A guide to transforming digital commerce with adaptive risk management

From marketing, to merchandizing, to transaction, to post-transaction, data fuels today’s ecommerce landscape. Powered by the ubiquity of connected devices, data has the potential to inform every decision a merchant makes at every stage of the customer journey. This creates an opportunity for merchants to deliver great, personalized commerce experiences to their customers.

All this data also creates an opportunity for fraud. Whether compromised identity data, breached financial data, social engineering-derived information, or even malware, fraudsters have access to their own large data sets and unprecedented access to sophisticated tools and forums.

Fighting fraud is likely one of your organization’s greatest priorities. It may be essential to work with a partner that can help you outmanoeuvre the fraudsters and leverage the insights of a vast intelligence network. This means abandoning traditional, ineffective fraud and risk solutions, and embracing new solutions designed to stay one step ahead of fraudsters.

Organizations need their fraud solutions to evolve with their ecommerce risk management strategies

Traditional fraud and risk solutions are becoming less and less effective. Fraudsters are becoming ever more sophisticated as the digital commerce economy continues to rapidly grow in size and complexity.

Online merchants face a long-standing challenge: delivering frictionless digital commerce experiences and simplifying fraud risk, while striking a balance between trust and simplicity.

As this environment becomes more complex, merchants must adopt new, data-driven ecommerce risk management strategies to prevent fraud while continuing to create a positive customer experience and grow the business.

Online merchants struggle to grow while mitigating fraud

Unfortunately, the massive growth in ecommerce has also led to rapid growth in fraud, in terms of volume and sophistication. As merchants scale their businesses and expand their ecommerce footprint, they must address unique ecommerce risk management challenges head-on and at all stages of business growth.

Fraudsters have adapted to today’s digital economy, increasing the potential risk involved in selling online. Merchants must also become smarter by adopting an adaptive risk management system that works alongside their digital commerce and payments infrastructure.

Key trends in fraud management

Major trends that will shape the fraud management, digital payments, and ecommerce market over the next 36 months include the following:

• Ability to balance convenience and risk. Online merchants face a long-standing challenge: delivering frictionless commerce experiences without creating excessive risk. It is especially challenging for online merchants — whose goal is to win and retain new customers — to strike the perfect balance between trust, risk, and simplicity. Excessive friction can result in an abandoned cart, and a poor experience will keep customers from returning to a merchant’s website.

• Card not present (CNP)–driven omni-channel commerce. As a larger share of merchants’ sales happen online, a larger share of purchases made by merchants’ net-new customers occur digitally. New customers pose additional challenges because merchants don’t know how they behave, so there is a high risk of creating unnecessary friction. When the goal of keeping customers is to maximize lifetime value, friction will keep customers from returning to merchants’ websites. Worse, if fraud is committed in a customer’s name, even established customers may stay away forever.

• Artificial intelligence (AI). There has been a significant increase in the use of AI and ML in risk management in the past five years. AI/ML has become more sophisticated in this period, and fraud management is an ideal use case for the technology. Training intelligent fraud management systems requires large data sets, driving the trend toward shared and consortium data models among multiple participants, including merchants and payment processors, where more transactions and outcomes can be included in the training data for more accurate models.

• Regulatory shifts. Another significant market trend in the fraud space is the regulatory shift to protect customer data, including GDPR and the mandate for Strong Customer Authentication (SCA) under PSD2. In this changing environment, protecting customer data is not just a good idea — in many cases, it’s the law. Fraud prevention is not just about stopping the bad guys anymore; merchants must also protect their customers and themselves with advanced tools to prevent fraud and identity compromise.

Benefits of using an adaptive risk management solution

A robust fraud solution provides online merchants with the following key benefits:

• Fewer transaction declines. In the fraud management space, reducing the decline rate, without increasing the risk of fraud occurrences, is the main metric of success. A strong fraud management solution allows merchants to shield customers from fraud and maximize revenue.

• Chargeback reduction. Effective fraud management solutions should limit fraudulent chargebacks. Extensive data intelligence and advanced machine learning (ML) can accurately identify and block fraudulent transactions, improving authorization rates.

• Vast networks of global risk intelligence. Merchants should look for fraud solution providers which can leverage massive data sets including merchants, advanced ML, and data science expertise. These digital commerce tools are best able to identify emerging fraudulent activity and act accordingly across all merchants in their network.

• Frictionless customer experiences. Ecommerce risk management should help to streamline the customer experience, not compromise it with unnecessary authentication.

• Transparency. Comprehensive fraud management solutions enable more insight and control to align merchants’ unique business needs and tolerance for risk.

• Future-proof fraud management. Merchants need to be enabled to fight fraud today and in the future. With ML-based platforms, risk scores, and rule suggestions, organizations can proactively fight evolving threats and get smarter with every transaction.

• Informed, real-time decision making. Fraud tools should immediately differentiate between customers and fraudsters, flagging suspicious transactions for review. Automated decision-making is more efficient, effective, and streamlined.

When properly implemented, a comprehensive fraud management solution will enable merchants to focus on what really matters: growing their business.

Integrated ecommerce risk management on the PayPal Commerce Platform

PayPal’s risk solutions are the only offerings in the industry to leverage PayPal’s extensive two-sided network, combined with industry-recognized machine learning and analytics. With the PayPal Commerce Platform, can help you detect and block fraud in real time.

• Chargeback Protection.* PayPal helps online eligible merchants focus on growing their business rather than battling fraud and chargebacks. PayPal decisions card transactions for merchants by automatically approving or declining transactions. In the event a chargeback occurs related to a qualifying previously approved transaction, PayPal will refund the eligible disputed amount and any associated fees, up to a predetermined limit.
• Fraud Protection. Built into the PayPal Commerce Platform and Braintree, Fraud Protection for eligble transactions is a fraud toolkit that provides merchants with more insight into and control over the decisioning process of their card transactions to help you better balance chargebacks and declines.
• Custom risk solutions. This adaptive decisioning platform empowers large ecommerce firms and financial institutions with best-in-class machine learning to dynamically decision across a user’s life cycle, from sign-up to log-in to checkout and beyond.

• Risk APIs. This risk mitigation service was created to help some of the world’s largest ecommerce merchants fight transaction fraud through an easy-to-integrate API that empowers them with risk intelligence from PayPal’s two-sided network, currently composed of over 435 million active accounts processing over 20 billion global payment transactions in 2022.**

Discover how your organization can fight fraud and grow with ecommerce risk management. Download our guide to driving digital transformation to find out more.