Modernizing fraud management for retail growth: Why leading retailers are switching to advanced fraud solutions

The changing nature of ecommerce

Gone are the days of simple online transactions. Today’s ecommerce landscape is a complex web of interconnected experiences, offering both unprecedented opportunities and new challenges. Let’s dive into two game-changing trends reshaping the industry – and the advanced fraud risks they bring.

Two growing trends in ecommerce with high risk for fraud

Omnichannel sales

We live in a world where consumers expect their smartphones, laptops and local stores to be seamlessly connected, offering a unified shopping experience. Welcome to the omnichannel revolution!

• The boom: According to McKinsey, companies with strong omnichannel customer engagement see a 9.5% year-over-year increase in annual revenue, compared to 3.4% for weak omnichannel companies.
• The challenge: As touchpoints multiply, so do fraud opportunities.The report on account takeover (ATO) fraud by FIS Global highlights that ATO incidents surged by 90% year-over-year, particularly due to the expansion of retail channels like mobile apps, social media, and online shopping platforms. 
• Fraud alert: Cybercriminals are exploiting gaps between channels. A common tactic? Buying online with stolen credentials and picking up in-store before the fraud is detected.

Loyalty programs

In the battle for customer hearts (and wallets), loyalty programs reign supreme.

• The attraction: According to a report by Finextra, 75% of consumers say they are likely to make another purchase after receiving an incentive. This underscores the critical role loyalty programs play in driving repeat business and customer retention in the competitive ecommerce landscape.
• The investment: The global loyalty management market is expected to reach $24.7 billion by 2028, up from $15.3 billion in 2023.
• Fraud alert: Loyalty fraud continues to rise, fraud pressure from automated attacks including ATO attempts was up 71% in 2022.

It’s a balancing act that’s leaving many merchants wobbling. Risk-score-based fraud solutions? They’re like using a flip phone in the age of Gen AI – outdated and outmatched. To truly thrive in this omnichannel, loyalty-driven landscape, retailers need fraud prevention that’s as sophisticated and agile as the threats they face. We’re talking cutting-edge, retail-focused solutions that don’t just react, but anticipate and understand the nuances of your business as well as you do. 

What are the benefits of advanced fraud solutions?

In today’s fast-paced, omnichannel retail environment, fraud protection needs to be both all-encompassing and lightning-fast. While machine-learning-based risk scoring platforms were once cutting-edge, they’re no longer sufficient in today’s complex fraud landscape. These systems often:

• Lack context: They may miss nuanced patterns across the entire customer journey.
• Produce ambiguous results: A simple risk score doesn’t provide actionable insights.
• Struggle with new fraud tactics: They can be slow to adapt to rapidly evolving threats.
• Fall short in omnichannel environments: They may not effectively integrate data from multiple touchpoints.

Some examples illustrate key points.

When Canadian furniture retailer Structube went digital, they faced a fraud firestorm. Manual review couldn’t keep up, threatening their promise of swift delivery and in-store pickup. With $500 average orders at stake, they needed a solution to slash fraud without sacrificing speed or sales. The challenge: outsmart fraudsters while keeping customers happy in a business where every minute – and every sofa – counts.

Toys R Us Canada also faced a double whammy, a pandemic forcing store closures and a surge in omnichannel fraud risks. They needed to transform 80-plus toy stores into fulfillment centers for curbside pickup and BOPIS orders, while navigating a trickier fraud landscape. The challenge? Maintain their community-focused brand and keep fraud at bay in a rapidly evolving retail environment.

The shift to an advanced fraud solution benefits businesses of all sizes, with even small retailers gaining access to sophisticated fraud protection that could mean the difference between thriving and barely surviving in today’s digital marketplace.

What do modern fraud solutions offer?

