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The rise of ‘ghost’ fraud and tackling it

With Australian merchants losing $476 million to fraud in just a year, tackling retail fraud is crucial to uncover operational savings.

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As Australian online fraudulent transactions rose a shocking 14 per cent in 2017 an industry expert says addressing the rise of Card-Not-Present (CNP) or ‘ghost’ fraud, which now accounts for 85 per cent of all Australian card fraud, is critical to save retailers reputation damage and huge financial losses.

CNP fraud presents a mounting threat to retailers across Australia but the large majority are ill-equipped to tackle it despite facing significant loss in revenue from this kind of crime, Rei Carvalho, CEO of Emailage, told Retailbiz.

“It should come as no surprise that “Card Not Present” (CNP) fraud is on the rise on Australian eCommerce channels, fueled by the development of ever more sophisticated schemes, such as bust-out scams, as well as data breaches, which provide criminals with the information they need to commit identity theft and account takeover,” he said.

“With the digital landscape changing, fraudsters don’t have to physically walk into a bank and risk getting caught on security cameras or even leave the house. In fact, they could be on the other side of the world. So, it’s up to the retailer and the credit card issuer to determine whether the individual making the transaction is who they say they are and are from where they claim to be.”

CNP fraud is not only on the rise, but it is notoriously difficult to prevent, Mr Carvalho said.

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“The lack of checks means that when a payment is completed this way, there is a chance that the card may be used by an unauthorized person. The customer who is in possession of the card usually finds out fraud has been committed after the online transaction is completed. It may be months before the customer notices a discrepancy on their bank statement or account, by which point, the fraudster would have covered their tracks. In these cases, there is always risk of chargebacks.”

Despite the significance of the threat of CNP fraud, most retailers are poorly equipped to manage and prevent it, Mr Carvalho said.

“Many new eCommerce retailers entering the Australian market may not be equipped to protect themselves from these new threats, as they may only be using traditional fraud-fighting solutions. This means there are gaps in their defences that fraudsters can exploit all too easily – gaps that need to be shored up with innovative new fraud prevention tools.”

“One of the main reasons why CNP fraud is so high and a huge threat to a retailer’s bottom line is the difficulty of performing all necessary checks on the card being used, compared to when one is present. The lack of checks means that when a payment is completed this way, there is a chance that the card may be used by an”

What merchants can do

But there are a number of measures retailers can put in place to mitigate the risk of CNP fraud.

While the Australian payments body indicates that to tackle this merchants must put more emphasis on verifying the authenticity of the payment, there are other ways to minimise the risk of improper payments.

Investing in fraud prevention systems is the most effective way to minimise the risk of improper payments, Mr Carvalho says. And contrary to popular belief, these systems don’t always add friction to the payment process.

“If retailers implement the latest and most robust fraud prevention technology, though, they can reduce fraud without adding friction,” he says.

While these systems are expensive, these costs are far outweighed by the increase in profit margins through the approval of more transactions, Mr Carvalho says.

“Although it may seem expensive at first, realistically, the cost of a strong fraud prevention system is far outweighed by the losses from one successful fraud incident.”

But ensuring that complex verification procedures are in place is just as crucial.

“It’s important to build a clear picture of who’s behind a transaction. Verifying only standard transaction data, such as name or address, leaves easily exploitable gaps in fraud defences,” he says.

“To fight back against these threats, retailers need layered intelligence as well as a sound validation system to counter attacks from all angles. Not only does this counter attacks, it enables smooth, frictionless transactions as well.”