At every point along the digital commerce journey—when an individual is signing up, signing in, checking out, returning an item—online retailers must make a critical decision: Can I trust this person? Answering this simple question accurately and instantly is powerful — it can accelerate revenue growth and strengthen your connection to customers. Likewise, answering the question wrong can risk revenue and customer loyalty.

The ability to make accurate, instant decisions about every interaction along the digital commerce funnel is key. It creates balance between a frictionless customer experience and secure transactions.

The Hurdle of Rigidity

However, many organisations over-emphasise fraud prevention at the expense of customer experience.

The fear of loss prompts businesses to take a rigid approach to fraud prevention, introducing more authentication steps to stop fraudsters, but in doing so add friction and falsely turn away good shoppers. Financial losses due to these ‘false declines’ can be 30 times greater than fraud losses. 

In short, trustworthy customers must always be able to complete their transactions, and fraudsters are always stopped in their tracks. 

Popular Fraud Trends

Companies are right to be concerned about and invest in reducing fraud. As consumers flock to online shopping and services, bad actors are looking to cash in.

Friendly fraud occurs when an individual disputes a legitimate transaction, resulting in a chargeback for the company where the sale was made. Instead of contacting the business where they placed the purchase, the “customer” goes through the issuing bank or payment processor. They essentially steal an item or multiple items using the chargeback process.

The online use of stolen credit card numbers to pay for purchases is also a common issue. This results in a fraudulent purchase, which is then refunded by the merchant to the legitimate cardholder’s bank.

The cost of a high chargeback rate is compounded by financial institutions penalising an organisation for having a high chargeback rate. Fees increase if the rate moves beyond a set ‘acceptable’ level. This can sometimes be as low as .2%, depending on the credit card network provider.

However, declining legitimate shoppers is a much bigger problem that costs potentially millions of dollars in customer lifetime value. Forter’s data show that if rejected, 40% of customers don’t come back.

Finding that balance requires a smarter approach – one built on trust. Due to the demands for high-speed digital transactions in the modern world, a payments system now requires a real-time fraud decisioning solution.

What is Fraud Decisioning?

As it sounds, a fraud decisioning system sits on a digital commerce platform between the merchant and their customers, making accurate decisions about their legitimacy in real time. If the engine powering that system has access to a global network of merchants then it is able to very quickly and accurately assess the identity of the individual making the purchase and, based on all known factors and analysis of past behaviours, instantly decide whether the transaction is likely to result in a chargeback.

A fraud decisioning system will distinguish between good customers and fraudsters, understanding their persona – from the devices they use, their patterns of behaviour, the complexity and makeup of their cart to the language of their operating system and even device fingerprinting. The solution will look at the end-to-end customer journey holistically, from account creation to log-out. Most importantly, it will automate the process of decision-making based not just on the transaction, but also on the persona it has built up along the way.

Focusing on the customer journey in this way will build long-term trust and lifetime customer value.

As an example, Kate Morris, Adore Beauty’s co-founder, director and chief of innovation explained, “Over the last four years we’ve grown by more than 400%. The key to this success has been scaling the business safely while still delivering a great customer experience.”

A powerful, real-time decisioning engine allows a merchant to maintain transaction safety while creating a frictionless customer experience. The future of digital commerce depends on finding this balance.

Matt Humphries is country manager for Australia and New Zealand at Forter.