Consumer Electronics & Fraud
How the Consumer Electronics Industry Can Combat Ecommerce Fraud
To prevent fraud, you should start by identifying the risk of fraud to your particular ecommerce business.
Fraud Prevention: Understand Your Risk
The first step for any business to prevent fraud is having a clear understanding of risk for your business. That means looking at your industry, customer base, region, country, payment types accepted and a host of other factors.
For example, the United States is a prime target for online fraudsters with its wealthy residents and robust ecommerce economy. Experts project cumulative losses in the United States of over $70 billion to fraud over the next five years.
In an emerging ecommerce market, such as Mexico, fraud rates may appear low, but that can be deceiving. In Mexico, about 14% of orders are rejected due to suspicion of fraud, even though 80% of online purchases are legitimate. The real issue in Mexico and other Latin American countries is false declines.
Consumer electronics is considered a high-risk industry, regardless of location, because of its susceptibility to fraud.
What Role Does the Credit Card Provider Play in Preventing Fraud?
Ecommerce businesses aren’t on their own when it comes to preventing fraud. The banks that issue payment cards have their own processes for investigating and stopping fraudulent transactions.
When a customer disputes a credit card payment, it’s up to the issuing bank to verify that fraud occurred. If the investigation reveals that the claim is legitimate, the bank will send notification of the chargeback back through the payment chain.
Therefore, it’s in your best interest as a company to prevent fraud before it happens. After the fact, you'll be responsible for chargeback fees.
What Do Fraud Analysts Watch For?
Fraud analysts with experience and expertise in the consumer electronics industry learn to distinguish the buying patterns of legitimate customers from fraudsters.
Here are three common scenarios that tell knowledgeable fraud analysts a transaction is not fraud:
- Warranties are purchased. A fraudster wouldn’t require a warranty on a product they intend to resell.
- Orders are shipped to military addresses. It would be almost impossible for a civilian fraudster to retrieve a package from a military post office.
- Orders are placed on mobile devices. Fraudsters tend to default to the easiest devices for online shopping: desktop computers.
If your fraud program declines all suspicious orders and ignores mitigating factors like these, it could mean your business is losing revenue and customers.
Consumer Electronics Industry Efforts to Fight Fraud
The major players in the consumer electronics industry understand online payment fraud can weaken their reputations, damage their customer relationships, and undermine their profits. Since the earliest days of ecommerce, electronics firms have taken the lead in securing their customers' online shopping experience.
At the end of 2018, LastPass ranked online retailers into “naughty” and “nice” lists according to the security of their ecommerce sites. The criteria included anti-fraud measures such as strong password requirements, two-factor authentication and HTTPS. Consumer electronics giants Apple and Best Buy topped the list.
Another recent industry development is Recipero’s AssetWatch solution. The AssetWatch software tracks electronic devices by serial number to ensure they end up in the hands of intended recipients. By preventing fraudsters from engaging in the fraudulent resale of electronics, the program helps companies like GameStop, Sprint and Amazon reduce their losses from lost or stolen items.
Verifying Purchases While Preserving the Customer Experience
Data security is vital to online shoppers in every market (see chart below). But safety isn't their only concern. Most consumers expect a smooth, efficient checkout process.
In regards to the merchant's responsibility for fraud prevention, to what extent do you agree with the following statements?
The numbers are similar in other markets. The takeaway? Electronics companies need solutions that verify their customers' identities without imposing onerous steps or triggering frequent false declines.
5 Best Practices for Preventing Fraud While Preserving Customer Experience
Here are five key strategies for reducing false declines, chargebacks, and CNP fraud while providing the high-end shopping experience consumers demand from electronics retailers:
1. Determine Which Merchandise Carries the Highest Risk of Fraud
As mentioned above, small-yet-valuable items such as smartphones, smartwatches, tablets and laptops tend to draw the most attention from fraudsters. The latest trendy tech (such as the most recent iPhone) also commands a high price on the resale market.
Try tracking chargebacks and friendly fraud to identify trends and commonly targeted merchandise. These items are where you should focus your fraud prevention efforts.
2. Remember, Red Flags Don’t Tell the Whole Story
Buyers of big-ticket consumer electronics often follow the same behavior as fraudsters, such as high dollar value purchases and non-matching delivery/billing addresses. (Tech items are popular gifts.) First-time buyers may also get swept up by automated filters.
Electronics companies require advanced fraud protection methods that can tell the difference between criminals and legitimate customers based on a broader analysis — ideally one that involves expert secondary order review.
3. Keep an Eye on Your Customers’ Shopping and Browsing Behavior
Fraudsters tend to add expensive electronics items to their carts on their first visits without much browsing or shopping around. This is the opposite behavior of typical electronics customers, who tend to compile extensive browsing histories as they research purchases on the ecommerce sites of their favorite brands.
Loyal fans will often visit a site multiple times before buying. (This isn't always true, however, which is why secondary review is crucial when automated fraud warning systems are triggered.)
4. Reach Out to Customers
After receiving a suspicious order, companies should call customers directly to confirm the purchase. While doing so may bother some customers, it’s better than the alternative (which is to simply decline the order). If you frame your calls as a thoughtful service to protect your customers, you can improve the client-company relationship while protecting against fraud.
5. Choose a Solution That Offers a Fraud Protection Guarantee
A guarantee will protect your business from the cost of fraud-related chargebacks and false declines while allowing for safe international expansion and continued growth.
There’s no single approach to preventing enterprise ecommerce fraud, which is why data is so important.
At ClearSale, we leverage data to provide the best service and advise companies as they make key business decisions. When we engage with ecommerce companies specifically, we bring the power of data analytics to understand their specific customer base and their purchasing habits, as they compare to the global habits of consumers around the world.
In that way, we can show you what fraud patterns look like, as they emerge.
