One step forward and two steps back is often the analogy used to describe how short-term forward progress can sometimes end up sacrificing longer term benefits.
In the case of omnichannel fraud, Jackie Barwell, Director of Fraud Product Management at ACI Worldwide, told MPD CEO Karen Webster that thinking about omnichannel fraud as a data problem can help retailers take two giant steps forward without taking any steps backwards.
"I think that we just need to always be on our toes and we need to be one step ahead. And if retailers can be more effective by consolidating their data across all of their four fulfillment channels, and really use what [data] they currently have today — but more effectively — they won’t just be one step ahead, we can be two steps ahead," Barwell explained.
Omnichannel – for all of the obvious reasons — is an important topic for retailers to wrap their arms around. But shockingly, or perhaps not so shockingly, across the commerce ecosystem, many retailers are ill-equipped to take advantage of the power of omnichannel as it relates to customer engagement. One of those reasons, of course, is one of the subareas of omnichannel — and the focus of ACI's recent study "Managing Fraud In An Omnichannel World." And with the ever-evolving sophistication of fraudsters, Barwell concludes that staying ahead of the curve in omnichannel means always being ahead of the game.
ACI’s research concludes that omnichannel fraud, and the fear of fraud more generally, is one major element that is perhaps slowing down innovations that could accelerate omnichannel today. Specifically, the ACI report finds that while more than 90 percent of respondents offer multiple service and purchasing channels to their customers, 65 percent believe that they do not have adequate fraud management tools to support effective fraud management today and only 46 percent have consolidated fraud management solutions across channels to date.
A rather sobering look at retail and the omnichannel reality they wish to achieve.
There's clearly a lot at stake when it comes to the omnichannel retail opportunity. Forrester Research projects that cross-channel retail sales will reach $1.8 trillion in the U.S. by 2017. And, further underscoring the value of omnichannel to retailers, analysts suggest that customers who use multiple channels spend between 15-30 percent more than those who use a single channel.
It’s not that retailers are blind to the problem, Barwell says. Yet the rapid evolution of omnichannel, driven by the consumer’s embrace of mobile, has placed a burden on merchants to remain competitive. But their Achilles heel may not be what you think. It turns out that the vast variety of fulfillment opportunities that retailers use across those channels make it impossible to keep up with the growing number of omnichannel services needed to fulfill that proposition to the consumers. Everything from next-and same-day delivery, order online and pickup in-store, delivery, etc. simply compound the problem – as well as the need – to effectively manage fraud across those channels.
"In the recent years and months, those fulfillment channels have expanded quite dramatically," Barwell remarked. "Merchants, in order to remain competitive with their peers, will need to fulfill those orders quicker. ...that, just in itself, creates just a huge challenge when they start to think about how to manage fraud across those very different channels."
Omnichannel Fraud - Organizational Silos Are To Blame
The sheer amount of organizational silos often cause a number of overlapping challenges with respect to implementing omnichannel – having to manage everything from inventory management, to pricing and customer loyalty across all of those various solos make it hard to track and manage consumer’s activities, which in turn can create a major problem for implementing fraud strategies across companies.
"When [merchants] started to expand into what we now describing as omnichannel capabilities — whether that's offering the ability to bear customers to buy goods online or using a tablet or smartphone or a mobile phone. Or get them opportunities to pay using alternative payment methods," Barwell said. "They are relatively new channels, and as a result, as they expand into these new areas, the platforms require that technology requires them to bear and to fulfill those orders and not necessarily with the same platforms and technology and systems that were required for them to fulfill orders in a brick-and-mortar store."
And there in lies the problem that so many omnichannel retailers face today. Because each individual channel often requires its own system, own platform technology and fulfillment capability, that creates quite a logistical nightmare for companies attempting to manage their organizational silos.
"And that's what we found with our survey," Barwell added. "More than 40 percent of the merchants asked agree that organizational silos actually prevented them from performing omnichannel for management using their data. And to be able to actually share the data elements from each of the channels in one place, where they can analyze the data in one place and effectively track not just the performance or the behavior patterns of the genuine customers, but also they were able to spot more effectively the likelihood that fraudsters are attacking them."
How Can Merchants Work Around Too Many Organizational Silos?
So how can that organizational snafu be managed? Barwell says it's as simple as it is complex: by helping merchants better understand how to read and manage their own data.
