Fraud starts at the easiest(most opportunistic) point. CNP fraud has been growing over a number years, especially in the UK, as it became the ‘path of least resistance’ after the Chip & PIN rollout in 2006, which drastically limited counterfeit, lost and stolen, and mail not received fraud. Reducing the money potentially available to criminals through these traditional methods forced them to look at other opportunities. 

Card fraud losses across the 19 countries in the FICO 2015 card fraud map were 10% higher than in 2014 and CNP fraud was the dominant fraud type. UK CNP fraud in 1998 was just £13.6 million but, 10 years later, it had reached £328 million. Two factors were at work: UK banks had forced criminals away from other fraud types with advanced technology and ‘real-time’ detection capabilities, and an underlying trend was making CNP fraud very attractive.

Booming e-commerce 

In the last 20 years the Internet and, concomitantly, e-commerce has boomed. In 2007 e-commerce spend in the UK was £45 billion, by 2014 it ballooned to £175 billion and continued on to reach £211 billion in 2015. This ever-expanding digital world – which is fantastic for consumers in many ways – is also great for fraudsters. With data now being captured across all products and channels as industries strive to understand ‘big data’ and drive better decisions and experiences for consumers, the threat has grown. Having data available that could be used to commit fraud is just too tempting for criminals, hence the emergence of malware, phishing, and straight forward theft of data equipment. All of these aid CNP fraud.

How to control fraud without losing customers

Fraud prevention is better than cure, but in e-commerce, if retailers make fraud controls too severe they lose the customers as they just give up. Merchants succeed when:

• genuine transactions are NOT declined
• contact is established within seconds
• interactions are personalized and convenient
• customers are informed and empowered.

Merchants fail when:

• legitimate activity is stopped
• your customers are not informed
• a process takes too long.

So fraud prevention suppliers, such as FICO, are developing as ‘frictionless’ as possible systems and services to catch the CNP fraudsters. In FICO’s Falcon service it:

• uses customer analytics and profiling to determine what customer’s spending habits are and what is unusual
• contacts customers early and unobtrusively when possible fraud begins,  e.g. by a “Did you make this payment” text.

The fraud prevention systems and service supplier ask merchants what level of fraud do they have ‘appetite’ for? Then they choose from the fraud prevention tools they have available to achieve this level, for example:

Martin Warwick, Fraud Prevention Expert at FICO commented, “An organization’s fraud risk appetite depends on three primary factors: the amount and direction of fraud losses; the customer experience, as measured by both product use and customer complaints; and investment resources. Being ‘best in class’ in terms of your fraud operation means that you will have many dials you can adjust to rebalance the ‘fraud loss’ and ‘customer experience’ sides of the equation.  As organizations frequently change their risk appetite, as losses grow or customer experience declines, it’s critical that these dials be easy to adjust.”

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CTMfile take: “What level of fraud do you have apppetite for?” is a vital question in e-commerce. The sad fact of business today, is that there is no such thing as fraud free e-commerce, you have to choose what level and use the fraud prevention tools accordingly.