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Fraud Retail

Understanding retail fraud detection and prevention

With the boom in e-commerce following the pandemic, hackers have started changing their modi operandi for retail fraud and abuse. Most companies realised this and have already faced fraudulent activities in their order placement and fulfilment journey. About 36% of companies consider fraud to be the biggest threat to their business in today's e-commerce landscape.


What is retail fraud?

It is an illegal transaction that a fraudster performs using stolen credit card details or loopholes in the order placement and payment systems and company policies. As technology grew, so did the fraudsters' sophistication of executing frauds online.*


The types of retail fraud

Here are the types of frauds that you want to prevent before they can cause significant damage to your business reputation and finances:

  • Transaction fraud:
  • It is also called card-not-present (CNP) fraud where the fraudster uses a stolen credit card for online purchases. The company loses money when the original owner of the card demands a chargeback.

  • Return fraud:
  • As the e-commerce industry eased its return policies for the convenience of its customers, these became the favoured target for fraudsters to exploit and abuse. Some of the most common instances are wardrobing, receipt fraud, price switching or open box fraud, price arbitrage, and bricking. Sellers or online stores have been severely affected by these malpractices.

  • Chargeback guarantee fraud:
  • Many online retail fraud prevention solutions guarantee that they will block all transactions and friendly frauds and even pay the admin fee out of their pocket. The problem arises when the company blocks even legitimate customers. This is called a false positive that not only damages your reputation but also results in loss of revenue.


How to combat retail fraud?

After identifying the frauds and malpractices that might affect your business, you can invest in security with:

  • Point-of-sale (PoS) verification:
  • PoS is a retailer's first line of defence in an online transaction. The ability to verify customers' details such as address and location in real time may save you from fraud. Usually, a fraudster mentions a different mailing address than that of the legitimate card owner. In such cases, it is best to use an address verification service (AVS).

  • Verify customer buying habits:
  • If a buyer is using a phone number that is associated with other fraudulent activities, it could be for a fraudulent transaction. Check if the individual has a history of fraud that they may be committing themselves or with the help of their accomplices.

  • Maintain customer history:
  • It is important to keep the data of a customer's buying history, such as payment receipts, payment modes, buying frequency, location, and product preferences. This information should be accurate if the retailer wants to avoid an impending fraud.

  • Track fraud attempts:
  • Keep track of all fraudulent activities you have encountered in the past and analyse them to predict any frauds in the future.

  • Use fraud detection technology:
  • ML tools integrated into the e-commerce platform and the shopping cart can identify fraudulent activities through IP geolocation, device fingerprinting, email address validation, and address verification.

An AI-based retail fraud prevention system can trace patterns and identify irregularities. This helps the company detect fraud from miles away and deal with it before it causes damage.

*For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive yet modular suite of services is doing exactly that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.

How can Infosys BPM help?

Our e-commerce and retail fraud protection solution has experts with domain knowledge and analytical skills that can help your company avoid retail frauds. The solution can help you achieve up to 10x ROI and 50% fewer false positives thanks to the AI-/ML-based models. We can help your organisation in:

  • eCommerce fraud management: Data mining, predictive analysis, reporting and visualisation, risk management, and elimination of inefficiencies.
  • PoS fraud management: Advanced analytical techniques such as pattern identification, anomaly detection, case/workflow management, and video analytics.
  • Product counterfeit management: Revenue loss reduction, organised crime, and damage to brand health with grey market analysis, graph technology, and reporting analytics.

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