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IS PAYMENT FRAUD BEING TAKEN SERIOUSLY ENOUGH BY NORTH AMERICA’S SMALL MERCHANTS?

18/04/2019

By Rei Carvalho, CEO of Emailage.

 

Online payment fraud – also known as “Card Not Present” (CNP) fraud – is fast becoming a major problem for digital merchants across the globe. The latest projections suggest that, internationally, retailers stand to lose a staggering $130 billion to the issue[1].

 

However, it seems that far too many online retailers are not taking the issue seriously enough and, as a consequence, are failing to put the safeguards in place to protect their customers and their business from fraud.

 

More, it appears that SMB eTailers are the worst offenders. New research by Emailage, which questioned more than 1,000 small eTailers and other SMBs across the U.S. and Canada, has discovered that one in two (48.4%) small businesses think they are too small to be in the sights of fraudsters and other criminals. Two in five (38%) say fraud is not a big concern for their business, and 58 per cent believe their business isn’t as susceptible to online fraud as their larger competitors.

 

But, this complacency is unfounded and could have dire consequences for small eTailers and their customers. According to Emailage’s research, in the last 12 months, companies with fewer than 49 employees were hit particularly hard by fraud, reporting average losses of $37,258.14 each to criminal activity. Meanwhile, fraud losses reported by larger businesses in the U.S. averaged $26,640.40 and $14,673 in Canada.

 

With all of this in mind, it is clear that eTailers have a false sense of security, which could well mean they are gambling with their business profits and their consumers’ financial wellbeing.

 

The cost of complacency

So why are SMB merchants so apathetic when it comes to online payment fraud?

 

Simply, there is a false perception regarding “return on investment” (ROI) held by many small digital merchants, which leads them to neglect payment fraud on their channels. With this in mind, it is no wonder that, if a company hasn’t yet been targeted by criminals, they may not appreciate how damaging such crime can be for their business.

 

But, in failing to invest in effective preventative solutions small merchants may well be making themselves a target for unscrupulous fraudsters – a company that doesn’t have any security measures is far more attractive to crooks than one that has robust defensive systems.

 

A single attack can easily result in financial losses that dwarf the cost needed to implement a robust and reliable anti-fraud system. This is because the losses don’t just come from the money taken in the initial crime, they can come from the long-term reputational damage that can result from fraud. For SMBs that increasingly rely on word-of-mouth referrals and positive reviews, reputation is everything. Nowadays, instances of online fraud are much more visible to consumers and competitors alike as public awareness of fraud risks has grown. For many SMBs, it could take just one well-publicized breach to permanently tarnish a company’s standing. For others, such a breach would be a death sentence.

 

With this in mind, it is crucial that small merchants take the fraud threat seriously and invest in prevention solutions.

 

Prevention is better than cure

From all of this, it’s clear that many SMBs struggle to find the time and resources to equip themselves in the fight against fraud. But it’s also clear that fraud prevention should be a strategic investment for SMBs to guarantee the future growth and existence of the business.

 

As a result, collaboration with a reputable fraud prevention organization is key. Investing in a relationship with a third-party organization is a simple, cost-effective means of accessing technological solutions and expert guidance to help in the fight against fraud.

 

Third-party specialists can support in a wide range of areas relating to fraud prevention, including the implementation of effective and reliable “customer authentication”. This is a crucial first step in ensuring that the purchase is being made with the approval of the account holder by accurately verifying their identity.

 

A customer authentication solution that is becoming more and more widespread in North America is the use of customers’ email address data to confirm and verify identity.

 

Email is a unique global identifier which is already a basic requirement whenever a customer sets up or logs into a digital account. Every transaction we make online requires an email address but, until now, many companies have believed email addresses were only useful for customer notifications and marketing campaigns.

 

This is simply no longer true – an email address is capable of so much more and has the power to change the way fraud prevention is conducted for organisations across the globe.

 

A staggering 91 per cent of email users keep the same email address for at least three years, and 51 per cent keep the same email address for over 10 years. This represents a vast amount of data that can be analyzed and put to great use in the fight against online fraudsters.

 

Email risk assessment solutions, such as Emailage’s EmailRisk Score, harness multiple data points in real time to separate fraudsters from genuine customers without impacting on conversion rates or customer experience. As such, email risk assessment creates an effective, “zero-friction” first layer of fraud prevention, which enables merchants to distinguish genuine customers from fraudsters, so they can act to protect consumers and their business.

 

Fraudsters don’t discriminate

Fraud isn’t just a problem for retail giants – even the smallest eTailers are at risk. With this in mind, SMB owners need to invest now in robust customer authentication solutions.

 

By investing in effective and reliable technology, like email risk assessment, online merchants can protect themselves and their customers from fraud without the need for other complex and costly verification steps. In doing so, they can protect profit margins, boosting their business growth.

 

To find out more about why SMBs need to invest in fraud prevention, read Emailage’s report: Size doesn’t matter: Why fraud prevention is a strategic investment for SMBs.

 

Rei Carvalho Biography

Rei Carvalho is an experienced entrepreneur and the founder of Emailage. He is a computer scientist with more than 20 years of experience in data security, effective software creation and efficient management.

 

Rei established Emailage in 2012 after identifying that no other fraud prevention business was harnessing the power of email data to protect online consumers. In 2018, Emailage shared 5.5 million fraudulent emails and analysed 164 billion global transaction data points. This has results in the prevention of $2.8 billion of fraud globally.

 

 

 

[1]  https://www.juniperresearch.com/press/press-releases/retailers-to-lose-$130bn-globally

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