Merchants Stand To Lose HOW MUCH to CNP Fraud?

 

By: Tim Prugar

           Regular readers of this blog should be no stranger to Next Caller’s stance that the EMV migration has had a significant impact on Card-not-Present (CNP) Fraud in the retail and financial services spaces. The call center channel and eCommerce are the most vulnerable due to the volume of transactions and vulnerability to social engineering. We always knew that the threat was a potentially catastrophic one, but the amount of money at stake may be even greater than anyone realized.

            A recent report by Javelin estimates that $71 billion will be lost to CNP Fraud over the course of the next five years. With those staggering numbers in play, it’s even more alarming that so many merchants still insist that the costs of combatting fraud are too high to justify. This is false: the majority of real-time fraud solutions are less expensive and less labor intensive than salaried Analysts who perform manual reviews of instances after the fact. Javelin also indicates that in the eCommerce space, address fraud in the form of freight forwarding and Synthetic ID fraud are of particular threat to the industry.

            So, in the face of this oncoming tsunami of fraud, what is a merchant or financial institution to do?

 

Prioritize Real-Time

The reason for the growth in CNP Fraud is twofold: one, the difficulty of traditional Card-Present Fraud post EMV migration, and two, the enormous volume of transactions fraudsters can pump through CNP channels. Merchants and Financial Institutions simply do not have the time and resources to hand-review the massive amount of fraud that is coming and will continue to come their way. Visionary organizations will prioritize real-time, first-stage fraud detection systems over second-stage review solutions.

 

Leverage Geographic Intelligence

Businesses know where their fraud is taking place. Why not view those regions with a greater degree of skepticism? Setting up business rules to trigger automated, real-time reviews of orders going to suspicious locations is a must for dynamic fraud teams. According to Javelin, Fraud chargeback rates in Brazil jumped from .5% of all transactions to 3.5% - with a jump from 1.25% to 2.75% reported during the same period in Mexico. Wouldn’t it make sense to pay a touch more attention to orders going to those locales?

 

Verify Everything

With Synthetic ID fraud on the rise, it serves as the perfect compliment to CNP Fraud. It’s not enough anymore to verify that a phone number and/or a postal address are valid. Fraudsters are providing valid information in invalid combinations to circumvent detection systems. Fraud teams, particularly in eCommerce, should not only be validating each order line, but should be verifying that the information has been seen together before – an offering that Next Caller provides.  

 

Tim Prugar is the Director of Customer Success at Next Caller. He can be reached at tim@nextcaller.com.

The Perils of Omni-Channel and Social Media Marketing - A Philosopher's Look

A member of the Next Caller team, Zach Shaw holds a Philosophy degree from Princeton University with a certificate in Computer Science. Every so often, Zach shares his musings about the intersection of big data and technology with some age-old philosophical questions. 

 

In her recent book Reclaiming Conversation, Sherry Turkle explores the effects of our constant use of social media on our mobile devices.  Originally, the constant connection brought about by new technologies was seen as an extension of our personal identities.  However, as Turkle notes, there are many adverse effects from these information communication technologies (ICTs) - foremost the replacement of face-to-face communication by digital interaction.  People do not learn empathy through the use of social networks.  They learn how to get the most likes on their profiles.  Our self esteem is intimately linked with our popularity on such websites, and we'll do everything in our power to boost that popularity, including sacrificing an intimate conversation with a friend or family member.  Even when we are conversing face-to-face, our mobile devices make it possible for us to be 'alone together.'  We can be physically together with another person, but completely inattentive to them as a human being.  As a society this is a major development, and, in the eyes of Turkle, a major problem.  

 

Not lagging behind, the customer service space has adapted to such technologies.  We can tweet about our bad experience on an airline.  We can email the customer service department about our phone malfunctioning.  We can online chat with a representative about our order on Amazon.com.  Communication to address our concerns with a product or service has been extended by these ICTs; consequently, as customers, it is easier than ever to solve our problems.  Yet, when we really are frustrated we still resort to the phone.  

 

A customer service phone call is uniquely outside the grasp of distracting mobile technologies because both individuals on the call are focused on achieving the same goal: solving the customer's problem as quickly as possible.  You, the customer, want your concern addressed, and, until it is, you will give your undivided attention to the phone call.  Conversely, the representative will lose his or her job if not engaged.  So in this one case, the ability to have limitless distractions and data at your fingertips does not hinder the quality of your conversation.

 

Let's compare this to a typical conversation with a friend.  You both have several different goals.  You each want to improve your status on Facebook.  Maybe one of you wants some encouragement to work harder at your job from the conversation.  The other friend wants to talk about the latest gossip.  There is somewhat of a prisoner's dilemma here.  Because you both took the time to hang out, let's assume that you both enjoy hanging out more than going on Facebook.  Given that assumption, let's give the value of 1 happiness point to each of you for the action of going on Facebook, and the value of 5 for the other two activities of face-to-face conversation.  However, if you choose to go on Facebook, you are guaranteed 1 point whereas, if you choose to engage in the face-to-face conversation where you both are pursuing different goals, it is likely that one of you will not achieve your goal.

 

   This analysis assumes that you cannot have a conversation where both your and your friend’s goal - in the example provided, encouragement and gossip - can be accomplished simultaneously.  Although they are not mutually exclusive, with the developments of technology and our need for immediate gratification, a conversation achieving both goals and yielding a ‘5/5’ level of happiness is becoming increasingly rare.  Moreover, there is the possibility that neither person’s goal is accomplished by staying engaged in the conversation, yielding a ‘0/0’ level of happiness.  This possibility gives further impetus to go on Facebook .

This analysis assumes that you cannot have a conversation where both your and your friend’s goal - in the example provided, encouragement and gossip - can be accomplished simultaneously.  Although they are not mutually exclusive, with the developments of technology and our need for immediate gratification, a conversation achieving both goals and yielding a ‘5/5’ level of happiness is becoming increasingly rare.  Moreover, there is the possibility that neither person’s goal is accomplished by staying engaged in the conversation, yielding a ‘0/0’ level of happiness.  This possibility gives further impetus to go on Facebook.

Even if you are very risk-averse, you would probably choose the conversation at first - that's why you both are hanging out.  But if the conversation starts to veer off course of your individual goal to another topic (I assume in my model your friend's goal instead), it is more beneficial for you to stop paying attention to the conversation and to go on Facebook.  If there is a more comfortable, egotistical alternative to genuine empathy, we will take it.  Therein lies the dilemma of being 'alone together.'

 

Conversely, returning to customer service calls, the conversation is actually improved by recently developed ICTs.  Certain technologies allow representatives to access demographic information about their customers which these representatives can use to better meet their customers' needs.  With new innovations like omni-channel integration, representatives can specialize their knowledge to specific products or services, and thus better achieve the joint goal of any customer service conversation: addressing the customer's concern.  Instead of destroying the quality of these conversations, new technologies are enabling better communication in the customer service space.  

 

In spite of the stigma arguments like Turkle’s have started to propagate against ICTs, customer service providers and call center professionals need to take advantage of these new technologies in order to maintain customer loyalty.  The average person’s patience is dwindling because of the immediate gratification these technologies have brought to us.  As a result, customer service needs to be better than ever before, and these new technologies are the only way to meet consumers’ rising expectations.  Without adapting to this changing landscape, customers will go on Facebook if they aren’t satisfied within a couple minutes - and choose a competitor.

 

Interested in more of Zach's philosophical musings? Contact the author - zach@nextcaller.com.