, acting wittingly or not, who would accept deliveries at their homes and ship them on to their final destinations on behalf of the fraud ring. 

What is a reshipper and what do they have to do with shipping fraud and address manipulation?

With online orders being shipped more commonly to a variety of addresses beyond the cardholder’s billing address, fraudsters knew they could ship their ill-gotten goods practically anywhere. Yes, it would be incredibly convenient to have packages shipped to their own homes or to fraud ring headquarters. Convenient, but not too smart. What criminal wants to provide the breadcrumbs that could lead law enforcement straight to their door? 

That’s where reshippers, also known as freight forwarders, come in. Reshippers serve a legitimate function. When ecommerce orders are being shipped cross-border, for instance, it’s typically more economical to gather together a number of orders headed for the same country and bundle them into one international shipment, rather than send many individual orders. A reshipper can work as the go-between, serving as the gathering place for the packages, and as the entity that sends the assembled packages on the next leg of their journey. 

The role of reshippers in shipping fraud with address manipulation

Fraudsters and those engaged in policy abuse realized they could add reshippers to their fulfillment journeys to avoid shipping stolen goods to addresses directly connected to their illegal or abusive operations. Not to mention that reshippers can be a key to international fraud rings’ success. Because many U.S. retailers don’t ship internationally, international rings rely on reshippers to get them the goods when they attack across borders.

Also, because of reshippers’ legitimate role in the ecommerce fulfillment infrastructure, fraudsters could avoid suspicion when shipping to an address different from the legitimate cardholder’s billing address. In fact, fraudsters will sometimes use address manipulation to make a residential address appear as though it is a reshipper’s address to allow for multiple orders to be shipped to a residence.

What are the different forms of address manipulation that fraudsters use?

Fraud rings deploy a number of tactics to manipulate delivery addresses. By tweaking each manipulation slightly, they can use the same shipping addresses over and over again without drawing attention to themselves, because each can be seen as a unique address by some fraud solutions. Here are a few of the more common approaches:

Address manipulation by substitution: The fraudster substitutes a similar-looking letter or number for an actual letter in the correct address — writing 637 Faraway Avenve for 637 Faraway Avenue, for instance, or 2541 F1lagler Aue. for 2541 Flagler Ave.

Fraud rings have even been known to substitute non-Arabic letters for Arabic letters in actual addresses, as in 72347 ۊacaranda Ave. for 72347 Jacaranda Ave. or 3743 𓐒onta Visa Way for 3743 Monta Vista Way. 

Address manipulation by insertion: This is similar to substitution, but instead of swapping out characters, a fraud ring simply adds characters or spaces or symbols into a legitimate address. For instance, 6327 Oakley Road, Suite 12 becomes 6327000000000 O⏅kleeey Raod, Suite 120000000.

More forms of shipping fraud by address manipulation

Address manipulation by deletion: Rather than adding a character or letter, the bad actor can delete a character or a space in a legitimate address to leave it legible by the human eye but distinct from the original address when first read by some machine learning solutions.

Consider the example of 732 Industrial Boulevard, Bay 7 becoming 732 IndustrialBoulevardBay7.

Address manipulation by duplication: By repeating letters or even entire words in the address, those looking to take advantage of online brands and merchants can sometimes throw off online brands’ and merchants’ fraud detection tools. 

Using this tactic, 3287 S. Lakewood Circle, Unit 27, 63802 becomes 3287 S. Lakewood Circle, Unit 27 Unnit 27. As with the other forms of address manipulation, this tactic allows fraud rings to reuse the same address many times over. For instance, the address above is good to go again when it becomes 3287 S. Lakewood Circle, Unit 27, 6380263802 63802.

Address manipulation by transposition: Fraudsters using transposition turn to a fairly common error, but use it to their advantage. They simply switch the order of two letters in an address to create a plausible address that is distinct from the accurate address. For instance, a fraud ring that wanted a package to end up at 6937 Riverside Drive, might use the address 6937 Rivreside Drive, to throw a merchant’s fraud detection off their trail. 

How big a problem is shipping fraud with address manipulation in online fraud?

It’s a bit ironic how big a problem such a small change in a delivery address can cause. In the fall of 2022, Signifyd’s risk intelligence team discovered a voracious fraud ring that deployed shipping fraud with address manipulation as one of its key tactics. 

The fraud ring was a revelation to even the seasoned fraud professionals on the team because of its scale, persistence and sophistication. Based in Southeast Asia, the fraud organization focused on large online retailers and brands in the United States. Unlike a typical criminal ring, which attacks until it meets resistance and then moves to the next target, this ring adjusted and continued attacking.

After staging small attacks, likely staged to gather intelligence on various retailers’ fraud prevention strategies, the ring unleashed the full force of its attack during the holiday shopping season. Signifyd was able to identify and stymie the group’s efforts, but these attacks went well beyond Signifyd’s Commerce Network. In all, a Signifyd analysis concluded that the ring made off with an estimated $660 million in goods from U.S. merchants in November alone. That analysis estimated that all told, the fraud ring targeted a total of $3.3 billion in products nationwide that month. 

Defending your business against address manipulation shipping fraud

As you can see, getting a handle on address manipulation is no easy task. Signifyd relied on human intelligence and machine learning to identify the tactics of the Southeast Asian fraud ring that fraud experts are calling the Master Manipulators. 

And while the human eye can detect the address manipulation that the Southeast Asian fraud ring deployed, such manual review is not scalable. Consider that at its height, the Southeast Asian fraud ring placed more than one fraudulent order per minute at one major retailer. 

But as with every innovation in the cat-and-mouse game that is online fraud, a new attack, technique or tactic leads to an advance in Signifyd’s machine-learning solutions. Signifyd has updated its fraud models and improved its human intelligence around these tactics. 

