Payment Challenges Any Merchant Can Struggle With

Online payment platforms and systems make it easy for any merchant to generate revenue from ecommerce and customers across the world. However, new opportunities also come with payment challenges (new risks).

Merchants can struggle with various risks and challenges, potentially cutting into profit margins and reducing turnover. Worst case scenario, some instances of fraud can result in cyber criminals hacking systems and stealing valuable customer data.

Although there has been ecommerce fraud since 1993, the volume of attacks against merchants is consistently increasing. Card Not Present (CNP) is a case in point. With the introduction of chip-and-pin payment cards, criminals who once exploited the relatively lower security ‘swipe and sign’ cards have turned their attention to fraud opportunities online. The UK and France are amongst numerous other countries who have experienced an increase in CNP fraud since EMV technology was introduced.

More recently the US has seen CNP fraud jump by 33% in one year, having switched to EMV chip debit and credit cards in 2016. The impact of this is being felt globally, as a move to online fraud by criminals who once focused on localised card fraud, has opened up a world of opportunity….

Technology has created opportunities for cyber criminals and hackers, but it also provides many of the solutions to tackle fraud and payment crime. By partnering with an online payment service    provider with advanced fraud and cyber security expertise, you can reduce your business’ exposure from many of the challenges outlined below.

Download our whitepaper Fraud Solutions for Ecommerce Businesses for more insight.

5 Common Payments Challenges

#1: CNP Fraud

One of the most common types of fraud and effectively, the mother of every subsequent definition in this article, since every online transaction, by definition, involves a CNP transaction. In this scenario a fraudster uses stolen payment card information to buy goods or digital services. When the card owner discovers this transaction they may trigger a chargeback with their card scheme. While the consumer is able to stop their card details being used again and be fully refunded for the fraudulent transaction, merchants lose out.

To reduce your exposure to CNP fraud, ensure that your website is utilising robust fraud prevention tools and best practices. Address Verification Service (AVS), Card Security Codes (CVC2 or CVV2), 3D Secure etc. offer additional security checks that help verify that the cardholder is indeed present.

#2: Chargebacks and “friendly fraud”

These two different types of fraud are similar in many respects. If a customer disputes a purchase, before contacting you about it first, they can contact the card schemes – MasterCard and Visa – to get their money back. Card companies then charge the merchant for the funds. You need to act fast if a customer has applied for a chargeback.

Find out what has caused the problem. Recorded delivery is the best way to avoid them claiming that physical goods were not delivered. Sometimes a chargeback is initiated because of confusion over how the charge appears on a statement, so make sure how your company appears in transaction records is something a customer would recognise.

Friendly fraud is similar, except the customer is intentionally trying to defraud a merchant through a chargeback scheme, even when they’ve received the goods and know the transaction is a result of that purchase. There is nothing “friendly” about this type of fraud: It is theft. Fight it with evidence to show they bought the goods, and they were delivered.

#3: Impact of Shipping Fees

Large merchants, such as Amazon, can absorb the cost of free shipping. But for everyone else, shipping is expensive, especially if you need to insure goods in transit and/or ensure they are tracked and recorded to avoid chargebacks. Picking the right courier can be a challenge too since the industry has grown so quickly in the wake of ecommerce expansion that not all companies are known for delivering the goods or providing a great service.

Aim to give customers the best service you can, whilst offering delivery rates that don’t make too much of a dent in your profit margins. At the same time, factor a certain percentage of returns into your cashflow – especially in the fashion and apparel sector – whilst ensuring your terms of service provide sufficient protection for your business.

#4: Identity Theft & Clean Fraud

Data breaches are occurring more often. Customers’ data is sold on the dark web, giving cyber   criminals the means to create fraudulent identities and make purchases using bank and payment card information. Most of the time, they claim a chargeback, using card schemes and banks to generate more revenue and launder dirty money.

Clean fraud happens in the same way but is quite rare. This is when a cyber criminal has a credit or debit card – one that hasn’t been cancelled, or that they’ve cloned – and enough information about the cardholder to put through a “clean” transaction. On the surface, these payments appear genuine. You may not be able to prevent these, but pay special attention to chargebacks since some of them could come from criminals with stolen cards.

#5: Data Breaches

Not surprisingly, ecommerce platforms that receive high volumes of traffic are far more susceptible to data breaches. Cyber criminals are naturally attracted to organisations that may provide them with access to large amounts of consumer data.

However, it’s not just the large corporates and retailers that are at risk; smaller merchants often  offer ‘easy pickings’, especially if their cyber security defences are not as robust as their larger   counterparts. While the number of customer records may be significantly fewer, hackers can hit  vulnerable businesses more quickly and data breaches often go undiscovered for longer.

With GDPR (the EU’s General Data Protection Regulation) coming into force in less than a year and with it the risk of significant fines for businesses and organisations that are non-compliant, all merchants must revisit their data protection policies and procedures to reduce exposure.

An effective way to reduce your exposure is to partner with an online payment service provider that offers tools such as tokenisation and card store. This removes sensitive payment card data from the merchant’s environment and reduces PCI DSS compliance costs.

While there are many risks and challenges that merchants need to navigate, there are also solutions and tools that can help you reduce threats whist ensuring that your customers’ payment journey is as frictionless as possible. Fraud prevention and cyber security tools do not have to be a barrier to sales. When used intelligently they can protect your business and your customers’ data, and even aid conversion.

To find out more download our whitepaper on Fraud Solutions for Ecommerce Businesses