Retailers Counter Fraud With Digital Innovation — and a Bit of Kindness

Fraud prevention platforms are fine-tuning as the dust of the great digital shift settles, and a prime revelation from this activity is that stopping fraud and knowing your customer often go together, helping merchants prevent cyber theft and deepen consumer bonds.

In a conversation with PYMNTS, Riskified VP Marina Moraes commented on how the pandemic surge in eCommerce pushed consumers online, where they’re quite happy to shop — provided they feel protected from fraudsters and appreciated by merchants.

And customers expect great service no matter what channel they’re shopping in, she said.

“We see that many consumers report prioritizing convenience over pricing when selecting an online retailer,” Moraes said. “Merchants are having to respond by innovating and finding new ways to connect with their consumers to increase the customer lifetime value.”

Drilling down on changing consumer expectations of retailers they frequent, Moraes told PYMNTS that three core competencies are indispensable in locking in loyalty.

Seamless and personalized experiences top the list because customers want to feel as if merchants are rewarding their loyalty by understanding their preferences.

The second core competency is convenience. That’s a matter of completing transactions across platforms and channels, seeing their preferred payment method at checkout, “and being able to see their transaction history, whether that’s their past returns, their past refunds, whether that’s tracking, whether that’s shipping,” Moraes said.

Speed ranks highly as well. “They want to do business at the speed of light. They want to find what they’re looking for very quickly. They want instant access to reviews, to FAQs, and they want answers to their questions quickly, whether that’s through a chat bot or some other customer service line. And they want their products fast. It’s the Amazon effect,” she said.

See alsoReport: Merchants Risk Losing 40% of Online Retail, Grocery Customers Over Trust

Don’t Mess With Trust

With the novelty of eCommerce wearing off and online shopping now seen as “shopping” in a (mostly) post-pandemic world, consumers are more sensitive than ever about personal data.

With nearly a quarter of consumers saying in a recent PYMNTS study that stolen data would harm — and likely end — a retail relationship, now’s the time for reassurance via security.

“It keeps me up at night. That’s why I’m in business,” Moraes said. “If customers don’t believe that you’re safeguarding their data, they’re going to shop elsewhere. What’s been really interesting to me is that shoppers are actually nervous about the risk of fraud.”

An internal Riskified study found that 50% of retailers believe their anti-fraud measures are effective, compared to a significantly lower number of consumers (34%) who feel that way.

“This gap is huge,” she said, adding that losing the trust of one consumer actually costs several consumers without the merchant realizing why. As Moraes explained, “we found also that 65% of consumers would stop buying at a store where their data was compromised, and 30% of those would tell their family and friends to do the same.”

What’s the fix? Tight data security systems and identity verification factor heavily, but the smarter move in 2022 is to manage data collection and storage by doing less of it.

She said, “there are ways to keep consumers’ data and privacy safe so that it doesn’t deter shoppers from spending money with individual merchants. One is to only to collect data that is necessary to enhance a shopping experience. There’s a lot of data you probably don’t need.”

Additionally, she said, “merchants shouldn’t be storing credit card information or other sensitive data on online servers. It’s a best practice to use offline storage and to also treat personally identifiable information (PII) as the most critical data in the organization.”

That means PII must be encrypted at rest and in transit.

“It should be behind a firewall, and also, isolate any sensitive data from personal data, so that getting access to the consumer’s details has a minimal benefit to whatever fraudster is stealing it,” Moraes noted.

To that, Moraes emphasized the importance of early detection, saying, “it’s not enough to detect suspicious activity as it’s happening. It’s very important to take preventative measures to reduce fraud and risk, such as implementing an end-to-end adaptable fraud prevention solution.”

See alsoFixing Retail’s $600 Billion False Declines Problem When Fighting Fraud

Flavors of Fraud

While there’s risk for retailers in returns and refunds, here again, those policies must favor the customer so they, in turn, feel valued by the retailer. Getting this right can go a long way.

Using herself as an example, Moraes said, “I’m a frequent returner and refunder, though I do keep most of what I get. But my lifetime value is greater than the cost I’m creating for these companies. Even the National Retail Federation said that your best shoppers are often the ones that make the most returns.”

Noting that a friendly returns policy gives consumers the confidence to complete purchases, she said the flip side is that “roughly one-third of online consumers have abandoned purchases before checking out after they determine that they’re not satisfied with [return/refund] policies.”

To avoid that fate, Moraes suggests favorable return policies, free or tiered return shipping, broad return windows and convenient return methods. “Generally, when a consumer’s dissatisfied, the ‘no questions asked’ policy also goes a very long way,” she said.

Be that as it may, the bad guys still must be ferreted out. In this context, that refers to so-called “friendly fraud,” which is another way of saying not all customers do the right thing, and that must also be factored into refund and return policies.

Citing a finding from The Merchant Risk Council that 75% of merchants saw an increase in the volume of policy abuse from 2019 to 2021, Moraes said, “merchants are having to find the right amount of friction to apply to keep the fraudsters at bay. It’s very challenging, but there are technologies, there are resources out there to help merchants detect that unwanted behavior and really know who’s on the other side of that transaction.”

In that confusing mix, Moraes recommends being transparent with your customers “and to act quickly when incidents do happen, remind them to change their passwords frequently, to have a good escalation process in place … and make sure to give the trust, safety/risk teams and fraud teams a seat at the table.”

Doing so lowers merchant risk, leads to more affable policies, and pays off in consumer trust, loyalty and lifetime value, she said.