The key to increasing profitability for eCommerce merchants is in better transaction analysis, suggests CyberSource’s new survey. The standard anti-fraud approach is to use rule-based software to highlight potentially fraudulent transactions, and then employ manual investigation before either accepting or rejecting the purchase. The problem is in the ratio between potential frauds and actually rejected transactions. On average, merchants manually review about a quarter of all transactions, but still end up accepting more than two-thirds (71%) of them.
Review teams are the single biggest cost in the transaction process. Because of this there is a tendency for larger companies to manually review a smaller number of transactions – simply because of the scalability factor. That review process can take one business day in large companies, but less than 2 hours for smaller merchants. After the review process an average of 4% of orders are rejected on suspicion of fraud (ranging between 2.5% in the service industry and 6% for physical goods).
There is clearly scope for improvement in the eCommerce process by reducing the gap between the large number of transactions delayed by costly manual intervention, and the very small number that is actually rejected.
“Businesses should take an holistic view of fraud management and focus on acceptance; identifying good customers sooner and then optimizing their entire payment experience, irrespective of the device or channel used,” said Simon Stokes, managing director EMEA at CyberSource. Manual investigation is expensive to the merchant, and annoying to the customer who has come to expect immediacy in internet purchases.
It follows that since the majority of investigated transactions are still accepted, concentrating on reducing the need for manual investigation will increase merchant profitability and customer satisfaction without increasing fraud. “Optimizing profits means focusing on the end-to-end eCommerce journey, and doing so efficiently,” explains Dr Akif Khan, director of strategic initiatives at CyberSource and one of the report’s authors. “By automating acceptance and minimizing the need for manual review, fraud managers can positively impact conversion rates, profit margins and the overall customer experience.”