Retail Outlet: How to Stop Fraud From Destroying Your DR Business3 Nov, 2009 By: Jeffrey Liesendahl Response
The direct response industry has shown resilience in a rough economy and adaptability amid the growth of new media and new technology. More and more, companies are taking advantage of its new formats and distribution channels.
But with this success comes new challenges. One of the biggest is fraud. Quite simply, as the DR industry has grown, so has the threat of fraud. I've spoken with a number of entrepreneurs who've worked hard to build their businesses and are worried about protecting themselves. Credit card fraud, chargebacks and affiliate fraud are all on the rise and, left unchecked, can destroy what would otherwise be a profitable business.
Many DR marketers believe their chargebacks are out of control, but often they aren't really sure how to address the problem. Chargebacks occur when credit card companies reverse charges, often due to a consumer dispute. The reason may be customer error or buyer's remorse. But many chargebacks occur because of fraud related to either identity theft or affiliate fraud.
When fraud occurs in "card-not-present" (CNP) transactions, credit card issuers hold merchants responsible. The merchant loses the full value of the goods sold, along with payment processing fees and a chargeback penalty. Even worse, a high level of chargebacks will prompt card issuers to levy fines or stop processing merchant purchases.
Because of the anonymous nature of CNP fraud, perpetrators are difficult to find and prosecute. The crime networks behind this type of fraud have become a global growth industry. They are increasingly aggressive and sophisticated in their efforts to steal merchandise by gaining access to stolen card data and exploiting it.
Affiliate fraud is another type of illegal activity aimed at merchants. This type of fraud misleads merchants into paying commissions they shouldn't be paying through schemes that may involve phony clicks, spam, unauthorized credit card transactions, hijacked Web sites or malware.
What are some of the ways DR marketers can protect their businesses from chargebacks and fraudsters?
Reduce customer confusion. There are simple steps that can be taken to minimize chargebacks caused by customer misunderstanding: stating your return/refund policy clearly on your Web site; providing accurate information about products and payment terms; providing order confirmations that include your company name and contact information; and clear descriptions on customer billing statements.
Get control of your data. Most merchants verify customer names, addresses and phone numbers with card-issuing banks and utilize anti-fraud services offered by processing banks. Savvy fraudsters know how to beat such checks. But many other data elements collected from customer orders and affiliate transactions can be used to spot suspicious activity. Analyzing this data to identify patterns will give you more ammunition for screening transactions.
Tighten order-approval procedures. Manually reviewing orders makes sense for low volumes, but an automated system will be required as business grows. A comprehensive software platform that integrates transaction screening, review processes and chargeback management is the most cost-efficient choice.
Pre-qualify affiliates and keep in touch with them. Check affiliates to confirm that they have active Web sites with content related to your products. Delay commission payouts to affiliates until orders have been screened and approved. Monitor affiliates that submit unauthorized transactions and quickly terminate relationships when appropriate.
Choose a flexible solution. Fraudsters are constantly evolving their scams to evade merchant defenses. Your software platform should be adaptable in allowing you to plug in new tools and respond quickly. It should also permit non-technical users to modify screening mechanisms without IT help.
Fraud will never be fully eliminated but there are cost-effective ways to mitigate it. By choosing the right combination of preventative measures, chargebacks and fraud can be dramatically reduced without impacting legitimate customer orders. The DR marketers most likely to prosper are those that succeed in doing so.
Jeffrey Liesendahl is CEO of Accertify, a Chicago-based company that develops fraud-prevention tools and strategies for merchants who accept CNP transactions or do business online. He can be reached at firstname.lastname@example.org or visit http://www.accertify.com/.