Next-Gen Debit

How Music Retailers Fine-Tune CNP Payment Security

The $4.19 billion musical instrument industry has a growing fraud problem. As consumers go online to shop, card-not-present (CNP) fraud attempts are rising, with victims being charged for high-price instruments and fraudsters reselling them on black markets, says musical instrument and equipment retailer Sweetwater’s Chief Digital Officer Mike Clem. In this month’s Next-Gen Debit Tracker, Clem discusses how combining digital footprint and behavioral analysis with public record research can help detect fraudsters and counter CNP fraud.

Consumers cooped up during the pandemic are trying their hands at new hobbies — and are singing new tunes. Instrument, book and sporting goods retailers collectively saw a nearly 18 percent year-over-year sales increase in July, and major musical instrument and equipment retailers have reported booming demand as customers seek out guitars, microphones and more to stay entertained. Fulfilling these orders has required some retailers to freshen up their eCommerce capabilities as shoppers pivot away from in-person visits, while other music merchants have long operated in the digital space.

The consumer shopping behavior shift has made it essential for retailers to provide card-not-present (CNP) purchasing experiences that are seamless and secure. Detecting and blocking thieves without inadvertently hindering legitimate customers can be a major undertaking, however. Music gear retailers sell high-value wares like instruments, mixing consoles and other electronics, and these pricey items can make the merchants tempting targets for criminals. 

“We are in an especially high-fraud industry, and fraud attempts have definitely risen through this pandemic,” Mike Clem, chief digital officer at musical instrument and equipment eTailer Sweetwater, said in a recent interview with PYMNTS. 

Sweetwater is experienced at confronting such threats. The company has long operated in a CNP environment, beginning as an over-the-phone retail operation in 1979 and later adding mobile and web channels. Clem explained that CNP fraudsters try to use stolen card information to buy goods and then quickly resell or trade them on black markets. Bad actors who slip through retailers’ defenses and make these purchases can cause significant budget damage for the merchants, which must then refund victimized cardholders. Consumers, in turn, will be hurt if the theft goes undetected and criminals continue to abuse their stolen details.

Clem recently explained how the right mix of personal outreach and digital risk analysis can help musical instrument and equipment merchants safeguard both CNP purchases and customers’ experiences. 

Verifying Returning Customers

Retailers can make purchasing experiences more convenient by securely storing shoppers’ card details, which enables repeat customers to quickly pay without providing their information each time. This makes it important for merchants to confirm customers’ identities to ensure that only the right individuals are leveraging these payment details.

Clem said that Sweetwater continues to offer over-the-phone advice and support for consumers selecting and purchasing instruments. The staff often learns more about customers during such interactions, keeping the details recorded in customer relationship management systems. He noted that this high level of engagement can help retailers better serve and safeguard shoppers, as employees can better determine whether returning customers are acting as expected or if their activity appears unusual — and potentially fraudulent.

“We’re really selling out of a deep relationship with customers,” Clem explained.

Staff members who helped a hobbyist in Arizona pick out a ukulele and then saw the customer call back to purchase ukulele music or another beginner’s instrument would likely regard these transactions as low-risk, for example. Employees might become wary, though, if someone purporting to be the customer called in from London to buy professional-grade gear.

Over-the-phone purchasing doesn't suit all customers, however: Many of today’s shoppers expect to do business through digital channels. Mobile-enabled purchases now constitute more than half of Sweetwater’s sales. Clem said that securing these shopping channels requires new approaches, as digital commerce exposes retailers to novel threats and simultaneously offers new tools to combat them.

Merchants’ interactions with digital-only shoppers may involve less personal engagement than those conducted over the phone, but retailers can nonetheless gain customer insights by examining the devices and IP addresses consumers use. Merchants should ensure that online customers’ transaction details match those they expect, with any discrepancies serving as indicators that fraudsters have taken over consumers’ accounts and are attempting to charge them for items that the criminals will resell.

“We have a fingerprint of what your normal computer environment looks like,” Clem said. “If a transaction doesn’t match your previous purchasing pattern, that’s absolutely a signal that it might need more scrutiny.” 

Clem noted that mobile commerce complicates such efforts, because the on-the-go nature of smartphones means that retailers cannot simply regard changes in device locations as indicators of foul play. To adjust security strategies to accommodate consumers who are shopping from various locations and numerous devices, retailers must create more intricate and comprehensive profiles of shoppers’ normal behaviors. 

Fine-tuning Customer Onboarding 

The greatest CNP fraud threats Sweetwater faces come from card thieves who try to resemble legitimate first-time customers, as fraudsters who onboard with pilfered credentials could continue to bill victims for items. Detecting and thwarting these bad actors often requires combining sophisticated technologies with a well-staffed team, Clem said. The company dedicates workers to confirming new customers’ identities with everything from phone contact with shoppers to searches of publicly available data. 

“We have a team of specialists who are manually researching many of those online orders in pretty unique ways that … include everything from confirming your identity on social media and using public data to even making outbound hard contact,” Clem said. “We’re staffed in a way that enables us to actually pick up a phone and confirm your identity. It takes a lot of energy. It’s an investment, but we believe it’s the right thing to do.” 

The company also bolsters its manual CNP fraud prevention efforts with data analytics that can evaluate the likelihood that specific transactions are fraudulent based on red flags. Clem said shoppers who select expedited shipping should be considered riskier, for example, because fraudsters leveraging stolen card details often use these options to quickly obtain illicitly purchased items. Discovering that customers are selecting shipping addresses that are far away from their listed billing addresses should also prompt retailers to use greater caution. Clues like these can pinpoint whether transactions warrant greater scrutiny.

Consumers have long sought out remote purchasing options, and the pandemic has accelerated such trends. Keeping CNP purchases safe requires constant effort, and merchants must continually reassess their strategies to address shifting consumer shopping habits. Blending digital tools and analytics with manual efforts and deep customer relationships can better prepare retailers to smoothly serve shoppers while ferreting out fraudsters. 

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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