Fraud Control Is Switching Slant to Digital Enablement and Frustrating Fraudsters With Data

Is nothing sacred? Not to cyberthieves. The 2021 holiday shopping season was likely the most digitally secure in history, but that didn’t stop baddies from plying their wicked online trade.

Be it unintentional friendly fraud or the purely malevolent variety, online payments security is coming down to this: what you don’t know about shoppers can hurt. It’s time to learn more.

“Every time there’s an innovation, there’s a new opportunity for fraud.” That reads like it should be carved in granite. It’s something that Kount Senior Vice President and General Manager Brad Wiskirchen said to Karen Webster in a recent PYMNTS “On the Agenda” discussion.

Wiskirchen noted that during the 2021 holiday shopping spree, “fraud attempts have gotten up materially” for merchants protected by the Kount solution. Since being acquired by Equifax, Kount’s data capabilities have gained significantly, he said, deflecting many attempted hacks.

“The bad guys that figured out [they] can either leverage technology to steal 20, $100 ticket items or one, $2,000 ticket item, and it’s a heck of a lot easier to do the latter. Fraud rates have gone up materially in the verticals that haven’t historically been digital. The fraudsters have targeted them because the assumption is that they don’t know how to deal with the fraud.”

Back to the idea of knowing who’s who at the checkout and how to treat them, PYMNTS’ 2021 Holiday Shopping Outlook: Why Convenience And Personalization Will Be Key, a Kount collaboration, found that 90% of consumers rate merchants on experience, including security.

Wiskirchen noted that there’s a balance, and retailers who don’t get it right are losing out.

“Some of them unfortunately are probably adversely impacting their own sales because they’re going to great lengths to try and verify who the end consumer is and leveraging tools that aren’t necessarily effective, or that insert friction into the transaction. They do that so they don’t experience the losses. You’ll start to see that, I’m sure, happen in Q1 this year as merchants start recognizing how much they lost during the [2021] holiday season,” he said.

The better way is merchants “leveraging more technology earlier in the transaction, so they’re authenticating who Brad is not at the penultimate checkout, but when Brad first logs into their site or app. That also gives them time to reduce friction as they move toward the backend.”

See the Study: Holiday Shopping Outlook

Solving for Revenue, and the BNPL Bubble

Saying “Kount is not going be a fraud control solution anymore. Going forward we’re going to be a digital enablement solution,” Wiskirchen plans to stop fraud without alienating customers.

“If I’ve had a bad experience on a merchant, I don’t go back. It’s not the transaction loss, it’s the customer lifetime value that takes the hit,” he told Webster, adding that “I always say 5% of merchants have a fraud problem, 100% have a revenue problem. We’re solving for the revenue problem.”

Pointing to lessons learning in the buy now, pay later (BNPL) sector boom of 2021, he said, “you couldn’t throw a rock without hitting an article on BNPL, so merchants started moving toward BNPL. They started offering up opportunities for installment payments with a very limited data set. As a result, they experienced abnormally high losses.”

The 2021 Holiday Shopping Outlook found that 26% of consumers who live paycheck to paycheck and struggle to pay their monthly bills were victims of fraud. Yet, many paycheck-to-paycheck consumers are also avid BNPL users, which complicates credit decisioning.

“At least from my perspective,” he said, “I think [in 2021] we learned that you can’t just willy-nilly offer people credit without doing any underwriting. It’s like giving them a credit card, but without any underwriting other than the 10 seconds that it takes to decide whether you want to actually make a purchase.”

See also: Kount Unveils Dispute And Chargeback Management Solution

New Methods Coming to Market

Moving into 2022, the connected economy is creating wondrous new experiences for legitimate customers and more theft opportunities for fraudsters. Data and more data is their kryptonite.

“The data is there to make transactions and interactions seamless and secure,” Wiskirchen said, “it’s just not being leveraged appropriately right now and securely. The company that comes up that has the data and provides the efficiency in those transactions and the seamlessness and the frictionlessness in those transactions is the company that wins.”

Technology will need to solve certain “harmless” consumer behaviors that place them in the line of fire with fraudsters, typically without realizing it.

“This is the gospel according to Brad, but the millennials are a lot less concerned about privacy,” Wiskirchen said. “They post everything about their lives. They post, ‘today is my birthday, I went shopping today at this store, I eat regularly at this restaurant,’ and it is very easy for even an uninformed/unsophisticated fraudster to create a synthetic identity around someone who’s willfully and openly divulging everything about their lives.”

The workaround? More and deeper data, combined with the delicate use of friction.

And something more. Webster posited that no matter how well a company knows each consumer by their behavioral data, it won’t change what those people want.

Wiskirchen replied, “You just hit on what we’re going to be talking about in January of 2023, because there will be a new way to identify who Karen and Brad are, that gives you certainty in every interaction. So, you heard it here first.”

See also: Equifax Acquisition Gives Kount Window Into Digital ID Space