Comprehensive and integrated

• End-to-end customer journey protection: With the rise of omnichannel experiences and loyalty programs, fraud management must cover the entire customer lifecycle. This means protecting against risks both pre- and post-checkout, from account creation to reseller and returns abuse protection.
• Flexible integrations: Traditional scoring fraud solutions, tied to post-authorization checks, can’t keep up with modern ecommerce needs. Their rigid systems lack the agility that today’s digital marketplace demands. In contrast, modern fraud prevention solutions offer game-changing pre-authorization integrations. Armed with AI and ML capabilities, these systems make split-second, guaranteed fraud decisions before bank authorization. The benefits are substantial: lower costs, smoother customer experiences, improved bank approval rates and potential for direct issuer data sharing. This pre-auth revolution empowers merchants to create secure, seamless shopping experiences that foster growth and trust.
• Swift, transparent AI: As response times shrink, especially in omnichannel settings, fraud solutions must be quick yet comprehensible. Through automation, modern systems reduce the need for manual review, cutting operational costs and improving overall efficiency. These modern solutions provide fast decisions while maintaining transparency.

Choose an advanced fraud management vendor

• Automates the more mundane, repetitive aspects of fraud management, allowing teams to focus on more strategic tasks.
• Promotes analysis and resolution across teams performing complex tasks by providing solutions that help identify the patterns and determine thresholds to apply through automation. 
• Boosts confidence by providing exhaustive methods for testing and simulating the impact of various anti-fraud strategies to the business. This is accomplished based on historical data, which allows merchants to pilot new strategies with real-time site traffic before going live, helping the team become smarter and faster.
• Offers flexibility to enhance or override AI-driven decisions, thereby enabling merchants to maintain control over risk management processes.

Constantly learning and adapting

Imagine a world where fraudsters are always one step ahead, their tactics evolving faster than we can blink. That’s the reality of ecommerce today. Relying on the old guard – static rules-based systems and first-generation AI solutions – is like using an 1890s map to navigate a modern city. The tools simply can’t keep up.

Enter the third-generation AI solutions. These aren’t your average fraud-fighting tools. They’re the special forces of the digital world, applying a performance-centric approach to machine learning that’s changing the game entirely.

At the heart of these advanced solutions are two superpowers:

• Model operations: Continuous monitoring, learning and updating, with targeted training for retail-specific or customer-specific models. Rapid model refreshes ensure high performance against new fraud patterns.
• Feature engineering: Anomaly detection uncovers hidden patterns in complex data relationships, enabling precise differentiation between legitimate and fraudulent transactions.

The result? A fraud prevention system that’s always one step ahead, continuously learning and adapting to keep pace with the ever-changing tactics of digital fraudsters. It’s not just about having more data or faster processing – it’s about being smarter, more agile and always ready for what’s coming next.

Peace of mind

What if you could run your ecommerce business without the constant worry of fraud hanging over your head? That’s the reality modern fraud solutions offer. Unlike scoring systems that leave you second guessing every transaction, modern fraud solutions act as your trusted partner and guardian. They don’t just detect fraud; they shoulder the financial risk, guaranteeing their decisions and covering chargebacks if they go wrong. But it goes beyond mere protection. 

Modern retail-focused solutions and the people behind them aim to become an extension of your team, diving deep into the unique DNA of your business – from your loyalty programs to your omnichannel strategy. They’re not just preventing fraud; they’re helping you craft experiences that delight customers and drive growth. Whether you’re a digital-first brand or a brick-and-click retailer, they tailor their approach to your specific needs, turning fraud prevention from a necessary evil into a strategic advantage. With these partners by your side, you’re free to focus on what you do best: serving your customers and growing your business. It’s not just about stopping the bad guys; it’s about empowering the good ones – you.

Embrace the future, outsmart the fraudsters

In the ever-evolving world of ecommerce, yesterday’s defenses are today’s vulnerabilities. The future of fraud prevention isn’t about building higher walls – it’s about crafting smarter, adaptive ecosystems.

By embracing advanced, retail-focused fraud management solutions, you’re not just protecting your bottom line – you’re unlocking new growth opportunities. These solutions transform fraud prevention from a necessary evil into a strategic advantage, allowing you to build customer trust while staying one step ahead of bad actors.

The choice is clear: Evolve or get left behind. With the right fraud prevention partner, you’ll do more than protect your business – you’ll propel it to new heights.

Welcome to the new era of fraud prevention. Your customers are waiting. Your business is ready. The future is now.

Looking to future-proof your fraud protection strategy? Let’s talk.