This article was published in the November 2016 issue of STORES Magazine.
When ecommerce merchants try to manage their own fraud protection, they can invest substantial time and effort striving to make the right transaction decisions on their own.
As they do, they risk significant losses from fraudulent orders or through “false positives” that mistakenly flag legitimate customers.
According to the 2016 LexisNexis True Cost of Fraud Study, an average of $2.40 per transaction is lost to online fraud. Although high-volume online retailers can use very sophisticated and expensive fraud protection programs, that has not historically been the case for lower volume online merchants with more limited financial resources.
Streamlining the process
Ezzie Schaffran, chief operating officer and a partner in New York-based Certified Watch Store, has been using NoFraud since January. Certified Watch Store sells luxury watches and other fine products at prices ranging from about $200 up to $5,000, has annual sales of more than $50 million and has grown 20 to 30 percent annually for the past three years.
With more than 17 years of experience dealing with fraud as an online merchant, Schaffran chose to work with NoFraud because, “at a certain point in life, you decide that you’re in business to make money and you don’t have the time, energy or perseverance to be a fraud investigator anymore. So you look for a solution that will save you time and energy and get rid of the headaches while at the same time, provide your customers with a better shopping experience.”
Schaffran estimates that 30 of every 100 orders that ecommerce merchants receive are held for verification; of that number, about 10 percent require a time-consuming manual review with a customer on the phone.
“That takes a lot of time and it doesn’t make [for] a great customer experience,” he says. “People basically shop on the Internet because they want a streamlined process. They don’t want to deal with anybody, and when you have to manually call them to review their order, just the back and forth on the phone is difficult.”
NoFraud’s effectiveness is based on the ability of its software to centralize within proprietary algorithms “every known fraud prevention technology,” says Shoshanah Posner, NoFraud’s director of business development. “In real-time, we scrutinize each transaction, only permitting legitimate transactions to reach an e-retailer’s payment gateway.”
Among other things, NoFraud’s software scrutinizes the device a customer is using to initiate a transaction to determine if it has ever been associated with credit card fraud, its IP address has ever been linked to fraud or if proxies are being used to conceal the true IP address.
It is not just the technology that is being utilized, Posner says, “but also how we use logic to determine what to do with the data we receive about the transaction, i.e. translating the data into a decision of whether a transaction is fraudulent or legitimate.” NoFraud staffers perform any necessary manual reviews, sparing e-commerce retailers the time-consuming inconvenience.
Enhanced productivity
Janine Brazil, founder and president of Tampa, Fla.-based Body by Brazil, says her 15-year-old website had very limited protection before teaming up with NoFraud.
Body by Brazil sells Brazilian fitness, swimwear and fashion apparel, with sales under $1 million and recent growth averaging between 15 and 20 percent each year.
Prior to using NoFraud, “a lot of fraud was coming through,” she says. “Normally, I would have maybe a few thousand dollars in fraud losses in a year. But earlier this year, I got hit hard. In one month, there was more than $6,000 in fraud losses and it was escalating.”
An average transaction from a U.S. customer on her website is about $200; international customers average between $350 and $400. After eight months using NoFraud, Brazil is “very pleased both with the service and the cost.” NoFraud has been able “to effectively block every fraud attempt while allowing all legitimate orders through.”
The service has also saved considerable time and significantly enhanced productivity.
“It used to take us two to three hours a day to check on things like IP addresses and fake email addresses, but NoFraud was able to automate that extremely quickly.”
“It used to take us two to three hours a day to check on things like IP addresses and fake email addresses, but NoFraud was able to automate that extremely quickly. Every transaction that comes through is extremely clean. Ever since I’ve had the program, I haven’t had one single fraudulent order.
“And there haven’t been any good transactions that were turned down. Every one was a bad transaction. They also have the ability for me to whitelist customers that I know are good so their transactions go through very quickly, even if they are international customers.”
The cost is “extremely reasonable,” she says. Transaction fees are based on volume, but Posner says merchants typically pay an average of 18 cents per transaction. Body by Brazil pays 27 cents per transaction, but “Some other services we were looking into ran roughly about 10 times more than that,” Brazil says.
Set up took about five days because Brazil’s e-commerce platform wasn’t yet compatible with NoFraud, so it required some custom programming. “All I had to do was give approval on a few things, and they did everything,” she says. “Of all the programs, I have ever implemented, this is probably the easiest, most efficient and the most cost effective.”
Plug-and-play
Similar factors made NoFraud stand out for Schaffran right from the beginning. First, he says, was “ease of installation. It required no time to install, literally minutes, and there was no disruption to the website. Just to integrate other systems can cost thousands of dollars in tech support. Tthis is a plug-and-play solution.”
Certified Watch Store saw fraud-related chargebacks fall from approximately 1 percent of transactions to 0.2 percent.
In the nine months that Certified Watch Store has been using NoFraud, there have been no false positives. That accuracy is “phenomenal," says Schaffran. "Every system I ever built always had a margin of error. In the past we had plenty of false positives, and that was not a good customer experience. Orders now go out the door quicker too, because there’s no verification holdup.”
After installing NoFraud, Certified Watch Store saw fraud-related chargebacks fall from approximately 1 percent of transactions to 0.2 percent. “Just as importantly, we were able to invest a lot less in the manual review filtering of orders. We were able to streamline the experience.”
When Certified Watch Store first began using NoFraud, Schaffran says the company checked and double-checked the results, “but after a few weeks, we just said, ‘There’s no reason to.’ We were quite pleased with the results.”