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Expert Opinion – May 2013

The advent of true cross-channel and the growth in international sales are powerful drivers in retail. What new demands does this put upon retailers in the arenas of payment and fraud?

With ecommerce and m-commerce (mobile commerce) growing at astronomical rates worldwide, retailers are faced with new problems from increased fraud risk to payment security. As these elements of the online retail ecosystem rapidly expand and change, there are a few things every retailer needs to plan for and consider.

First, many tools and systems currently used by retailers are likely not enough to fully protect them or their customers, much less meet the shopping experience expectations of today’s online consumer. Cross-channel retailers have a different level of complexity to navigate to ensure their environment is equally secure for customers who buy online and ship to a location as those who make online purchases and pick items up at their local branch.

Store operations and logistical systems need to work together seamlessly to provide a singular experience for the customer.

Many retailers we’ve spoken with claim that their online and in-store systems are too different to work well together. Inventory management, payment acceptance, return policies and determining who gets credit for the sale – store or website – are just some of the challenges that undermine the level of integration necessary for success.

However they engage with the retailer, the customer only wants a simple shopping experience. They don’t care what backend systems are used or their limitations until their expectations aren’t met. That’s when they look for a new place to shop.

Second, in terms of fraud and risk exposure, international sales are much more complicated for retailers currently selling just in one country. Recent studies indicate that international transactions are three to four times more likely to be fraudulent than in-country purchases. That’s quite a leap in a retailer’s risk profile if they aren’t protected. Before expanding internationally, there are a number of elements retailers need to review and consider.

As a first step, retailers should contact their payment service provider (PSP) to review what fraud detection and mitigation features they offer. In my experience, most PSPs do not have sufficient fraud detection options that keep up with evolving threats. Often they will provide a few basic tools that can help identify fraud or suspicious activities, but these tools use techniques that fraudsters have already bypassed or beaten outright.

Today, tools for detecting fraud must use dynamic, real-time data to detect fraudulent transactions. Using dated lists, simple address verification or credit card approvals are not enough to keep fraudsters from getting into and thwarting the payment system.

Fraudsters today are very sophisticated in technique and technology. They work fast and can coordinate with like-minded individuals worldwide to become very large and powerful networks. Retailers should regularly review their own fraud management policies, systems and tools to keep current on the latest methods to reduce fraud exposure without impacting online sales. Many retailers lower fraud attempts by implementing very broad rules that may reduce some fraud but also have a dramatically negative effect on revenue and sales opportunities. There is definitely a balance needed.

A complete fraud strategy should take into consideration three main areas of focus. Fraud detection and prevention, business rules for managing fraudulent attempts in real-time and complete integration with with operational and logistical systems such as accounting and shipping systems are all critical. These components are the only way to enable a comprehensive, closed loop system that detects and manages fraud across the entire organisation. Fraudsters are getting smarter and more numerous while growing at a rate faster than ecommerce. Only a solution integrated across the retailers organisation will be sufficient to detect and alleviate fraud in both the short and long term.

Another area often lacking in fraud solutions is reporting how effective these systems are. As a management tool, good reports or on-screen dashboards can provide vital information about the effectiveness and efficiency of the payments and fraud rules. A good reporting tool should provide a real-time view of operations, with trends and analysis to inform ongoing system updates and maintenance.e growing at a rate faster than ecommerce. Only a solution integrated across the retailers organisation will be sufficient to detect and alleviate fraud in both the short and long term.

It’s a daunting task when expanding cross-channel or cross-border. Retailers can alleviate these challenges by establishing a fraud solution that aligns with company strategies and integrates with existing systems. This critical step can mean the difference between growing customers and revenue or giving the fraudster an opportunity neither of you will forget.

The advent of true cross-channel and the growth in international sales are powerful drivers in retail. What new demands does this put upon retailers in the arenas of payment and fraud?