"We can work with merchants to advise them how they can utilize existing data that they have and help them understand that by consolidating that data they can then utilize analytical tools to really better understand the full risk that is presented to them by seeing the data in one place," Barwell said, noting that it "doesn't necessarily mean that they have to build again from the ground up or what they have in-store already."
"They just need to be able to find a way of being able to reach into those individual data storage areas with a single data mining or business intelligence capability and link that to their full prevention strategy. The interesting thing here is what this survey brought out was the mindset and the knowledge that needed to be done was there, what really was preventing them from being successful in this space was really fully understanding what was required to bring all that data together to enable them to analyze all of the data using a single business intelligence capability linked to their fraud strategy," she said.
While omnichannel and omnichannel fraud has become somewhat of a household name, you won't find a lot of executives with the name "Director of Omnichannel Fraud," Barwell reflected. That's because, despite retailers big and small recognizing that omnichannel fraud is a very real concern, the concept of putting a person on something so specific hasn't quite been done across most organizations. Some larger merchants have started to present a single fraud strategy across fulfillment channels, Barwell said, but said that "system wise, is where the break in the silos remain."
"The mindset is there," she said. "I think it's not a huge leap for at least some of these bigger merchants. And it won't be long before we start seeing a fraud strategy manager with omnichannel in his title and responsible for fraud management across all channels because the mindset is there."
Because there is no single answer to fraud management, as Barwell pointed out many times in the discussion. There will always be a need for a multi-layered fraud prevention strategy to enable effective fraud management across all channels. Without understanding what new fulfillment channels are in the pipeline, it could be hard for those organizations to remain competitive against their peers.
"Pulling it together is the challenge. And a higher percentage than not understood from a global strategy mindset what was required, but the challenge comes with managing the data across all of those channels in a way that they can do what they know they need to do," Barwell said. "One of the biggest challenges is educating the fraud teams on how they can effectively report to their senior management just how they can actually be a business enabler for that merchant — not just a cost of doing business. And that will help them secure the funding required that will make them even more effective in their nature."
Throwing EMV Into The Fraud Management Mix
The speculation in the market, Webster said, is that the implementation of EMV in the U.S. is going to move fraud online, and push fraud into new channels. In fact, some estimates show that the fraud growth will be in the double digits. Of course, some of that is simply because online shopping is growing in popularity, but there's still plenty of speculation that card not present purchase will impact fraud rates.
Barwell said the reason ACI Worldwide believes that card not present fraud escalated post-EMV was for a few reasons. For one, there's always going to be domestic fraudsters who pry on the new technology. While EMV did reduce the ability to skim cards or recreate counterfeit cards, the ability to steal card data was still very much present.
"Card not present fraud grew so quickly because the protective measures for EMV protected that face-to-face environment so much more effectively," Barwell said.
"It's like the balloon analogy. You squeeze the balloon and the air just goes to the next weakest point. And then, of course, to protect the card not present channel 3-D secure payment, and that has very good, very effective results as well," she explained. "What we are seeing is a continued growth in card not present fraud. But that's not necessarily because card not present solutions are inadequate or behind. When you actually measure it against the growth in that particular part of commerce anyway, the fraud is growing as we can see, but it's not growing at the same rate as commerce in card not present transactions as a whole is growing. So, actually, what we're doing in fraud prevention is effective. And it's reducing card not present fraud in real terms."
To read more from ACI Worldwide and its report on "Managing Fraud In An Omnichannel World," view the full report here.
Jackie Barwell | Director of Fraud Product Management at ACI Worldwide
Currently Director of Fraud Product Management at ACI Worldwide, Jackie has more than 27 years’ experience within financial crime. She joined Retail Decisions (ReD) in late 2011, prior to its acquisition by ACI in 2014, as Head of International Products, ensuring ReD’s fraud and payment solutions enabled revenue growth and reduced losses for customers in all markets. She assumed responsibility for ReD’s product portfolio and roadmap in 2013 and led a global team of product experts focused on the further development of ReD’s market-leading fraud and payment solutions.
Before joining ReD, Jackie worked at Actimize, setting the vision and leading the development of financial crime products for the company. She was previously Director of Fraud for EMEA at First Data, and EVP, Head of Global Fraud Management at Citigroup.