Client Connect 2013 - How to Beat Fraud and Boost Sales

FRAUD HURTS

BUSINESS

“I don’t have a fraud problem.”

There are two types of business:

1. Those that have been hit by fraud.

2. Those that will be hit by fraud.

BOOST SALES, BEAT FRAUD

Recognizing Symptoms of Fraud

Chargeback rate above .5% or 50 basis points

Return rate higher than 1%

Rejection rate higher than 1%

Abandonment after submitted transaction

High affiliate turnover

Manual reviews above 10%

Too many rules for catching fraud

CHARGEBACK HELL

What is “Chargeback Hell?”

The surprise chargeback report

Not being able to determine why you’re getting the

chargeback

Knowing why you get the chargeback but not being able to

do anything about it

No/ineffective system in place to stop or reduce

chargebacks and manage fraud

A personal invitation to the “Excessive Chargeback Club”

FRAUD HURTS BUSINESS

Merchants deploying more tools to try to compete with the

increasing fraud threat. More tools, complexity, increased cost

Over 50% of all charge backs are the direct results of fraud

Refunds can be equal to or greater than cost of charge backs

Average order rejection rate in U.S. is 2.4%, 7.8%

internationally

Management, reviews and escalation of suspect transactions

cost make up nearly 70% of fraud prevention

Customer satisfaction, conversion and brand reputation,

Aberdeen Group

Cost of Fraud

Merchants are trying to keep up with fraud to protect their

bottom-line and their customers

Merchants use up to 8 fraud prevention/detection tools

Manual review of suspect transactions is costly and time-consuming

Most of the time merchants don’t realize they are being

attacked by fraudsters until they get their chargeback report

which can be 30–90 days trailing transactions

Increases in eCommerce are driving increased fraudulent activity

Fraudsters move fast and hone in on vulnerable opportunities

Most merchants are not fraud experts

Problem

FRAUD HURTS BUSINESS

TYPES OF FRAUD

MRC 2011 Annual e-Commerce Payments and Risk Conference

How a Remote Town in Romania

Has Become Cybercrime Central

TYPES OF FRAUD

TYPES OF FRAUD

• Botnets

• Malware

• Trojans

• Phishing/SPAM

• Criminal Networks

• PPD

• Mobile

• Social

• Data Breaches

• Affiliate

• ID Theft

• Payment

• Account Takeover

• Account Origination

• Virtual Currency

• ????


Fraud Problems

• Affiliate-generated quality leads/sales (or lack thereof)

• System-gaming, card testing

• Organized systematic site infiltration

• Friendly fraud

• Average chargeback rate

• Fines for entering Visa and MasterCard charge back monitoring and RIS programs

• Acquirer and Amex reserves


Merchants are not fraud experts

• How can I reduce my fraud exposure?

• Do fraud programs negatively effect sales?

• Where should my chargeback rate be?

• How well is my fraud strategy working?

• Will my current attempts to manage fraud scale?

• What about international expansion?

• Affiliate programs seem too risky


Typical Remedies

• Turn off affiliate marketing

• Turn off IP-addresses on a continent-wide basis

• Suppress or constrain global expansion

• Create multiple merchant accounts to ‘hide’ chargebacks

• Try to build custom fraud screening – or deploy minimal fraud tools (CVV, AVS) – in-house.

• Cross fingers

FRAUD STRATEGY

Detection Strategy

FRAUD STRATEGY

Business Strategy

FRAUD STRATEGY

Operations Strategy


• High chargeback rate, 2%+

• Growth slowed due to fraud

• Internal system was not reducing risk

• Manual reviews reduced sales conversion

• Little internal info of customers

Case Study – BustedTees.com

Situation


• Implemented complete fraud management platform in less than two weeks

• Monitored and customized over six weeks

• Customized rules, reporting and business strategies

• Enacted new tactics


Solution


• Reduced chargebacks to lowest level ever, under .25%

• Reduced manual reviews and time for manual reviews

• Increased areas of opportunity, expanded into new markets

• Saw as much as a 30% - 40% increase in sales


Results


• “Fraud was costing us hundreds of thousands of dollars a year, lost revenues, stolen merchandise and chargeback fines,” Schwartz says. “After implementing a comprehensive fraud solution we’ve turned that around to the point that we are now generating more revenue because we can capitalize on opportunities we used to see as too risky.”

Adam Schwartz, GM, BustedTees


Results


Case Study – CDBaby

Situation

• World’s largest online distributor of independent music - Helps artist sell to iTunes, Amazon and Facebook

• Paying out 75% commissions

• Over $200 million in commissions paid

• Fraudulent artists & affiliates

• Charge backs/Fraud 2.5%+, $26,000 lost in one month

• Reputation at stake with some partner brands



Situation

Fraudster posing as an artist post music for sale on CDBaby.com

1



Situation


1

Fraudster joins CDBaby affiliate program, receives 75% commission

2



Situation


1


2

Using stolen credit information, Fraudster purchases music from affiliate (Fraudster)

3



Situation

©Kount Inc All Rights Reserved


1


2

Using stolen credit information, Fraudster purchases music from affiliate (Fraudster)

3 Pays royalty to artist

4

Pays commission to affiliate (75%)

Pays fines, chargebacks


Result

• Reduced fraud by 96% • Results in less than 30 days

• Fraud losses average $850/mo.

• NO loss in revenue

• Enhanced marketing opportunities

• Great relationship with iTunes


FRAUD DETECTION

New / Dynamic Fraud Performance Criteria

• Speed and flexibility

• Perform comprehensive fraud control checks

• Interlock across a range of customer interactions


Summary

• Several data points can help determine fraud

• Managing fraud requires a complete strategy, not more tools

• Fraud management should not be inhibiting your ability to sell more

- It should allow you to expand into new markets and channels with increased confidence

- Fraud management doesn’t need to be a cost center


Q & A

Contact Info: Michael Oaks Sales, Manager Kount [email protected] 208.489.2766

mailto:[email protected]

Client Connect 2013 - How to Beat Fraud and Boost Sales

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