Untangling Risk – Layering the Right Tools for Your Business

Online merchants face more risk than ever. With the continued evolution of mobile payments and emerging technology, fraudsters are finding new vulnerabilities to exploit and new ways to steal money from your bottom line. Unfortunately, there’s also another culprit lurking around, often unknowingly denting your bottom line – the overuse of fraud tools.

Fraud prevention and risk mitigation are essential for card-not-present (CNP) merchants. The cost of fraud continues on its upward trajectory – costing merchants $2.40 for every dollar of fraud, up from $2.23 in 2015. This will only get worse as online shopping grows and e-commerce sales are projected to eclipse $530 billion by 2020. Fraud losses will rise in-step with that, potentially exceeding $12 billion by 2020.

What can CNP merchants do?

The key to staying ahead of the game is layering the right combination of tools and technologies to mitigate risk and prevent fraud without limiting legitimate sales. This requires intricate knowledge of existing and emerging fraud tools as well as insights into your customers to appropriately layer and leverage tools. Understanding potential risks and vulnerabilities is key to knowing how to stack risk mitigation technologies.

Big Data

Behavioral data is quickly becoming a favorite tool among online merchants who can use this data to add sophistication to their risk modeling so good sales are not lost. Where rules based fraud detection may use predetermined fraud controls (flagging orders originating from high-risk countries), behavioral data can span a number of complex attributes, such as spending spikes or purchase velocity, to flag orders that may indicate fraud. When combined with a merchant’s internal insights on their customer behavior, this method can significantly – and accurately – mitigate risk and prevent fraud.

Chargeback Prevention

Another big headache for online merchants is chargeback fraud. Chargebacks can occur for a number of reasons; some happen due to unauthorized use of a payment card by a fraudulent party. Chargebacks can also happen if a consumer makes a purchase and does not receive the item for which they paid. Another case is termed “friendly fraud”, which occurs when a consumer makes a purchase, receives the goods or services, and then requests a chargeback from the issuing bank. No matter the cause, chargebacks cost CNP merchants dearly. Fortunately, there are solutions available to help merchants get ahead of chargebacks by receiving alerts or notifications directly from the issuer when a chargeback is filed. This enables merchants to resolve the issue directly with the issuer and customer before the dispute snowballs into a full-fledged chargeback. This is ideal as fighting chargebacks that have already progressed can be costly. By nipping the problem in the bud, merchants can avoid the expensive chargeback process and avoid fines and penalties that accompany chargebacks.


Authentication is very important for merchants who accept payments online. The standard is two-factor authentication, though many merchants are moving towards multi-factor authentication (MFA). The former requires two components (for example, a payment card number and a pin), while the latter requires more than two components, which can be a combination of something the user possesses (a credit card or token of some sort), something the user knows (a password or pin)  and something inherent to the user (a fingerprint or other biometric identifier). By requiring multiple elements that prove the person making the purchase is who she says she is, it’s much more unlikely for a bad actor to game the system.

These are just some of the tools, technologies and techniques available to CNP merchants who want to mitigate risk. The key is to have strong fraud prevention models in place without being too restrictive. Fraud controls that are too sensitive can trigger false positives, unnecessary friction to the customer and manual reviews – all of which negatively impact the bottom line. Finding the right balance means flagging high-risk transactions while ensuring that good customers can seamlessly make their purchase.

Looking for an experienced digital payments advisor to create a tailored risk mitigation strategy that boosts your bottom line? We can help you create a customized, comprehensive omni-channel approach to fraud prevention and risk mitigation. Let’s talk.