Online Fraud - Managing risk in a digital economy

Padlock and cards on keyboard

Image: Hloom via Flickr / CC BY-SA, 401(K) 2013

2 July 2018

By Lucy Anderson, AusPayNet Head of Payments Innovation

As highlighted in our Australian Payments Fraud 2017 report, Australians’ use of cash and cheques is dropping as consumers continue to embrace digital payments.

In 2017, the independent non-profit organisation, E-commerce Foundation released a report on the state of e-commerce in Australia. Of the countries they reported on, Australia has the fastest growing B2C (business to consumer) eCommerce growth rate at 40%.

This shift to online purchases presents new challenges. Recent statistics indicate that card-not-present (online) fraud accounted for over 80%  of all card fraud in July 2016 to June 2017.

Three Ways merchants can manage the risk of online fraud in a digital economy

So, with online payments increasing and online fraud also increasing, how do merchants continue to manage their fraud risk while still growing sales? There are three key methods available to merchants, depending on the risk profile of their business:

  1. Outsourcing the risk to third-party providers so that they manage the risk either in its entirety or over a particular threshold, and build a fixed cost for doing so into their business model; or
  2. Monitoring the risk through risk-based authentication. Using risk monitoring tools, merchants can build a profile about customers shopping on their website or app to gain more confidence that the purchaser is a legitimate customer. This can often be done “behind the scenes” with the use of information such as the buyer’s geolocation, device information and also purchase history; or
  3. Strong customer authentication, which deploys verification methods to provide greater assurance that the customer is the legitimate owner of the card being used to make the purchase. This often involves affirmative action by the customer, such as confirming the purchase with a one time password or using a biometric such as a thumbprint to identify themselves, or a combination of the above.
Are the merchants having greater influence over the way we pay?

With more options in the market for merchants to manage their online payment risk than ever before, are merchants having a greater say in the way that consumers are purchasing their goods? Well in this writer’s personal opinion, absolutely – and it’s something we can expect to see more of. We can see this in the order of “buttons” presented on the checkout page. In some cases, merchants are offering a single button in the first instance of the checkout (i.e. their preferred payment option), with a secondary link below for other payment options, should the customer need greater payment choice.

Payment solutions now can capture consumer information up-front for a one-click checkout experience – where customer authentication, plus payment information, plus delivery address information, are seamlessly integrated into the checkout. This approach helps increase sales by simplifying the customer purchase experience while building fraud checks into the background of customer purchase.

A view of the future 

The next evolution may see a greater level of automated purchases through consumer devices based on a combination of artificial intelligence, for purchasing and biometrics, for authorisation (such as voice, face and thumbprint). For example, once you have selected your preferred brand and provided authorisation to your fridge, your fridge could automatically order milk from the cheapest vendor to replace the one that has nearly run out.

We may also see the introduction of merchant discounts that purposefully reward “known” customers, i.e. where merchants have more confidence about who they are selling to. So with a 10% discount, that drone I’ve had my eye on for a while now becomes that little bit more attainable.

For more details on how industry is supporting merchants as Australians continue to embrace the convenience of cards, look out for our Australian Payments Fraud Report 2018 coming soon.