Fraud evolves. Preventing chargebacks, lost-in-transit, and refund and return policy abuse losses in one process is efficient and improves performance. This article explores the challenges of fraud prevention in a multi-channel world.
-Written by: Catherine Tong, Vice President & General Manager, Accertify EMEA
Challenges of the fraud prevention ‘see-saw’
Getting a fraud prevention plan wrong can impede a retailer’s growth and ultimately reduce profitability. Many retailers know all too well the see-saw which can be the outcome of loss prevention activity. For some, zero fraud means zero investment in fraud prevention. But a sudden spike in fraud losses means an unplanned expenditure in fraud prevention just to curtail losses from getting worse. Once the fraud rate is restored to previous levels, loss prevention investment activities drop as there is no longer a business case to support the spend.
Consistent investment in fraud prevention will help balance the ‘see-saw’. The advent of a more complex and fraud-aware industry means that some organisations are starting to spend on protecting profits as a type of insurance policy – a necessary expenditure which brings more stability to business.
Do you prevent losses or protect profits?
Even the terminology is changing. Loss prevention has historically been associated with store activities which over time have evolved online. However, increasingly the role of loss prevention has evolved to become more focused on “profit protection”, in part to try to change perception of the role, but in reality to highlight that good loss prevention strategies help a retailer grow.
Growth is encouraged by having a platform available to spot ‘good’ and ‘bad’ behaviour. With the right platform, a retailer can carefully manage risks to enable growth and improve process efficiencies whilst reducing losses. However, without the right platform, the see-saw effect previously noted will prevail with the stemming of losses and a reduction in sales.
So, what are the risk challenges of the virtual world?
For many retailers their retail evolution started physical but quickly became virtual. Shoplifters become anonymous and the tools and skills needed to address this hidden threat are very different from the CCTV and security guards of the past. Early detection, flexibility, rules engines and data analytics are the fundamentals for a successful profit protection plan.
In the virtual world, a heavy handed loss prevention program can affect a large volume of good customers in a flash. For example, shutting the supply of a product in one channel is a drastic measure that is applied by retailers suffering a fraud spike who are not flexible enough to stem losses. This clearly impacts genuine customers, the overall satisfaction of the retailer and is not a sustainable strategy long-term.
What losses should a multi-channel retailer consider?
Trying to join the physical and virtual worlds (whether web, mobile, kiosk or phone) is a challenge needing to be faced. Assessing losses as these two worlds collide means that the strategies of both worlds must be aligned to maximise success. Retailers need to know their good and bad customers no matter how they shop. To be truly effective, understanding customer shopping habits and adapting quickly to changes are key.
Some multi-channel losses may be hidden. Chargebacks are usually the first focus for retailers as they grow online. However, as chargebacks are brought under control, the fraudsters evolve into other areas of “leakage”, such as the supply chain. This includes customer claims for missing products, non-receipt of parcels or damaged products in need of replacement. Many retailers are unable to quantify these types of losses so it’s an unknown enemy within their operations.
In addition, employees or couriers and not the end customer can be the root cause of losses, whether deliberately or by accident. Either way, corrective action in these situations is as important as with a fraudulent customer.
How can these losses be addressed?
The more data a fraud process has, the greater the accuracy of the decision. Centralising customer purchases across all retail channels, whether in a retailer’s internal architecture or by using a third party such as Accertify, and updating this architecture with loss making activities optimises the accuracy of fraud decision making. Relevant and accurate data and reporting ensures that informed decisions are made.
Planning how to address the risks of new operations is also time well spent. Growth can very quickly be taken away as losses take over and spiral out of control. Fraudsters are tech savvy. If profit protection teams are not forewarned or fail to put simple processes in place upfront, it will be much harder for them to manage fraud on the backend once it has hit.
Retailers also need to be realistic – fraud exists and most will experience it at some point. However, a retailer’s ability to quickly detect and react to new fraud whilst understanding what balance is right for their business is key.
A few key considerations to keep in mind when trying to crack the multi-channel fraud challenge are:
- Protect your profits, don’t just stem your fraud losses
- Balance the see-saw. Consider the long-term and not be reactive to latest fraud spike
- Have a flexible process that allows you to adapt to evolving customer habits
- What don’t you know? Know your process leakage points and their value
- Centralise your data and analysis
- KPIs should cover retailer growth, as well as losses
Fraud evolves. Preventing chargebacks, lost-in-transit, and refund and return policy abuse losses in one process is efficient and improves performance.
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Source: British Retail Consortium (BRC), April, 2015