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Valentine’s day ignites passion for innovative online fraud protection

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Call me a hopeless romantic, but with Valentine’s Day coming up, my thoughts turn to fraud.

Maybe you think: greeting cards, chocolates and roses. But if you’re an online merchant, particularly one who sells some of the romantic staples — jewelry, luxury watches, enormous stuffed animals and the like — then your thoughts have probably turned to fraud, too.

Feb. 14, coming, as it does, less than two-months after the holiday shopping rush, is a reminder that while online fraud can be a particular challenge during the order spike of the winter holiday season, fraud is really a year-round concern. In fact, for a subset of ecommerce retailers, Valentine’s Day presents the perfect storm for being taken advantage of by fraudsters.

In fact, in a recent webinar examining how the Valentine’s Day rituals feed into added fraud stress, my colleague Sourabh Kothari noted that Valentine’s Day is scarier than Halloween for jewelry, luxury watch and gift retailers.

Why exactly?

Valentine’s Day was made for online fraud

Let’s dig in. It starts with the intensity of the shopping. The National Retail Federation put Valentine’s Day spending last year at $18.2 billion, which gives us a good idea of what people will be spending this year. Let’s call it a lot. 

“Speaking to merchants, they were very mindful of the idea that, ‘This is my peak season. I don’t have a lot of time. All the orders are coming and everybody wants things on time,'” Kothari said during the webinar, “Increasing Online Sales on Valentine’s Day: Key Learnings From Jewelry, Watch & Gift Retailers on Fraud Management.”

“Timing is everything when it comes to romance,” continued Kothari, Signifyd’s director of merchant advocacy. “You don’t want to get a Valentine’s Day gift late. Fraudsters are well aware of the pressures leading up to Valentine’s Day.” 

The charitable among you will conclude that fraudsters are very romantic, understanding Valentine’s Day the way they do. In fact, fraudsters are very opportunistic and they love noise. They know that during peak periods — the winter holidays, Valentine’s Day, Mother’s Day, summer vacation season etc. — some retailers can be overwhelmed with a volume of orders they don’t see year-round. 

Even the largest retail enterprises might not have the in-house practices and people in place to adequately review the orders to determine which are fraudulent and which are legitimate. They don’t want to carelessly ship orders that they are unsure of. But they don’t want to decline orders that are from legitimate customers, thereby turning down the opportunity for additional revenue that the peak period provides. 

“There is tremendous competition in the jewelry industry, especially online, and if you turn away a legitimate customer, they’re just not coming back,” Kothari said. “They’ll go to the competition.” 

And yet, many of those precious Valentine’s Day orders are laden with red flags among their red hearts. Jewelry, watch and gift sellers will see plenty of first-time customers. After all, they are buying for someone else. The orders will have mismatches in the billing and delivery addresses. Some customers will be shipping gifts directly to the homes of significant others. Even when a customer lives with the love of his or her life, they might send the gift to an office address or an acquaintance’s address to preserve the element of surprise.

And, of course, any soulmate worth his or her salt will have ordered a high-value item, another factor that pushes the fraud-risk meter higher. Oh, and, not speaking from experience, there is also the procrastination factor, which might lead to a request for expedited shipping, another worrisome sign.

So, what’s a merchant to do when confronted with a peak order period, whether it lands in winter, spring, summer or fall?

Temporary workers can struggle with fraud decisions

Some have hired extra staff to conduct fraud reviews. Besides the disadvantage of having to find workers, get them up to speed and then essentially lay them off, there are other drawbacks. Temporary workers tend not to be fraud experts. Given a retailer’s short commitment to the temporary workers, they may or may not be motivated to be precise in their decisions, particularly when an order’s characteristics are ambiguous. The easy and safe thing is to decline the order and the related revenue. 

But a fraud protection model that is gaining prominence offers an alternative approach to the order-spike conundrum. Industry watchers are promoting the idea that ecommerce retailers should consider augmenting their current fraud management systems with a guaranteed fraud protection model. 

Guaranteed fraud protection relies on big data and machine-learning to detect fraudulent orders and identify legitimate orders that legacy systems would hold back — all in milliseconds. The guaranteed fraud protection providers have already analyzed millions of transactions over a wide range of retailers and are likely to have seen customers elsewhere, even if they are buying from a particular retailer for the first time.

That powerful information allows them to back their work with a 100 percent financial guarantee that makes merchants whole for any chargebacks and fraud costs that result from an approved order that turns out to be fraudulent.

Meantime, the constantly learning machine system can handle the order overflow and continually scale up as orders scale up, while a retailer’s legacy system continues to work on the orders it can handle successfully.

It is a thing of beauty.

Or more to the point, a thing that any ecommerce retailer dealing with order spikes could fall in love with at first sight.

Contact Mike Cassidy at [email protected]; follow him on Twitter at @mikecassidy.



Mike Cassidy

Mike Cassidy

Mike is the head of storytelling at Signifyd. A former journalist and a retail geek, he covers ecommerce and the way technology is transforming digital commerce. Contact him at [email protected].