Before the first leaf dropped on a cool, crisp autumn day, holiday decorations were already on display in most local retail stores, reminding us all of the biggest shopping season to come. I admit, I am a sucker for a good Black Friday sale; I already planned for my future house appliance purchases to take place immediately after the stuffing was passed.
With U.S. holiday sales rising 3.4% between Nov. 1 and Dec. 24, according to Mastercard, it is critical for every major retailer to have a strategic plan in place even as the season winds down. This strategy should consider every stage of your customers’ — and potential future customers’ — experience, starting at account creation through the initial transaction, which will then (hopefully) be followed by repeat transactions.
In the U.S., online sales were projected to grow 12.7% in 2019 — reaching $138 billion within the year, according to Forrester estimations. As more holiday shopping migrates to the web — online holiday sales jumped 18.8% compared to last year — merchants saw an influx of new account creation.
The reason for this is that there are many perks to having these accounts, such as receiving special promotions, saving payment information for faster checkout, and even getting suggestions for future purchases based on browsing history. There is no better way for a retailer to cultivate a relationship with their customer and provide them with an optimal buying experience than through an account.
What’s more, during the holiday season, when purchasing frenzies are in full swing, having the convenience of an “established” account makes it that much easier for serious holiday shoppers to do some serious holiday retailing. Unfortunately, fraudsters are also in the know and seek to capitalize on the increase in “out of the norm” spending patterns and uptick in rapid new account creation.
There are two ways in which a fraudster can exploit the account relationship between consumer and retailer.
- Account Takeover (ATO): With millions of consumers involved in recent data breaches, any email/password combination that has been exposed could result in a compromised account with another retailer.
- Synthetic ID: Understanding that consumers often get priority treatment when purchasing through an account, fraudsters will create what appears to be a legitimate account, and exploit it for as much personal gain as possible, before the retailer even gets the chance to catch the fraudulent profile and shut it down.
So, how do companies strike the right balance between a fast and frictionless holiday customer experience, and risk mitigation at the point of account creation and log-in to deter ambitious fraudsters? Here are three strategies and reasons for smoothing the customer experience this season.
All year-round merchants aim to create as little friction as possible at account creation, asking for only the most necessary information. At this stage, they typically collect name, email address, IP address, device ID and perhaps behavioral data. But when the volume ticks up around the holidays, it’s increasingly important for them to validate, verify and access third-party networks to help them quickly decide if an account appears low risk or if they should implement a progressive sign up flow. To introduce friction at this point, merchants may choose to request more information (such as phone number or physical address) or implement two-factor authentication to ensure the account opener is who they say they are; holiday shoppers have little patience with merchants that get it wrong.
Account takeover (ATO) fraud rates — via mobile device, in particular — have skyrocketed in recent years, costing businesses billions of dollars. Managing this threat, which involves a bad actor taking control of a customer’s account to make fraudulent purchases, presents a great challenge to both the customer and the merchant. Following an attack, the merchant can be caught off guard by a sudden chargeback from a repeat customer, resulting in the victimized customer losing trust in a merchant that they’d previously felt comfortable doing business with. Risk assessment at the time of account creation helps the merchant to minimize customer friction without losing sight of nefarious players. When customers are at their holiday “spending high,” it is even more crucial for merchants to get account opening risk assessment right.
Risk assessment shouldn’t stop at account creation, it should be an ongoing function in the lifecycle of the account. Whether it’s a new account’s debut this holiday season or an established account that’s been around the block a few times, merchants should utilize relevant data across the ecosystem to assess the risk of an account when any modifications are made to it — which can happen more frequently at the holidays.
In a world where fraudsters are increasingly discovering new and more sophisticated tactics to recreate customer identities, data from multiple sources can help companies identify unique markers that verify the actual human behind a digital identity. Whether it’s changing the shipping address to intercept the new Apple Watch I ordered for my mom, manipulating an email address to steal my nephew’s Xbox gift card, or suddenly introducing a new device ID — there is always a signal that points to probable account takeover. Merchants should leverage identity verification data within their models to monitor changes in behavior and avoid not only a loss in goods this holiday season, but more importantly, the loss of their customers’ trust for a lifetime.
Machine Learning And Customer Trust
Sourcing identity verification data is only part of the challenge; even after ensuring security and privacy needs are met, the more daunting task is in putting this data to good use across the ecosystem for year-round use. Machine learning (ML) modelling to scale risk assessment can help.
The account ecosystem is a great fit for ML because it is dynamic — meaning it requires proactive, real-time fraud detection, involving large/diverse data sets, real-time decisioning, and continuous learning cycle times. We observe it in practice: our customers that use ML models realize disproportionately higher benefits versus those who only use rule-based systems. Those armed with ML models are significantly more capable of handling the holiday onslaught.
Understanding the customer’s context is the best way to drive better user experience, and an excellent user experience is key to earning (and keeping) consumer trust. To build a better online experience, you need to understand the context that brings consumers to your platform. This can be complex during the holiday season when patterns aren’t always their “standard.” There is no silver bullet to achieve this, as the context continues to change within each customer’s journey. This is where proactive fraud prevention across the account lifecycle can help merchants establish and maintain customer trust — even during the busy season.
Katie McGinn is the Head of eCommerce Practice at Ekata. She has worked with Ekata (formerly Whitepages Pro) for the past five years, helping top merchants in the e-Commerce space leverage global identity verification data for machine learning to manual review. McGinn also serves on the Merchant Risk Council Conference Committee.