U.S. e-commerce fraud will total $9.7 billion in 2020, Aite Group estimates. That includes traditional card-not-present payment fraud at $5.9 billion, account opening fraud at $2.8 billion, and account takeover fraud at $1 billion.
In fairness, more people are taking their spending online and therefore, in aggregate, fraud still represents a small portion of loss, but it continues to morph at an accelerated and equally complex pace. If left unchecked, it will continue to remain a formidable problem. One pillar that can help tip the balance in your favor is “the community effect."
Overall, the community is not a new (or novel) concept but the benefits can reduce friction and abandonment, increase sales and revenue, delight your customers, and help protect your brand and reputation. The community is broadly composed of two halves – technology (solutions to help make your organization’s fraud defenses stronger) and education (solutions to help make yourself better).
On the technology front, the community can be called by an array of different names - consortium, network, or data share - but they all generally reference the same thing. The central premise is that a single entity can only have access and insight to a finite set of data points to make a risk decision.
Let’s take the case of a new customer arriving on your digital doorstep to create an account or make a purchase. Since you’ve never seen them before, how do you discern their intent? Are they a good or a bad actor? If necessary, how can you minimize the friction associated with introducing a second factor for authentication and verification (e.g., a text message containing a one-time passcode, or a link sent to your inbox to verify your email address)?
One answer may lie in the community. Chances are what may be new to you may have already been vetted by someone else. How do I find the “best community”? Similar to how you may determine where to live, which schools to send your children to, or which fitness center you might join, you must do your research. Here are four factors to consider:
Breadth. A community that has two participants is not a community. Seek breadth across industries and geographies. A good rule of thumb is to find a community that is part of people’s everyday lives – where they shop, eat, travel, entertain, and bank.
Reputation. While breadth is vital, knowing the outcome or reputation of an event is essential. A community needs an active feedback loop to continually evaluate risk. An event that was positive six months ago may not be today.
Security. By its definition, a community is an aggregation of data and that asset should be backed by defensible security practices that meet your organization’s standards. One asset to seek is an operating guide (or set of defined principles) to which all subscribers in the community must adhere to gain admittance and remain in compliance.
Engagement. The community thrives with collaboration from its constituents. Solution providers should hold forums, roundtables, or conferences to promote feedback and sharing. And, of course, find out what others are doing, where they’ve had success and even where they fell short of expectations.
Beyond the technology solution, it’s equally important to begin to build out your own community – organizations/conferences, industry analysts, peers, and good old-fashioned networking. It has been my experience that professionals in the fraud and risk space, even those who may be marketplace competitors, openly share and collaborate about fraud trends and patterns as reducing financial crime benefits the entire ecosystem. There are a host of professional organizations across a varied set of industries to choose from. One organization that has been uniting merchants, solution providers, and industry professionals for almost 20 years is the Merchant Risk Council. It began as a passion project built by a team of dedicated volunteers and today it encompasses a membership network of more than 550 global organizations focused on fraud prevention, payments optimization, and risk management.
But the lifeblood of the organization is the people – they graciously share their time to educate and raise awareness and develop the next set of leaders through mentoring and career development programs.
The community can prove a powerful asset in further reducing fraud losses, but it’s important to remember that it is not a panacea. A robust fraud prevention strategy comprises a series of layered defences, of which the community can play an important role.
