By: Doug Leighton, Head of Community Accounts
Innovations in digital commerce—voice-activated orders via virtual assistant (like Alexa or Siri), card-on-file merchant apps and nearly instant in-store pickup after ordering via a mobile device—have made way for a variety of shopping experiences that continue to enhance consumer convenience. Security innovations like tokenization, at the same time, have made card-not-present (CNP) transactions as secure as traditional ones, keeping fraud rates at historic lows despite increasing threats.
There is a huge gap, however, when you look at debit authorization rates between face-to-face and e-commerce transactions globally. A perception remains that CNP debit transactions pose a greater risk of fraud. This belief can result in a significant impact on your business if not monitored when a card is unnecessarily declined, especially when you consider digital commerce is growing three times faster than physical commerce.
Delivering a positive customer experience
Research shows that when customers experience a decline, they tend to spend less on that card and may even stop using it. More than half of consumers reported in a Finsphere survey that they were less likely to use a card that was declined, indicating that declines could be more of an issue than the fraud itself. Failing to convert a purchase because of a “false-positive” fraud decline or overly restrictive authorization strategies not only costs your community bank or credit union that one-time revenue, but potentially future revenue from the cardholder as well.
So how do you ensure your cardholders are able to navigate their way through any connected shopping experience available to them without disruption? The answer: a CNP-specific authorization strategy. This includes a fraud solution that makes better-quality fraud management decisions—future-proofing with an ability to respond to changing fraud trends via machine learning doesn’t hurt either.
Collaborating with partners
Resources are often limited at community banks and credit unions, leaving one person wearing a lot of different hats. You don’t have to go it alone, however, to find innovative solutions to effective fraud management. Working with partners like your processor and Visa to help make sure you have the proper rules in place and to stay on top of trends can help you achieve the balancing act defined in the 2019 Global eCommerce Fraud Management Report: deliver a positive customer experience while minimizing fraud loss and operational costs.
Educating your customers and members about the security benefits behind their cards (and strengthening your fraud and purchase alerts) as well as highlighting the perks available to them can help make sure you are still relevant in the space and top of mind.Visa offers educational resources and marketing collateral that issuers can download to stay ahead of the changing tides that disrupt our never-a-dull-moment payments space.
Developing a CNP strategy
Now where do you start? First, take the time to look at your e-commerce portfolio and hone in on a card-not-present strategy. What percentage of your overall transactions take place on a device? That number may surprise you. In fact, Visa processes more than 29 million online transactions each day. An effective fraud management strategy, according to the 2019 Global eCommerce Fraud Management Report, should focus on ensuring that genuine customer orders are automatically accepted. This requires taking inventory of the risk-management tools you have in place to ensure they are the best solution for your unique portfolio, today and in the future.
Balancing risk with acceptance rates
A gap analysis we performed with one of our issuing partners showed that its debit CNP approval rates lagged behind best-in-class players. Many of the financial institution’s customers were being inconvenienced without warrant and the issuer was losing significant revenue. In turn, the bank formed a task force to create rules to limit the riskiest transactions (using decisioning tools like Visa Risk Manager) and as it began to understand the real threats, the bank eased its controls. It started enrolling cardholders in 3D Secure and implementing risk-based authentication to provide an extra layer of protection. Within two years, the bank met its objective of reaching the benchmark best-in-class approval rate, unlocking increased payment volumes and greater customer satisfaction¹.
As a community-based financial institution, a task force may be beyond your reach in terms of resource allocation, but having staff dedicated to tracking e-commerce fraud and the tools to optimize risk can pay off as e-commerce growth continues to rise.
Maintaining top-of-wallet- status
That said, it’s important not to limit your strategy to CNP transactions. More and more digital merchants are turning to credential-on-file (COF) payments. From 2014 to 2016, Visa COF payments grew at a compound annual growth rate of 30 percent².
The biggest risk of disruption, in fact, comes not from the risk of fraud but when the payment credentials expire on those COF accounts. That’s when around 40 percent of U.S. consumers decide to change their default payment method³. Being the card that’s top of wallet is a coveted position and one that no issuer wants to lose.
Case in point: an operation metrics dashboard for one of the leading U.S. debit issuers revealed that, by the start of 2015, incorrect or expired credentials had become the primary cause of failed debit transactions, making up 38 percent of all domestic declines and almost half of all domestic CNP declines⁴.
The issuer turned to the Visa Account Updater service to enable merchants to validate and, where necessary, update the credentials they have on file, avoiding the costs and risks of unnecessary declines. The result: increased payment volume (this analysis unlocked more than $1.5 million in incremental monthly payment volumes), helping to protect top-of-wallet status and an overall satisfied customer experience⁴.
There is no one-size-fits-all strategy for managing risk for issuers, big and small. It takes finding the time to review your unique portfolio, managing resources wisely while working with partners and implementing the best solutions that help you develop a customer-centric approach for your members. Learn more about building an effective fraud management solution for your organization on Visa’s Community Issuers page.