It's time to retire the old-school risk mitigation processes and embrace new fraud-proof technology

eCommerce presents merchants with an incredible opportunity to distribute their products and services and assert the global market -- but with that, the risk of fraud increases. And online fraud figures are higher than they have ever been.

Payment Service Providers (PSPs) are responsible for mitigating these risks to protect their merchants and consumers. For a long time, PSPs have relied on in-house risk departments to detect, prevent and reduce risk on behalf of their merchants.

However, these traditional risk mitigation strategies have become outdated and inefficient in the face of rapidly-evolving fraud schemes and emerging technologies.

That’s why many PSPs and merchants are turning to third-party tools and solutions that are supporting their risk and compliance professionals in preventing payment fraud.

Why is the old-school approach to risk mitigation failing?

The old-school approach to risk mitigation that many PSPs still adopt involves in-house risk departments. These operate constantly to detect, prevent and minimize risk on behalf of the merchants under their preview.

They plan risk management, identify risk, perform qualitative risk analysis, plan and implement risk responses, and monitor risks.

The range of red flags that in-house risk professionals monitor is vast. They double-check new customers, watch out for mismatches in billing and delivery addresses, multiple orders with different credit cards, all on the same delivery address or within a short period of time, and many more.

These processes and procedures can be time-consuming and often costly when handled manually. They are prone to human error, resulting in higher revenue lost to fraud each year, lower authorization rate, and a growing number of chargebacks and disputes.

According to Statista, $41 billion has been lost to online payment fraud worldwide in 2022, and that number is projected to reach $48 billion by 2023.

While the key indicators that measure the extent to which fraud is impacting eCommerce have increased worldwide, North America has seen the largest uptick in fraud indicators out of all the regions.

Europe, on the other hand, has the lowest rates and is seeing a steady decline in fraud indicators.

Regardless of that, fraud management spending stays flat. Merchants spend an average of 10 percent of their eCommerce revenues to manage payment fraud, which is the same figure as in 2021.

The data also shows that 60 percent of global merchants are looking to reduce their reliance on manual order review, while 20 percent want to eliminate it.

The long-term fraud solution

As fraud figures continue to rise, it's clear that PSPs need to explore new strategies to detect and prevent fraud.

A long-term solution is investing in a third-party innovative risk management technology provider that supports PSPs and merchants’ risk and compliance teams.

Such a partnership can not only control fraud risk but also maximize merchant retention and prevent compliance issues.

What stands behind such a powerful tool is artificial intelligence, data analysis, machine learning, and a global commerce network that contains historical and real-time data about transactions.

This will help PSPs identify the shopper intent behind 98 percent of online purchases, process more than 100 orders per second, and protect more enterprise merchants than any other vendor. In turn, this will make them more competitive in the market than ever.

That way, you will be able to offer your merchants unraveled risk mitigation and maximized revenue, even under increasingly complex rules and regulations.

Thriving in today’s eCommerce world starts with adept fraud risk mitigation and prevention.

By partnering with a third-party solution that utilizes the latest technology, large merchant-side network and machine learning, PSPs can offer their clients a competitive solution that helps them maximize their revenue and customer retention.

Image Credit: Gustavo Frazao / Shutterstock

Amal Ahmed is Director, financial services and EMEA marketing at Signifyd.