Amazon 1-click (Amazon Go), IoT, TV apps, Smart Cars, Smart Store kiosks (beacon technology), etc. With these and other emerging technologies in pursuit of a more frictionless experience for consumers, what is the corresponding increase in fraud?
The rise of frictionless payments has brought with it many benefits for consumers and retailers. But it also brings risks if appropriate safeguards are not implemented, particularly for card not present merchants.
Since the advent of the Internet, consumer shopping habits have changed dramatically—particularly with the rise of smartphones, which instigated mobile commerce (or m-commerce). According to figures from Ofcom and Nielsen, 66% of UK adults now own a smartphone and over 70% use their mobile device for online purchasing. That means that in order to stay competitive businesses must employ a ‘mobile first’ strategy. But it is not enough to simply have a mobile site—businesses must also make that site as easy to use as possible.
Removing the Obstacles
In today’s fast-paced world, consumers have become impatient; anything that stands as an obstacle to paying for goods or services, such as needing to input lengthy information or payment details, is likely to discourage the consumer from completing the purchase. The lengthier the process, the more opportunities the consumer has to re-think the purchase. According to the Baymard Institute, the average shopping cart abandonment rate is a huge 69.23%. While there are multiple, unavoidable reasons shoppers may abandon their carts (e.g. window shopping, price comparison), a smooth payment process certainly helps retailers ‘seal the deal’.
This has led to the rise of frictionless payments, in which minimal effort is demanded of the consumer to pay for a good or service. Think for instance of Uber, where consumers can request a car, make a journey, and pay for the service by simply tapping their smartphone a few times. No fumbling with cash or credit cards or receipts—the user doesn’t even need to re-enter their payment details. These frictionless payments provide ease for the consumer, which translates to increased profits for the merchant.
Uber is a company which is leading the way in terms of safe, frictionless payment solutions on mobile. Unfortunately, not all merchants are offering such sophisticated processes. In a rush to keep up with competitors (and impatient shoppers), some businesses are designing ‘simple’ payment solutions for which minimal customer identification is required, inadvertently opening the business up to risk of fraud.
This is a particularly big risk in card not present transactions, such as a mail order, telephone order, or a sale made over the internet. Fraud losses on UK-issued payment cards totalled £568 million in 2015, and of this, 70% was fraud in CNP payments, the UK Cards Association reports.
Card Not Present Safeguards
As neither the card nor the cardholder is present during these transactions, it makes it more difficult for the merchant to determine whether the customer is the authorised cardholder. Sufficient identification and verification processes, particularly in online purchases, can help the merchant reduce the risk of fraud in CNP payments. However, when these safeguards are removed in effort to offer frictionless payments, the merchant is exposed to fraud. As a result, retailers are at increased risk of becoming victims of remote purchase fraud, whereby the business loses both the goods and the purchase income (i.e. a chargeback).
How can a CNP merchant collect this vital verification information without complicating the payment process? The answer lies in data. If you take a look at any of the leading m-commerce companies, such as Amazon Prime, Apple, Starbucks, or Uber, they all have payment solutions configured to collect data quickly and unobtrusively. This data can then be used to verify the customer’s identity and avoid fraudulent purchases in real-time.
Say for instance a customer downloads a retailer’s mobile app, sets up a profile, enters their credit card details, and makes a purchase to their home. The business now has access to: the customer’s name, geolocation data, credit card details, home address, purchasing habits, and more. When a purchase is made that seems out-of-line with this information, a red flag is raised and fraud can be stopped before it even happens. Furthermore, this information is saved on the retailer’s database, so the consumer only needs to enter their password the next time they want to make a purchase.
These smart solutions are an effective way of protecting consumers and merchants against fraud, while offering frictionless payments.