Dive Brief:

• One in four merchants are struggling to implement payment security solutions as businesses are looking to test the waters of e-commerce, a June 15 report by Fidelity National Information Services (FIS) stated. 

• In North America, 31% of merchants face challenges with the “implementation of new emerging payments types” and 31% are concerned about the IT infrastructure upgrade costs associated with multiple payments options and security, the report stated. 

• Small and medium sized businesses who didn't have a big digital footprint prior to the pandemic are maneuvering to provide customers with multiple safe payment options while larger enterprises are looking to safeguard the increased sales volume on their e-commerce channels, General Manager at FIS Global Jason Pavona said in an interview.

Dive Insight:

Adoption of online and mobile payments comes with the risk of transactions falling prey to fraudulent activities. Some 38% of merchants lost atleast 6% of their revenue to payments fraud in 2020, according to the June 15 report from payments processor FIS.

Six in ten merchants worldwide reported higher rates of e-commerce fraud in 2020 and are struggling to cope with rising payments fraud that impacts business revenue, the report said. 

FIS worked with Forrester Consulting in December 2020 to survey 671 c-level executives [from e-commerce, digital businesses, finance etc.] across 11 nations to understand their “views related to payment card fraud, authentication, chargebacks, consumer experience, risk management, losses, recovery rates and tools deployed,” the report stated.

Due to the pandemic, there's been a “tremendous transition and acceleration” towards online consumption and payments which has led to an “obvious uptick in fraud, especially on our global ecommerce customers,” Pavona said in the interview. 

Some 59% of merchants saw an increase in e-commerce fraud in 2020 relating to card-not-present transactions. For 22% of merchants, payment fraud was a critical challenge for their businesses while managing consumer data security remained a critical challenge for 20% of the businesses. 

“In most of the cases, fraud losses fall on the merchant and in few cases on the issuer or the financial institution,” Pavona said. “We help merchants in protecting consumer data through payment tokenization” and “deploying machine learning to help merchants understand the heuristics of different products and how to stop payments fraud.”

FIS has “tremendous acquiring, issuing and banking data” which helps the company protect consumers against evolving payments fraud techniques, Pavona said. 

Synthetic fraud, account takeover, identity theft and chargeback increased in 2020 and were major pain points for merchants, the report stated.

Synthetic fraud is when a fraudster collects essential data points of a consumer and uses those to make unauthorized transactions. Such fraud can at-times lead to identity theft, Featurespace Founder David Excell said in an interview. Featurespace is a payments security company that works with major financial institutions and payments processing companies, Excell said.

“Fraudsters continue to innovate themselves and try to hide what they do amongst legitimate transactions,” Excell said. “We are using machine learning and deep learning to understand bad behaviors and flag them quickly to avoid any fraudulent activity.”

Payments fraud a big concern in North America

Managing payments fraud has been a major concern among North American merchants over the last year. One in 10 merchants based in North America said that “the costs of managing fraud exceed 10% of profits for a typical year,” the report stated.

E-commerce sales experienced a surge during the pandemic and “two in three North American merchants reported more card-not-present [online] fraud in 2020,” while “61% reported more chargeback fraud than in 2019,” the report stated. Chargeback fraud or friendly fraud happens when there's a dispute in a transaction that takes place and a chargeback occurs for the merchant to solve the disputed transaction, Excell said.

Chargebacks usually happen when a consumer claims a refund on an online purchase despite receiving the product or a fraudster steals consumer data from a checkout page to make unauthorized transactions, Excell stated. Of the merchants who experienced chargeback fraud, 20% reported experiencing significantly more chargeback fraud in 2020, compared to 2019 while 35% reported a slight increase in that fraud, the FIS report stated.

Many merchants in North America also cited a “lack of internal payment expertise” as a “critical challenge,” for their businesses. In North America, merchants also said that “real time reporting on fraud mitigation” is critical.

In 2021, 44% of merchants in North America will focus on improving fraud detection and mitigation while 44% will prioritize increasing choice of payment options, the report stated.