The growth of online shopping opens innumerable opportunities for traditional, online and cross-channel retailers. Online retail showed an annual increase of almost 13 per cent in 2012, and that figure is likely to rise again by the end of 2013 with increasing retail opportunities.

However, there are new challenges and cultural considerations when selling internationally. For example, when trading in countries less reliant than the UK on credit and debits cards, are consumers who prefer to pay in cash simply unattainable?

Consumers who prefer to pay in cash represent a huge number of potential customers, and therefore revenue, which retailers are missing out on. But cash payment schemes like Ukash can help convert these valuable customers. Ukash codes can be purchased using cash in retail outlets such as local convenience stores, petrol stations and kiosks in more than 50 countries around the world, on six continents. Customers then spend the voucher online, meaning they are able to continue using cash as their preferred payment method both online and offline.

Not only does this provide convenience for the customer by allowing them to use their preferred payment method, but it also protects against the risk of fraud as no card details are provided.

Tight payment security is vital to fight against increasing levels of fraud, which could affect retailers’ profits, reputation and customer relationships. So the challenge is to create a safe and secure online purchasing process that doesn’t risk asking consumers so many questions that they feel interrogated or lose patience and drop out of the payment process.

Our research has revealed that nearly half (46 per cent) of online shoppers are frustrated by security questions when making purchases online, and over a third (39 per cent) have actually abandoned an online transaction because they were being asked for too much information. E-money enables cash consumers to shop online and protect their personal identity and financial information when making online transactions – thereby reducing the threat of credit and debit card fraud for consumers.

As online retail continues to increase in popularity, consumers should be given as many payment options as possible to allow them to shop in the way they feel most protected and comfortable. This, in turn, encourages return custom and brand loyalty, thus increasing sales and profits.

Miranda McLean, marketing director,

The advent of true cross-channel and the growth in international sales are powerful drivers in retail. What new demands does this put upon retailers in the arenas of payment and fraud?

The payments sector is rapidly evolving. Consumers want to pay where and when they wish, and new technologies are enabling them to do so. However, as well as providing the opportunity for merchants to generate new revenues from new channels, there are challenges that need to be considered. For any payment mechanism, it is essential to ensure security without compromising the customer relationship, as this can result in preventing repeat business.

The increasing variety of sales channels is improving service levels and the way we pay is changing, whether it is at a retail outlet using self-service, an internet purchase or a mobile payment made on the go. There are card-swipe payments, payments secured by chip and PIN, closed-loop payments, payments made using an e-wallet, contactless and NFC payments. Retailers need consumer and merchantfriendly terminals that are optimised to present the relevant information in the most efficient way in order to accept as many payments as possible.

It is no secret that a growing number of payments take place online and in 2012 the UK saw an increase of 18 per cent in spending (reaching £63 billion) by UK cardholders. This presents a number of challenges. Consumers must believe the payment mechanism is secure and reliable and be confident to make payments in this way. For merchants selling in foreign markets, there is a need to be flexible. In some instances consumers may prefer to use their traditional local payment solution and merchants wishing to sell effectively in these countries must be in a position to offer this option.

Transactions where the card is not present (telephone, internet and mail order) present particular challenges and indeed accounted for more than 62 per cent of UK card fraud in 2012. In addition to CVS and AVS checks, and the use of 3DS security that enables a liability shift, retailers can work with their acquirer and card service provider to introduce device fingerprint technology and business rules that will identify fraudulent transactions while allowing any genuine transactions to be processed without delay.

Merchants trading in an international environment need solutions that are quick, reliable and have security measures that counter the threat of fraud. They must also anticipate changes in the way people wish to pay in an increasingly mobile environment. Whether it is in-store, online or via a mobile or tablet, there is now a one-stop shop for multichannel payments. In an environment where consumers are confident in using different payment mechanisms for different transaction types this enables easy secure payments and analysis via common fraud prevention tools and associated profiling. For consumers the result is greater choice and convenience, and for the retailer more control and increased sales opportunities.

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