As well as effective fraud prevention, etailers must also master international transactions and mobile commerce if they are to fulfil their online potential .
Declining levels of payment card fraud online are good news for all in the ecommerce industry. But that does not mean there are not still payment issues for fashion retailers to consider in their online selling operations.
The quick adoption of selling over the web to customers in other countries, and the increase in interest in mobile commerce means payment remains very much on the ecommerce agenda.
At the beginning of March, the banking industry released data showing that card-not-present fraud (CNP) - fraud committed where the retailer does not see the actual bank card such as with internet, phone and mail-order transactions - had fallen 15% in 2010 compared with the previous year.
While it’s not great for retailers that £227m is still being lost every year in this manner, CNP fraud has been on a downward trend since 2008, largely as a result of the adoption of more sophisticated fraud detection and prevention technologies.
However, retailers at Drapers’ Etail Report round table earlier this month in London said opening up their websites to international customers has led to a slight rise in fraud levels. Monsoon Accessorize head of web Michael Wood said he has seen fraud levels creeping up since opening up its sites internationally. This does not get reported in the UK card industry figures, which only track fraud on cards issued in the UK.
Jonathan Bowen, head of product strategy at ecommerce provider BT Fresca, says even as recently as a couple of years ago, BT Fresca was talking to retailers who had done little towards combating internet fraud.
He agrees the new phase of international online growth also creates a heightened risk.
Martin Newman, chief executive of ecommerce consultancy Practicology, says some fashion retailers have begun to introduce a one or two-hour delay on dispatching orders to overseas customers to give themselves more time to carry out additional checks.
Legitimate international consumers also have concerns about protecting themselves when they buy online from UK sites. One fashion retailer tells Drapers that PayPal becomes a much more important payment option to offer consumers once you begin to sell internationally. Not only do some other countries not have the same culture of paying for goods online with debit or credit cards, but overseas customers feel much more secure using a payment service they already trust.
And PayPal assures retailers that when their international customers use the payment system to buy from them online they have just the same anti-fraud protection as they receive with UK PayPal account holders.
Similarly, as international sales rise, it may become necessary to add additional domestic payment methods for specific international markets.
Bowen says retailers may want to think about adding some specific European payment options to their sites, such as the Dutch market’s iDeal, which lets customers make payments online straight from their bank accounts.
Speaking at the round table, lingerie chain Agent Provocateur’s operations manager Hanh Do explained: “We had wondered for some time why Germany wasn’t converting as well as other nationalities.” Then the business became aware of the cultural issues around payment; in Germany for instance there has traditionally been a strong preference for paying cash on delivery.
So the complexity of payment services only increases as fashion retailers’ ecommerce ambitions expand.
Many of the same fraud prevention systems used for UK transactions can also be deployed for international ones. And it is important that retailers continue to closely monitor online fraud rates in the UK.
So there is still a calculation to be done on a regular basis. Fraud prevention systems and procedures cost money, which can offset any savings made from reducing fraud levels.
Bowen says benchmarking data should help retailers to set up systems and rules that minimise fraud while at the same time allowing legitimate customers to buy easily.
The 2011 UK Online Fraud Report from payment management firm CyberSource shows that 1.9% of all orders made on UK sites prove to be fraudulent. However, etailers review on average 20% of orders, and 71% of those reviewed are ultimately accepted. So regular monitoring of the impact of any rules put in place - such as only sending first-time orders to a cardholder’s main address, or refusing orders from certain postcodes - is important to prevent legitimate orders from being delayed or rejected.
The two simplest ways of verifying the identity of a cardholder making a purchase on your site is to cross-
reference the numbers within their address against the address the card is registered to. In addition, such fraud services can also check the three-digit number printed on the back of the card - which helps to determine that the person making the order has the card in their possession.
Bowen says between 40% to 50% of BT Fresca’s clients use the services of fraud prevention provider The 3rd Man, which gives them enhanced fraud control and is also particularly good for managing risk from European customers.
In addition, Bowen recommends all retailers use 3-D Secure on their sites, and says this identity authentication service for Visa and MasterCard payments is standard with all BT Fresca implementations.
When 3-D Secure first became available there were concerns that it deterred consumers from making purchases. However, it is now so widely used that Bowen says there is no conversion rate advantage to not having implemented it. He adds: “We are always trying to make the checkout as slick as possible, so any kind of fraud check needs to be visible to the customer, but not hinder them too.”
On the move
And once fraud and international payments are dealt with, the new point on the ecommerce agenda is mobile payment.
In Drapers’ Etail Report research, more than 21% of those consumers who said they were unlikely to buy fashion using their mobile phone said it was too difficult to input delivery and payment details on a mobile device. Another 14% had security concerns about buying using a mobile phone.
So while the same security systems and anti-fraud measures must be taken to ensure retailers manage their risk,it is clear that customer experience is at its most crucial when it comes to retailers’ newly emerging mobile shopping channels.
The good news is that this puts an emphasis on payment providers to continue to innovate to help make the checkout process on mobile as user-friendly as possible. And these developments can then also be adopted on retailers’ main websites.
The lesson is to make payment as simple as possible without compromising on the fraud prevention techniques available.
Amount by which card-not-present fraud fell in the UK in 2010
Percentage of online purchases that prove to be fraudulent
The dispatch delay retailers are putting in place to check international orders for fraud
Proportion of consumers who don’t buy via their mobiles due to checkout difficulties
Proportion of consumers who don’t buy via their mobiles due to security concerns
An anti-fraud glossary
3-D Secure Both the Verified by Visa and MasterCard SecureCode authentication schemes allow customers to confirm their identity as the cardholder by inputting a password that the retailer does not see.
AVS Also known as Address Verification Scheme, this anti-fraud check allows the numbers within the address and postcodes entered by a customer to be checked against the statement address held by the bank that issued the payment card.
CV2 number Officially called the card security code, this is the three-digit number that appears on the back of MasterCard, Visa, Switch and Solo cards, or the four-digit number on the front of American Express cards.