By A.K. Carroll
The way we buy is continually shifting toward convenience, simplicity, and speed. Great for shoppers, right? But this move towards instant gratification also presents a challenge for e-commerce companies: you potentially open yourself to more risk. As a business, how do you balance meeting consumers’ high expectations without increasing fraud? Let’s take a look at some current trends in e-commerce, and what they mean for fraud prevention.
Trend 1: On-demand commerce
A term once reserved for Pay-Per-View movies and hotel cable, “on-demand” can now be applied to almost every facet of consumer life – from ordering a ride and purchasing groceries to booking a place to stay and making dinner reservations. With on-demand services, the only barrier between a consumer and what they want is a mobile device and a quick app download. Then, voila! Goods and services arrive instantly, at the tap of a finger.
These days, shoppers can barely tolerate waiting five minutes between one Netflix series and the next, let alone two hours for a pizza. The on-demand industry means they don’t have to. As consumers become more and more accustomed to instant gratification, they don’t only desire real-time fulfillment, they expect it. Keep someone waiting while they’re ordering groceries, and they just might abandon their cart in search of another service.
But as commerce gets faster, security can take a hit. To keep the user experience simple, many businesses scale back on the amount of personal information they collect from consumers prior to check out, and keep authentication as light as possible. This makes it easier for fraudsters to quickly create fake accounts and make purchases with stolen payment information.
Satiating the need for instant delivery also means there’s little time to manually screen new orders, which leaves businesses vulnerable to fraudsters who see the short time span as a window of opportunity. Most traditional fraud prevention systems rely on rules engines that can’t keep pace with changing fraud patterns and ever-evolving attack methods. To stay ahead, you need to gain actionable intelligence from all possible data inputs instantaneously, so you can act as quickly as possible in stopping fraud and approving transactions. More on-demand companies are turning to machine learning-based fraud solutions to do this. For example, HotelTonight uses Sift Science to automate their fraud management, automatically blocking bad users without interrupting the experience for good ones.
Trend 2: M-commerce
The phones are taking over! More valuable than a wallet and often more useful, a mobile device is the one thing that no one can leave home without. Why would someone wait to hop on a laptop and mess with wifi when they can send flowers, ship groceries, or order a new backpack while waiting in line for brunch?
Over half of time spent online is now spent on mobile devices, and gaming and social media aren’t the only reasons why: m-commerce is booming. In the US alone, 2015 m-commerce sales totaled more than $100 billion. Transactions made using mobile apps are currently surpassing those made on desktops, with mobile transactions accounting for 35% of all e-commerce transactions made in Q2 of 2016. And the consumer trend of buying on the go is expected to quickly compound moving forward. Between 2016 and 2020, U.S. m-commerce sales are projected to grow from $79 billion dollars to $284 billion. That’s a lot of revenue.
But delving into m-commerce has its fair share of challenges, particularly when it comes to fraud. New mobile adopters come with little or no transaction history by which to build a profile, making it more difficult to detect user abnormality. You’ll want real-time risk assessment, especially for on-demand purchases, in order to implement security features without bringing additional friction to customer transactions.
However, mobile also presents new opportunities to authenticate users that other devices don’t have. You have some additional signals to add to the fraud prevention mix, like mobile carrier, precise geolocation, and biometric behavior (like the angle at which someone is tilting a phone). And for risky users, you can also ask them to take advantage of fairly low-friction authentication steps that are made for mobile, like fingerprint scanning technology, SMS verification codes, and taking a selfie with the built-in camera.
Trend 3: Omnichannel
The trend toward mobile purchasing doesn’t mean that consumers are abandoning their desktops in favor of five-inch screens. Just the opposite. Rather than giving up a channel of engagement, consumers are adding on—integrating mobile with online and in store purchasing. As a result, they engage with retailers through multiple channels, using various methods of payment (PayPal, credit, debit). Nearly all (96%) Americans have shopped online, and just over half (51%) prefer it, a trend which is on the rise. Add to that the ability to shop through apps or social media and you’ve got quite the intricate web of purchasing options. In a recent survey, over 65% of American respondents reported using at least two channels to shop, with over one fifth (21%) engaging with four or five. An omnichannel approach to commerce seeks to make those transitions from one channel to the next seamless, and promises to provide customers with a friction-free experience from research to receipt.
On a case-by-case basis, consumer purchase behavior may seem sporadic. While nearly half of all shoppers begin their purchase experience with online research, the bulk (90%) of them finish the purchase in store, often with a mobile device in hand. Other shoppers reverse the process, scouting out products in store and then later purchasing them online. Such consumer preferences and behaviors make it profitable for businesses to offer a multichannel experience that increases discoverability and keeps customers engaged from one stage to the next, regardless of where or how they’re engaging.
With consumers jumping from channel to channel and one device to the next, it can be challenging to get a full picture of who your shopper is, including whether or not there’s the potential for fraud. Multiple channels means additional payment options, and that increased complexity around payments can lead to increased complexity concerning fraud management. The risk of fraud is a major concern for omnichannel retailers. Not only is there the increased risk exposure that comes when you enter a new market, but rules and regulations can vary between channels and forms of payment, meaning fraud can shift from one channel the next.
Good users don’t realize this, of course, and continue to demand the convenience and speed they expect from a single channel retailer. Providing that service while combating fraud requires real-time decision making and a consolidated and integrated fraud-management service that can handle customer data from multiple channels and screen for high-risk users before them make it through check out.
Trend 4: New payment options (mobile wallets)
Cash or check? Credit or debit? Paper or plastic? When it comes to to check out, consumer options used to be pretty straightforward, but as markets diversify and e-commerce expands, where consumers purchase (in store, online, in app, etc.) isn’t the only part of commerce that’s seeing an increase in options. How consumers purchase has become an equally complex issue with the introduction of digital payment options and mobile wallets from Apple, Samsung, Google, and some 20 other companies. The primary selling point of such options is the speed and simplicity they offer to consumers. Gone are the days of losing your wallet or leaving your card at the gas pump. No more pausing an online transaction to hunt for a debit card or punch in a CVC. And with digital wallets like Venmo and Square Cash, it’s easy to split checks, share rides, or cover a ticket without worrying about whether or not someone has change.
In-store mobile payment is expected to jump from $75 billion to $503 billion by 2020. Digital payment hardly even feels like paying. You need only tap a finger on the Touch ID scanner of Apple’s 2016 MacBook Pro in order to proceed with a purchase. Unlike paying with cash or swiping a card, when a consumer pays digitally, what they’re offering at check out is their identity, not their money. The way consumers feel about using new payments will affect their purchasing patterns. If the emotion is positive, it’s a good sign for retailers. Companies like Starbucks, Dominos, and Taco Bell, are capitalizing on consumer need for speed (and hatred of waiting in lines) with their integration of in-app purchase power and zero-click ordering, all of which leads to an increase in revenue.
While reduced friction options are faster, simpler, and often more secure for consumers, they also require that merchants attain the necessary framework to process such purchases and that fraud teams be equipped to track and analyze new methods of payment. Fraud detection and prevention will require profiling across multiple channels and using analysis from countless transactions to identify bad actors.
A.K. Carroll is a freelance writer with an MFA in creative non-fiction who writes about IoT, culture, connection, and San Francisco.