4 Ways How Merchants Can Fight Omnichannel Payment Fraud

The Rise of Omnichannel Fraud

Savvy e-commerce merchants know the benefits of having an omnichannel retail strategy. It can be a great way to reach more customers, build stronger relationships, and boost sales. Consumers are interacting with brands across multiple channels, driven by the need for safe and flexible ways to shop. The pandemic and the subsequent boom in e-commerce only goes to show that. Omnichannel e-commerce can help brands target these consumers across these channels through consistent and seamless experiences.

But while omnichannel e-commerce has unlocked a lot of opportunities, it has also exposed online retailers to more sophisticated forms of fraud, particularly those who are new to e-commerce. A recent report shows that there has been a 350% increase in e-commerce fraud in Europe this year.

More novel forms of fraud such as account takeover fraud, returns fraud, fake account creation, and synthetic identity fraud are emerging. Many merchants are already familiar with these, yet they can get caught off-guard when they open up new sales channels without understanding the risks that come along.

Below we will tell you about some types of fraud that present greater risks for omnichannel merchants and what you can do to prevent them.

Types of Fraud Omnichannel Merchants Can Face

1. Card Testing
Card testing is a type of fraud where fraudsters obtain stolen payment credentials from the dark web and test if these are still usable by making small, easily-overlooked purchases. If these transactions are successful, fraudsters know they can make larger purchases using the stolen details. They can then target omnichannel merchants who offer multiple points of sale for quick, low-scrutiny card testing and defraud them with large purchases.

2. Cross-channel Fraud
Cross-channel fraud is a type of fraud where fraudsters compromise one channel to create vulnerabilities in other channels. A common example of this type of fraud is BOPIS (buy-now-pay-in-store) fraud. Fraudsters use stolen card data to make purchases online and then pick up the items immediately from the store before the cardholder or merchant discovers the fraud and cancels the order. Cross-channel fraud has increased since the pandemic started as omnichannel merchants started offering BOPIS and curbside pickup to customers to give them more flexibility and retain business.

3. Returns Fraud
Returns fraud is a low-tech type of fraud wherein fraudsters order a product, use it or modify it, and then return it for a full refund. Fraudsters can make a purchase on one channel and initiate a return on a different one to evade detection and screening. Omnichannel merchants are particularly vulnerable to this type of fraud.

4. Mobile Fraud
Mobile shopping has been growing at a phenomenal rate in Europe, especially in the wake of the pandemic. In 2020, more than half of online sales in Europe took place on mobile. This clearly shows how much consumers love mobile shopping. But while mobile apps make shopping easier, they are a choice target for fraudsters. Fraudsters are using stolen user credentials and payment data to infiltrate mobile apps, alternate payments, and even loyalty programs.

4 Tips to Fight Omnichannel Fraud

1. Use AI-based Fraud Management
Omnichannel merchants should use AI-based fraud management tools for detecting and managing fraud. These tools use machine learning and artificial intelligence to detect fraud and flag suspicious transactions in real-time. Merchants can also customize their fraud risk assessment to each individual channel while cross-referencing information from other channels.

2. Use Multi-factor Authentication
Using multi-factor authentication is a good way to thwart fraud attempts. The latest PSD2 regulations in Europe mandate the use of strong customer authentication (SCA). Multi-factor authentication uses tokenization and biometric verification to ensure transactions are genuine. This can be deployed at checkout with programs like 3D-Secure. Merchants can also use a form of multi-factor authentication when a user first logs into their app or website.

3. Cross-channel Tracking
Omnichannel merchants should not look at cases of fraud cases in isolation, but connect them across channels. For example, you can detect and ban a repeat fraudster from your physical store, but they still might have an active account on your online store. By tracking fraud across all channels, merchants can identify repeat offenders and blacklist bad actors across all these channels.

4. Use a PCI DSS payment gateway
A PCI-compliant payment gateway is one of the best defenses against omnichannel e-commerce fraud like card testing. Such a gateway allows merchants to set up AVS and CVV matching, 3D Secure, and fight fraud with the most up-to-date tools. A global payment service provider like Novalnet can help you set up a secure, PCI DSS-compliant payment gateway. Working with the right payment provider is critical, as they can help you figure out the right tools and solutions for your business and how you can effectively use them to tackle fraud.

How Can Novalnet Help?

Novalnet offers AI-powered risk management that helps you to prevent fraud before it happens. Our tailor-made fraud prevention solutions use AI and machine learning to protect your business from any fraudster activity and design the best payment experiences for your customers, and all of it in a PCI DSS-compliant environment. Our full-service online payment solutions are designed to bring you the ultimate peace of mind you deserve. Whether it’s a seamless checkout experience, fraud management, or debt recovery, we have you covered with over 25 products and solutions, all under one contract.

Gowri Shankar Balasubramaniam

Gowri Shankar is the IT Application Security Manager at Novalnet with versatile knowledge in Programming and System/Security architecture. Having 11+ years of experience in the financial services industry, Cybersecurity, Payment Card Industry Data Security Standard (PCI DSS). Certified in Advanced Payment Card Industry Security Implementer (CPISI 2.0), Secure Software Lifecycle Professional (CSSLP) from (ISC)².