By Ray Birch
PRINCETON JUNCTION, N.J.—More retailers need to invest in data analytics and artificial intelligence (AI) to further secure e-commerce channels as fraud migrates from the physical point of sale to the web, asserts one analyst.
Randy Vanderhoof, director of the U.S. Payments Forum, said that retailers have been turning their attention to securing online channels as a greater percentage of consumer spend heads to the digital space.
“As we know, consumer behavior is changing and more people are shopping online,” said Vanderhoof. “Therefore, a higher volume of payment transactions is going through online channels than in the past. There are security risks associated with accepting payments in the online world that that don’t exist in the physical world. So, we do have a need, to some extent, to catch up—meaning start to focus on where the fraud risks are to protect the online shopping market as a higher percentage of transactions moves this way.”
Vanderhoof said that more retailers are turning to highly sophisticated data analytics solutions and incorporating AI to monitor online sales.
“They are examining more information from each payment transaction than has typically been relied on—more than someone keying in their account number and security code and perhaps their address,” he said. “Additional information exists, too, in tablets and mobile devices about a person’s location and their past shopping habits and behaviors that can be used to determine if a transaction is trustworthy or if it’s not, and requires some additional level of user verification before they allow that online purchase to go through.”
Important Tool
AI is becoming a more important tool for retailers to make these determinations, he said, explaining that many retailers are using AI—armed with a specific set of detection parameters—to flag suspicious transactions and then have an individual further investigate to determine if the purchase is legitimate.
Despite all of the attention on EMV and prevention of fraud at the point of sale, Vanderhoof said the U.S. is not lagging behind in defending the ecommerce channel. As analysts predicted and CUToday.info has reported, online fraud is growing as EMV begins to lock down the point of sale. But Vanderhoof said the percentage increase in online fraud is not outpacing the percentage increase in online sales.
“We have yet to see a spike in online fraud that is relative to the percentage increase of online transactions,” said Vanderhoof. “The level of fraud in online has been fairly consistent with the level online transactions.”
He said retailers have been on their toes since the EMV liability shift started years ago.
“Retailers are not behind here at all,” said Vanderhoof. “The U.S. recognized that the pattern of fraud was going to change years before we started the implementation of EMV. Anyone who was in a position of authority or leadership in discussing payment fraud over the last five years was warning merchants that fraud would move from in-store to online, so they had to have an equally strong investment in technology to detect fraud online as they have in their physical stores.”
But stronger techniques are needed, reiterated Vanderhoof, noting that crooks’ strategies often outpace improvements in fraud prevention.
And it will take a great deal of time to determine if new approaches to battling online fraud are making a significant impact, said Vanderhoof.
“You can’t measure these things in months, it takes years,” he explained. “For example, EMV was implemented to reduce counterfeit fraud and we are now several years into that migration and fraud has not disappeared. It’s just started to come down at the point of sale. Online fraud is not under control yet and it will take years before all of the most effective tools are in place so fraudsters begin turning away from online to another avenue to make their money.”
Chip-On-Chip Transactions
Vanderhoof turned to strong progress the U.S. made last year to secure physical retail outlets. He noted that the number of chip-on-chip transactions (chip card at chip terminal) for credit cards is over 50%, and purchase value is over 60%.
“This can be attributed to the significant growth in merchant enablement seen over the past year. Today, 96% of the top 200 merchants are now accepting chip payments compared to 29% of merchants at the beginning of 2017,” he said.
He noted that fully mature EMV markets, such as those in Europe and Latin America, show greater than 80% of all transactions are chip-on-chip. “So we still have work to do,” Vanderhoof said.