Omnichannel Payment Fraud

Table of Contents

  1. What Is Omnichannel?
  2. What Fraud Risks Are Associated With Omnichannel Commerce?
  3. How Can Omnichannel Merchants Prevent Fraud?
  4. Omnichannel Commerce, Fraud, and Chargebacks

As more businesses are using data to analyze shopper behavior and better understand their customers, an interesting trend has come to light. With many merchants making their products available in-store, online, and through mobile apps, many customers are now using more than one of these channels during their buyer's journey.

For example, a customer might look up product information on their phone while shopping in-store, or browse products using an app before completing their purchase on a computer at home. The philosophy businesses are using to better serve these customers is often referred to as omnichannel.

Unfortunately, opening up new channels to serve customers also opens up new angles of attack for fraudsters.

In order to use omnichannel to their advantage without falling victim to fraud, merchants need to understand the various schemes fraudsters have developed to exploit new channels of commerce.

What Is Omnichannel?

Omnichannel is a term that describes conducting sales and marketing across multiple channels—such as a website, mobile app, and brick-and-mortar store—in a way that creates a seamless experience for customers switching from one channel to another.

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nstead of focusing on a single sales channel or treating each channel as a separate entity, the omnichannel approach emphasizes integrating the various systems underpinning them so that customers can have a seamless and consistent experience across all channels.

The danger here is that without sufficient resources, you can end up with a scattershot approach that spreads your resources too thin—and worse, leaves you open to fraud at multiple weak points that you aren’t able to monitor and protect effectively. A good omnichannel strategy needs to anticipate these hazards and put appropriate defenses in place.

What Fraud Risks Are Associated With Omnichannel Commerce?

Omnichannel fraud isn’t fundamentally different from the fraud merchants are familiar with. Card testing, credit card fraud, and account takeover are still common threats. However, merchants can get caught off guard when they open new sales channels without understanding the risks specific to those environments.

While we've already written about the common types of e-commerce fraud, there are some types of fraud that present greater risks for omnichannel merchants.

Card Testing

Stolen payment credentials are cheap and plentiful on the illicit markets of the dark web, but fraudsters can’t tell by looking at them if they’re still valid or if the cardholder has already canceled the account. The way they find out which credentials are still usable is by making small, easily-overlooked purchases. If those transactions are accepted, they know they can try to use the card for a bigger purchase. Omnichannel merchants may unwittingly offer up multiple points of sale that can be used for quick, low-scrutiny card testing.

Cross-Channel Fraud

One issue with the omnichannel is that a compromised account on one channel can create vulnerabilities in other channels. BOPUS (buy online, pick up in-store) fraud is one common example of this. Fraudsters can make a purchase with stolen credit card information and then pick up the item immediately rather than having to wait for delivery, during which time the cardholder or the merchant might discover the fraud and cancel the shipment.

There's also the risk that user accounts linked across multiple channels may allow hackers to pick and choose the most vulnerable point to attack—and once they’ve broken into an account on one channel, they’ve gained access to all of them.

Mobile Fraud

This year, as much as 45% of all e-commerce shopping in the United States will have been conducted on mobile devices. Customers love shopping on their smartphones and tablets, but the apps they’re using aren’t always as robustly secured as desktop websites. Many apps grant significant unchecked spending privileges to any users who can get past the initial login screen.

Return Fraud

A common and decidedly low-tech form of fraud is to order a product, use it or strip it for parts, and then return it for a full refund. Fraudsters can make a purchase on one channel and initiate a return on a different one to bypass some of the screening processes that would otherwise detect their scheme.

How Can Omnichannel Merchants Prevent Fraud?

The most effective ways for omnichannel merchants to prevent fraud include fraud prevention software, multi-factor authentication, and cross-channel tracking.

No merchant can ever be 100% safe from fraud, but adequate planning and preparation can do wonders to reduce the harm it can do to your revenue and your reputation. Here are some of the essential measures for reducing omnichannel fraud:

Fraud Prevention Software

There’s a lot of software out there designed to detect and block fraudulent transactions, and while these always carry some risk of filtering out valid customers, they can be a huge help to merchants dealing with a high volume of fraud. The most sophisticated programs use machine learning and artificial intelligence to recognize fraud indicators and flag transactions accordingly.

For omnichannel merchants, the best fraud prevention tools will be able to customize fraud risk assessment to each individual channel while cross-referencing information from other channels.

Multi-Factor Authentication

The vast majority of fraudsters prefer to take advantage of quick, easy opportunities, so something as simple as two-factor (or more) authentication can easily thwart most of them. This can be deployed at checkout, with programs like 3-D Secure, but merchants may also wish to utilize a form of multi-factor authentication when the user first logs into their account on the app or website.

Cross-Channel Tracking

One of the biggest mistakes a merchant can make is to look at instances of fraud in isolation and not attempt to connect them across channels. For example, a perpetrator of return fraud might be banned from your brick-and-mortar store, but still has an account on your e-commerce store. By tracking fraud across all channels, you can blacklist fraudsters from your entire business once they’re discovered.

Omnichannel Commerce, Fraud, and Chargebacks

True fraud leads inevitably to chargebacks, and merchants have no basis to fight valid fraud-related chargebacks through representment. The only opportunity you have to fight them is before they’ve succeeded in getting away with a purchase.

With a well-considered strategy and the right tools, you can pursue an omnichannel strategy across your entire business without worrying that you’re going to be overwhelmed with true fraud chargebacks. If you’re not sure where to begin or what tools to use, an experienced chargeback management firm can help you build up your fraud defenses as a preventive measure against future disputes.


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