From here, Signifyd will continue its vigilance and innovation, just as fraudsters are surely back at the drawing board, searching for their own next, big thing. 

Photos by Getty Images / Graphics by Signifyd

Struggling with address manipulation? We can help.

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The fraud ring, whose operations appear to be based in Southeast Asia, operates with the sort of sophistication typically associated with a Fortune 500 company, exhibiting expertise in the fields of data science, fraud detection, online payments and ecommerce operations. 

“What was unique about this fraud ring was that they revved up really quickly. They’re fast and strong,” said Ping Li, Signifyd vice president of risk and chargeback operations. “They probably had been preparing for it for a long time and then they launched a war just before our holiday season.”

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A performance SLA is a service-level agreement on a given performance metric that a provider promises to meet. Typical performance SLAs include adherence to basic approval rates, chargeback rates, fulfillment time and platform uptime. 

A financial guarantee, on the other hand, is a guarantee that if an order approved by the provider results in a chargeback, the merchant will be reimbursed in full. Financial guarantees shift liability away from merchants completely. Examples of financial guarantees include fraud chargeback guarantees, INR chargeback guarantees and non-fraud chargeback guarantees (at Signifyd we bundle all three into our Complete Chargeback Protection solution).

The post How to tell the difference between a real fraud prevention guarantee and a best-effort promise appeared first on Signifyd.

Below we’ll address frequently asked questions regarding Mastercard’s chargeback and fraud programs, the thresholds for those programs, and the consequences a merchant faces if placed in one of Mastercard’s programs.

Q: What is the ECP?

A:  ECP stands for Excessive Chargeback Program. Mastercard has designed this program to identify merchants with a high rate of chargebacks and by levying financial penalties they provide merchants with incentive to correct the situation.

Q: How does Mastercard determine a merchant has an “excessive” number of chargebacks?

A: Mastercard determines if a merchant has an excessive number of chargebacks based on two factors:

1. Chargeback Count = Total number of Mastercard payments that have been disputed
2. Chargeback Rate = The merchant’s chargeback-to-transaction ratio (number of chargebacks divided by total transactions processed)

The Mastercard ECP has two levels. Excessive Chargeback Merchant (ECM) and High Excessive Chargeback Merchant (HECM). Below are the thresholds for each level of the ECP.

ECM

1. Chargeback Count = 100 – 299
2. Chargeback Rate = 1.5% – 2.99%

HECM

1. Chargeback Count = 300+
2. Chargeback Rate = 3%

Q: What are the consequences for merchants placed in the ECP?

A: Consequences include fines but can also include something Mastercard calls Issuer Recovery Assessments. The exact amounts depend on what level of the program a merchant is in, the number of months the merchant has been in the program, and the number of chargebacks a merchant has had in each month.

ECM

HECM

Q: How does a merchant get out of the Mastercard ECP?

A: Mastercard may ask that a merchant’s acquirer or payment processor submit a remediation plan from the merchant detailing steps taken to reduce their chargebacks once a merchant is included in the program. But ultimately, to exit the ECP, a merchant must remain under the ECM thresholds for three consecutive months. If a merchant at the HECM level falls below the HECM thresholds, but is still above ECM thresholds, they move from HECM to ECM until they can remain under the ECM thresholds for three consecutive months.

Q: What is the Mastercard EFM Program?

A: EFM is the Excessive Fraud Merchant compliance program and is designed specifically for merchants who are receiving an excessive number of chargebacks that are related to fraud.

Q: How does Mastercard determine a chargeback is related to fraud?

A: Mastercard looks at the reason code for the chargeback. Reason codes 4837 and 4863 indicate that the charges are or are potentially fraud related.

Q: How does Mastercard determine that a merchant’s fraud-related chargebacks have reached an excessive amount?

A: A merchant that goes above all four of the thresholds below are placed in the EFM program.

1. Has at least 1,000 ecommerce Mastercard transactions
2. Total fraud volume is above $50,000
3. Fraud-related chargeback rate of more than 0.50%
4. For merchants in regulated countries, 10% or less of the merchant’s Mastercard transactions leveraged 3DS. For merchants in non-regulated countries, 50% or less of their transactions leveraged 3DS. 

Q: What consequences does a merchant in the EFM program face?

A: Like the ECP, it will depend on the number of months the merchant is above the threshold, but there are no Issuer Recovery Assessments with the EFM Program.

Q: How does a merchant exit the EFM Program?

A: Same as the ECP, a merchant exits the program when they’ve gone three consecutive months below the EFM program thresholds.

Photo by Getty Images 

Navigating an excessive fraud or chargeback program? We can help. 

The post Frequently Asked Questions about Mastercards Chargeback Program appeared first on Signifyd.

She was educated at  Harvard, but it was her training and passion in ballet, with that calm sense of grace and beauty, that inspired her to bring a dressed-up style into the world of sport and fitness and co-found the upscale ecommerce store, Carbon38.  

At the time, in 2013, activewear wasn’t exactly considered fashion, unless you were all glammed up like Jane Fonda. Activewear was just the stuff you wore to work out in. But Johnson saw a shift in society that came in the years after the 2008 financial crisis, when many women remained the primary caretakers of the family while still fighting in the workplace for gender parity.  For moms and for any women in the workforce, that could mean for a very long and diverse day.

“…But that means there are three, four and five shifts that we have every day, and a pencil skirt, pantyhose and stack heels are not going to get us from school drop off to board meeting to red-eye to cocktail hour to client dinner and then home to still be present for our families and our partners,” Johnson said in an interview with the Los Angeles Times. “But you know what could? A pair of leggings.”  

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