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Fraud Prevention in an Omnichannel World: What’s Changed and How to Keep Up

Fraud Prevention in an Omnichannel World: What’s Changed and How to Keep Up

Omnichannel retailing is fast becoming the new status quo, but the integration it requires also represents a host of new complexities and complications. This isn’t just in terms of navigating orders and fulfillment while balancing in-store and online inventory, either. It also affects  your ability to prevent fraud across the board; it’s no longer enough to protect each channel individually. An omnichannel market requires omnichannel fraud prevention.

How Omnichannel Fraud Has Changed

The number of consumers who will interact with retailers through multiple channels — including both how they shop and how they pay — is steadily increasing, and in the U.S. alone, omnichannel retail sales are expected to expand to $1.8 trillion by 2017. They not only use multiple devices for shopping, but they increasingly use multiple methods of payment, including various devices and apps. (NFC mobile payments alone are expected to climb from $3.5 billion in 2014 to a projected $118 billion in 2018.) What’s more, the demand for faster, frictionless fulfillment continues to grow. This in turn creates demand for new ways to shop across channels and select fulfillment options, which increases the risk of fraud. In fact, these two factors are among the top three challenges behind only data aggregation: increasing payment methods is cited as third (71%) while demand for frictionless payment is second (73%).

This is most clearly seen in the way fraud has escalated in the past year. According to the Global Fraud Attack Index from Forter, instances of fraud jumped 126% from Q2 2015 to Q1 2016. The amount of money lost to fraud by businesses is more than $3.5 trillion annually. Botnets are popular fraud attacks because they can go undetected and steal lower amounts en masse, while friendly fraud occurs less often with higher target amounts. Account takeover has also seen growth, and in the case of all three types of fraud, both the number of attacks and the cost of fraud increased.

Unfortunately, most businesses aren’t equipped to handle these changes. According to a research report from ACI Wolrdwide, 65% of retailers say they don’t have adequate tools to handle omnichannel fraud management, and more than half say they need new and advanced tools better fitted to the new omnichannel landscape, as well as skilled staff to handle it. Of the potential barriers, 68% of retailers feel the quickly changing nature of omnichannel fraud prevents effective management, and another 67% cite data integration issues that interfere with creating a single fraud data management warehouse. Perhaps it should be no surprise that 78% of mobile retailers are still relying on standard online fraud screening tools (Cybersource 2013), but the impact fraud will have on businesses isn’t worth the risk.

How to Protect Your Customers and Your Business

The four tips below are a launching point to develop better management for fraud prevention in omnichannel businesses. It’s well worth the time and money to fully explore and implement more advanced options.

Tracking All Channels

There’s only one way to accurately identify the flaws in your current system and ensure all fraud prevention practices are brought up to date: Tracking fraud across all channels. To do this, you’ll probably need to break down line-of-business silos and develop a way for sharing this data. Consider establishing a fraud prevention department — or at least an individual — whose sole responsibility is managing this data. This increases your ability to articulate where your business is in terms of fraud prevention while illuminating the long-term value of funding improvements to protect the company as it grows.

Using the Right Tools, Services, and Software

Make obtaining the tools you need to prevent fraud a priority. Data integration is clearly critical, as noted above. Real-time interdiction/decisioning is important for managing fraud effectively, and card-not-present fraud can be prevented through real-time rules and neural models, which utilizes artificial intelligence (specifically, computer systems that are modeled on the human brain) trained to dynamically learn and recognize fraudulent behaviors quickly at scale. Similarly, historic confidence indexing can quickly screen customers at checkout. Also consider protections such as 3D Secure authentication, which transfers risk to the bank. It allows shoppers to create and assign a password to their card that is then verified whenever a transaction is processed through a site that supports the use of the scheme.

Data Encryption Technologies

Adopting the right technology will not only increase payment security, but also ensure and simplify data security compliance. At the point of sale, you should be using up-to-date P2PE methods, i.e., point to point encryption, a more advanced form of end-to-end solutions which automatically encrypts credit card information when the card is swiped for payment. Within your internal networks you should implement tokenization, which substitutes sensitive information with non-exploitable equivalents that have no meaning outside of the tokenization system itself.

Choosing Secure Platforms and Systems

As the adage goes, a chain is only as strong as its weakest link. Ensuring your ecommerce platform is secure is the foundation to ensuring your other strategies are effective. Similarly, use highly-secure and trusted verification systems; this might need to be individualized per channel, and different systems might be needed to meet security standards based on your industry.

As the way customers engage with brands continues to evolve, so must the best practices for fraud prevention in omnichannel spaces. The only way to fully protect your data, your customers, and your business is to continually update your fraud prevention in digital services in a way that reaches across all channels and points on the path to purchase. These tips provide a solid starting point to developing a complete prevention strategy.