CNP Merchants and Digital Goods Fraud

It has never been a more exciting or challenging time to be a card not present (CNP) merchant. The barriers to entry into e-commerce, m-commerce, and omnichannel sales networks have largely been erased.
Of course, as with all good things in sales and payments, there are caveats. The digital sales boom also presents many unique fraud risks. Traditional approaches to fighting fraud that work in the retail sales model no longer apply to digital sales.
Too many CNP merchants have not updated their fraud detection and prevention methods to address  cybercrime. The good news is that the popularity of omnichannel sales has forced the industry to gain greater understanding of how fraudsters work, how CNP merchants are at risk, and the best strategies and tools to prevent fraud.
The Challenges of Digital Goods Sales
The immediacy of digital goods is a major consumer draw. They see something they want, click to buy, and in an instant can place their order. What could be better for the customer or the merchant?
Unfortunately, this instant gratification sales model sets CNP merchants up for unique fraud risks that don’t come with traditional brick and mortar transactions. CNP merchants specializing in digital good sales must deploy the most current and effective fraud detection and prevention solutions to manage their fraud risk.
Having a firm grasp of the challenges facing CNP merchants face is a the first step:

  • Instant delivery. With instant delivery, the merchant has little or no time to review the order, check for automated fraud, or conduct a manual review. The purchase and authorization happen in real-time, forcing merchants to make split-second automated approvals or rejections.
  • False declines. Because of the limited time available to approve a purchase, many merchants rely on rigid rules to approve or decline an order. With fear of fraud on the rise, this has resulted in a startling high percentage of false declines causing frustrated customers, lost revenue, and negative brand perception.
  • No data. No phone number, no delivery address, no prior purchase history means no data available to review and verify the purchase. This lack of data sets merchants up for large-scale fraud from savvy criminals, who know they can hide behind multiple fake email addresses and proxy servers.
  • Customer demands. Customers want fast, easy, and simple purchase experiences. Entering passwords, waiting for a confirmation email, or responding to an SMS verification message frustrates this growing population of impatient consumers. The more required of these customers, the greater the risk of abandoned shopping carts or chargebacks.

In knowing the challenges of digital goods sales, CNP merchants can take the proper steps to protect themselves and their honest customers from fraud.
Best Practices to Detect and Prevent Digital Goods Fraud
For most CNP merchants, the right solutions and best practices to  prevent fraud comes down to balance. Merchants who are overly rigid risk losing sales and driving customers away, while merchants who are too lax with review policies and data monitoring are vulnerable to fraudsters.
By mixing and matching fraud prevention tools, CNP merchants can implement the ideal solution for their specific business. Here are some guidelines:

  • The right tool for your sales model. Choose fraud detection solutions that are designed to match the savviness of cybercriminals. Identify solutions that have built-in flexibility along with intelligence to mitigate false declines.
  • Take advantage of data. One of the major challenges of digital goods sales is the lack of data. But with the right solution, even the smallest piece of information such as an IP address or an open Wi-Fi network can be enough to review, confirm, or reject a purchase.
  • Act fast. Digital goods sales fraud is not going away. Put the same effort into your CNP fraud prevention strategy that you put into building your mobile app and creating the omnichannel experience.

Be Proactive Against Digital Good Sales Fraud
The explosive growth of digital goods sales has placed unprecedented demands on merchants to update their fraud detection solutions quickly to combat cybercrime.
Unfortunately, too many merchants can’t keep up with the most current information. Contact us to learn how Verifi solutions can keep sales flowing and prevent digital goods fraud.