Many eCommerce merchants have witnessed a spike in their online sales over the past couple of years when the world was still in the thick of a global pandemic. This resulted in many merchants having to quickly scale their business to meet the increasing demands and milk the ‘revenge shopping’ trend. 

This growth was predominantly set in the pandemic world against the backdrop of many lockdowns across the globe.  And despite a slowdown in many eCommerce markets due to the inflation and the supply chain issues, many experts expect eCommerce shopping to keep rising.  Statista forecasts a 50 percent growth worldwide over the next four years in retail eCommerce sales, while shopify expects it to grow by almost $11 trillion until 2025.  

However, the skyrocketing growth in online shopping also presented more opportunities for fraudsters. Despite businesses’ clear and drastic escalation in digital transformation, most eCommerce businesses’ fraud prevention and detection methods were not up to scratch. According to the Australian Bureau of Statistics, 11 percent of Australians, or more than 2 million people, were victims of personal fraud in 2020 and 2021, compared to 8.5 per cent in 2014 and 2015. The rise was mostly driven by an increase in card fraud with 1.4 million Australian victims in 2020-21 — nearly 7 percent of the adult population.

Card-not-present (CNP) fraud, at its core, happens when credit card details are used to make illegitimate purchases online. These days, with the advent of eCommerce, payment fraud in general has become more complex and sophisticated, as consumers are losing personal identity data and credit card numbers to phishing scams, and a variety of other techniques.

Once fraud incidents, whether CNP fraud or account takeovers are reported by consumers, it’s usually an easy fix for them to get their money back through their banks. However, every instance of reported fraud represents lost revenue for eCommerce merchants because the banks then charge them for the fraudulent transactions – called chargeback, plus penalty fees. More than that, tension caused by fraud prevention takes away from the customer experience, and consequently negatively impacts reputation, revenue and takes away consumer loyalty.

eCommerce businesses are more susceptible to suffer bad outcomes from payment fraud, in all its forms, if they use a rule-based system in combination with manual internal processes to approve transactions and identify chargeback fraud. Outdated fraud prevention methods are insufficient for handling the increasing volume of data that comes with the avalanche of online transactions. Legacy systems have many limitations including siloed systems and limited ability to keep up-to-date with frequent changes in the fraud landscape, leading to false declines, frustrated customers, higher cart abandonment rates, and lost revenue.

Moreover, the laborious manual review processes of traditional fraud prevention methods mean retailers aren’t always able to review every single transaction due to the fact that reviews need to be completed in real time and within a few minutes. Furthermore, manual processes are also subject to human error, which can cost merchants even more.

Delivering exceptional customer experience has long been a cornerstone for eCommerce growth and rapid shifts in shopping behaviour over the past two years have placed an even greater emphasis on its importance, and that is of the main reasons why having a machine learning-based fraud prevention solution in place is vital for eCommerce merchants. A machine learning-based solution can process vast amounts of data and provide an instant analytical decision to approve or decline a transaction. The value of Riskified’s AI and machine learning-based solution, for example, can be seen in that according to Forrester’s  2022 Total Economic Impact report for Riskified, companies that use Riskified’s solution are able to boost their revenue as well as have significant cost savings – the composite customer saved $13.1 million in fraudulent chargeback costs and $1 million in operational costs over a three year period.

Currently Australian merchants are facing inflation, supply chain issues, and a looming economic downturn, all of which are poised to make business harder for merchants. Along with that, online behaviours and shopping patterns change constantly, and fraudsters are always developing creative, new methods to outsmart detection systems. Merchants should ensure that their security systems remain up to date. Now is the time for merchants to loyalise their customers by delivering a trusted eCommerce experience and future-proof their business by maximizing profitability through allowing legitimate transactions in while keeping fraudulent ones out.

T.R. Newcomb is vice president of strategy & corporate development at Riskified.