Matt Humphries, Country Manager for Australia & New Zealand at Forter, discussed the state of online retail fraud in our region, and what companies can do to avoid significant losses as a result.
Please begin by explaining about Forter – what does the company do, where are you based, how many people do you have in region?
Forter is the trust platform for digital commerce. At every point along the digital commerce journey—when an individual is signing up, signing in, checking out, returning an item—businesses must make a critical decision: Can I trust this person?
Answering this simple question accurately and instantly is powerful — it can accelerate revenue growth and strengthen your connection to customers. Forter was founded on the insight that, to make this decision, you must know who is behind the interaction. So, we’ve amassed a PII compliant dataset of online identities that is larger than Amazon, Shopify, or PayPal—and we use that dataset to help businesses determine whether an individual is a good customer or a fraudster, automatically and in fractions of a second.
We’re helping leaders across industries ensure good customers can always complete their transactions, and that fraudsters are always stopped in their tracks.
How big a problem is payments fraud in Australia?
The impact of fraud has been estimated at $442 million in Australia in 2021. The Australia Payment Network 2021 Payment Fraud Report revealed that fraud involving card-not-present (CNP) payment, which is primarily online, saw a notable jump of 3.8% to A$418.9 million. Online card fraud also now accounts for 90% of all Australian card fraud – up from 87% in 2019.
However, there’s a bigger problem affecting businesses—the fear of loss prompts them to take a rigid approach to fraud prevention at the cost of customer experience. Businesses introduce more authentication steps to stop fraudsters, but in doing so add friction and falsely turn away good shoppers. Financial losses due to these ‘false declines’ can be 30 times greater than fraud losses.
Has it been exacerbated by the pandemic? If so, in what ways?
Absolutely. The pandemic brought new demographics to the world of digital commerce—many people were buying online for the first time. Australia Post’s October 2021 report found a 20.8% YoY online shopping growth in Australia for the 12 months to 30 September 2021, with a 3.9% YOY increase in 9.2 million households shopping online as well.
Newcomers to digital commerce are proven to be more likely to reuse passwords and take fewer security measures. That creates more real estate for fraudsters. And so, as a proof point, consider that the volume of account takeovers (in which fraudsters use stolen credentials to attempt to gain access to consumer accounts) increased by 55% over the course of 2021.
What types of retail fraud are most prevalent in Australia?
Fraud comes in many forms. Payment fraud is obviously most prevalent. But as providers like Forter help tamp down certain avenues, fraudsters look for other outlets. For example, we have seen a significant increase in gift card fraud in the last holiday period. And as noted earlier, we see fraudsters trying to gain access to customer accounts to steal loyalty points.
Can you give us three best practices for avoiding retail fraud?
Fraud is fluid as fraudsters are quite smart and constantly change tactics. A significant portion of companies have historically tried to prevent fraud with rules and manual reviews because it promotes the feeling of being in control. But rules are inherently reactive in nature and, more often than not, are a result of a fraudulent action in the past. Similarly, rules are often generic; for example, flagging all orders above $200 for manual review. Consumers shopping for big ticket items are potentially the best customers and should be treated as such. Bad actors are quite proficient in circumventing these rules and best practices today require that you:
- Embrace technology to identify and block fraudsters automatically. Machine learning can identify known forms of fraud and even new and unknown forms of fraud based on pattern recognition. Advanced technology is far more accurate than rules and reviews.
- Avoid over-rotating on fraud prevention. Good consumers get caught in rules and reviews, and when their transactions are falsely rejected, they don’t come back. It’s critical to balance fraud prevention and customer experience.
- Use identity to drive decisions. To assess trustworthiness, you must understand who is behind an interaction. All our customers benefit from our Identity Graph—a fraudster that is identified by one of our customers is instantly known to all customers.
- Is it fair to say that Australian retailers are knowledgeable and well-equipped for combating fraud, or is there still work to be done?
Australia has always been an early adopter of technology, particularly payment tech; however, there is significant room for improvement in the prevention of fraud and identity theft. Again, consider that Australian businesses lost $442 million to fraud in 2021, and as much as 30 times more to false declines of good customers — that is tremendous value that is being left on the table.
Laggards will stick to legacy rules-based systems and manual reviews. Leaders will embrace advanced technology to make more accurate decisions, approve more transactions, generate more revenue and grow consumer lifetime value.
- What is one piece of advice you would give to eCommerce retailers?
Retailers should look at the entire digital commerce funnel for opportunity. A lot of businesses will say to us, “Our chargeback rate is miniscule, so we don’t have a fraud problem.” But a chargeback rate that is artificially lowered because they decline all borderline transactions or shy away from certain product categories or geographical markets considered as risky also means they are leaving revenue on the table. A business might also say, “We’re approving 99% of transactions, we don’t have an approval rate problem”. However, consider how many of those transactions result in chargebacks or fraudulent returns. It’s critical to consider the complete picture if you want to optimize digital commerce revenue and consumer experience.
