Fraud Prevention

In Fight Vs. Online Fraud, Everlast Finds Its Perfect Combination

Venerable retailer. Iconic name. Easy mark for online fraud and a knockout to the bottom line? Yes, if manual review means missing warning signs of fraudsters while turning away good orders, as boxing equipment vendor Everlast found in its move toward eCommerce. Radial Senior Product Manager Bryan Heron weighed in on how Radial helped Everlast get off the canvas and improve its online approval results.

Turns out Everlast, perhaps the marquee name in boxing equipment, was punching above its weight … at least when it came to the fight against online fraud.

Picture an 107-year-old retail juggernaut, iconic in name but perhaps a bit dated in business processes, battling against online scammers, chargebacks and general inefficiencies. Fraud management seemed to be a defensive gap at the company, with third-party tools and Google searches as amateur counterpunches against losing business. Two to five chargebacks a day can take its toll on the top and bottom lines and delay a rewarding move into eCommerce.

So it was with Everlast, which manually reviewed 100 percent of its orders until enlisting Radial to help streamline processes.

In an interview between PYMNTS and Bryan Heron, Radial’s senior product manager, the executive noted that Everlast offers a glimpse into the struggles that retailers can face as they try to get up to speed amid a rapidly shifting eCommerce landscape, and how technology and outsourced processes can solve some of the knottier issues that pop up along the way.

Everlast employed one analyst to review orders five days a week — and not on weekends — more or less during normal business hours, which leaves a bit of a gap in a world where eCommerce is 24/7/365, and so is fraud.

Why the stickiness of manual? Heron says many retailers do all order review processes in-house, and those online approval processes are anything but efficient. In the case of Everlast, the online volume was not very high to begin with, but as is the case with many other companies, embracing eCommerce also means ramping up online fraud detection and prevention efforts. Using existing staff that may not be trained or 100 percent focused on fraud management causes inefficiencies and can be financially risky for retailers.

“They are doing it because they do not feel comfortable with the intel they have,” he told PYMNTs, even as most firms are using some sort of fraud tool. Executives are indeed getting feedback from those tools, but the technology in turn needs some final, intuitive human decision-making in place as to whether transactions are legitimate or not.

Manual review and online approvals take time, Heron pointed out. For example, the billing address is different from the shipping address. Or a bank will note that the billing address entered for an order does not match the billing address that is on file, or the CVV match is not there. All will be flagged and reviewed.

And at what point do retailers, inundated with this data, know there is a problem?  False positives lurk, and the first thing a retailer will look at, said Heron, is what the losses are annually via chargebacks. Chargebacks are “really the thing that kick [retailers] in the face,” when the retailer has to refund the money and pay a fee, which adds up and hits the bottom line.

In Everlast’s case, the chargeback was 2.5 percent, which means that 2.5 percent of orders came back that the retailer had to write off as a loss, plus pay a $10 to $25 fee per order. Such profit bleed shows that retailers need to examine whether they’re turning away good customers, Heron said. On average, retailers turn away about 3 percent of orders — as measured by a reject rate (Everlast’s rate, incidentally was much higher) — and almost all of those orders are good, he said.

The bad news, Heron said, is that there’s a financial hit to companies when chargeback rates get too high, one that may be overlooked: Once the chargeback rate hits 1 percent, he said, credit card companies such as Visa and Mastercard will start penalizing retailers and charge a higher payment processing interchange rate.

In Everlast’s case, as with many retailers, rejected orders cost customers — in fact, 66 percent of those who experience friction or outright rejected orders will limit their shopping with that retailer, if they even come back at all.

“Customers do not shop online because they like the payment process,” Heron said. “They do not want to even think about that. That should be the last place to add friction, and that is the place where friction has the biggest impact.”

Everlast was ultimately looking at every single order, which in turn meant that each customer experienced some sort of delay or friction. Those individuals rejected for a transaction were forced to place the order again or call Everlast directly to address the situation — or worse go somewhere else.

In working with Radial, Everlast experienced a 62 percent decline in fraud attack rates, with Heron noting that such attacks have gotten sophisticated, and hackers are using technology to get away with “tons of stolen data.”

Those cybercriminals find the weakest point in a company “and once they find it, they just go at it until the well is dry,” said Heron. Everlast was a prime target, with a strong brand name and tangible goods that could be sold on the black market.

Radial also has bundled tax and payment services along with its fraud services in working with Everlast. “We see all three as part of the transaction,” said Heron.  Payments processing needs to work the way the customer expects it to, otherwise there is the dreaded friction in the mix. As for taxes, he said it is important for retailers to present accurate tax information to retailers, as customers do not want to get hit later with taxes “halfway downstream during checkout, especially in this omnichannel world where orders may not always be shipping from the same warehouse” or customers may not always be picking up from stores.

One caution: Firms that promise humans need not look at any orders — through the benefits of AI and machine learning — are misleading, said Heron. “Technology has come so far that it is phenomenal, but we are not at the point where you can rely 100 percent on [human-free] processes,” as computers cannot replace human intuition and thus orders will still be rejected and companies will still lose money.

The best practice on average, for manual review, is that humans look at less than 2 percent of orders. And, he added, the companies that promise to cover all chargebacks that come despite their fraud management efforts still leave companies vulnerable to the increased payments interchange rates boost.

“The retailer can still be left out in the open if the chargebacks are too high … Retailers are not expert in these areas, and they do not want to be,” Heron said. “They are happy to unload it to someone else.”

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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