As consumers increasingly buy online or through mobile devices without a physical credit or debit card, fraudsters are taking advantage. The cost and scope of card-not-present (CNP) fraud are escalating, costing retailers nearly $10 billion a year. 1
Retailers are at an inflection point with more pressure than ever to create seamless customer experiences while protecting the business and customers from fraud. They must implement fraud solutions that are effective and that continue to keep pace to counter fraudsters’ increased knowledge and sophistication.
To determine how retailers address this threat, PAAY and Industry Dive surveyed 150+ e-commerce retail executives to get their perspectives on card-not-present (CNP) fraud. The results (complete survey report linked below) point to a disappointment with many of the fraud solutions and an increased hope for success with EMV 3-D Secure technology.
Current fraud solutions don’t fully solve the problem.
Many retailers use fraud prevention strategies, but our survey shows less than half (48%) of the respondents say their solutions are effective. Specifically, only 43% said their fraud prevention solutions were even somewhat effective, and 5% said they were very ineffective. The remaining respondents weren’t sure or didn’t have strategies to prevent CNP fraud.
Three top reasons retailers find fraud solutions are ineffective.
So, what made the solutions ineffective? Forty-two percent of the retail execs surveyed said the verification process should be shorter. Typically, retailers will ask for customer information, such as the billing address, to verify the buyer. Asking for this information has traditionally been one of the easiest and most effective ways to ensure that the customer is who they say they are. But retailers worry that introducing this friction frustrates customers and makes them drop off before completing the purchase.
Additionally, this safeguard isn’t as fail-proof as it used to be. Just as fraudsters acquire consumers’ card information, they also get billing addresses, phone numbers, and other information through data leaks. Globally, 33% of consumers are victims of data breaches; in the U.S., that percentage soars to 48.2
Retail execs' second biggest complaint about fraud solutions is that they gave too many false positives. When legitimate purchases are declined because of a too-sensitive fraud solution, that costs more than the lost sale–retailers can lose that customer’s future sales. Losses due to false positives are estimated to be up to 19% of the total cost of fraud.3 Retailers may abandon the tool if they feel the solution is now a barrier to customer purchases. That move, however, only creates more vulnerability to fraud.
Retailers' third most common challenge with CNP fraud strategies is that most solutions may identify fraud but don’t prevent it. Only 14% of retail execs surveyed said they could identify CNP fraud before completing the transaction. Forty-five percent could identify fraud within one day of the transaction, but the rest, almost 40%, didn’t identify fraud until a week or more after it occurred. In fact, 9% of retailers only knew of the fraud when they received a chargeback.
Solving the CNP solution problem.
Retailers need to take a fresh look at their fraud prevention strategies. Instead of assuming that one solution will prevent all fraud, they should take a layered approach, using multiple solutions that create a proactive approach.
CNP is the most common type of retail fraud, but it’s not the only one. Synthetic identity, gift cards, and first-party fraud also plague retailers. But they have significant differences, so it isn’t possible for one solution to identify and address each fraud type.
Retailers are exploring technologies like EMV 3-D Secure to improve their CNP prevention strategies. In our survey, 48% of respondents said they used EMV 3-D Secure now, and of the retailers not currently using it, 79% say they are likely to invest in it in the next few years. They see this technology as a way to increase customer satisfaction with seamless transactions, decrease false positives, which will reduce cart abandonments, and build customer trust in the security of transactions.
Retailers in our survey that already use EMV 3-D Secure said the most significant results they’ve seen are reduced credit card fraud (38%), increased number of credit card transactions (29%), and faster card transaction time (22%).
It’s important to note that the current version of EMV 3-D Secure improves upon the original version for data exchange, control, and latency. With these updates, using EMV 3-D Secure with other fraud tools creates a layered, more effective approach to prevent CNP fraud. PAAY can help you integrate, simplify and speed the implementation of EMV 3-D Secure.
Fraudsters won’t stop. It’s too easy and too rewarding. But retailers can take a stronger stance. They can implement layered solutions to thwart different types of fraud and use technology like EMV 3-D Secure to create a balance of security with a seamless customer experience.
1 Bradley. (2022). Card Not Present Fraud: How Companies Lose Nearly $10 Billion Per Year. Merchant Fraud Journal. https://www.merchantfraudjournal.com/card-not-present-fraud/
2 Sevilla, G. (2022). 33% of consumers are victims of data breaches on companies that are tasked with keeping their data safe. Insider Intelligence. https://www.insiderintelligence.com/content/33-of-consumers-victims-of-data-breaches-on-companies-that-tasked-with-keeping-their-data-safe
3 False positives & fraud prevention tools | J.P. Morgan . (n.d.). https://www.jpmorgan.com/insights/payments/analytics-and-insights/cnp-fraud-prevention-combat-chargebacks#:~:text=False%20positives%20are%20legitimate%20card,losses%20amount%20to%2019%20percent.