Online retailers need to use a suite of fraud-prevention tools, rather than a single measure, if they want to successfully battle fraud, says Ezzie Schaff, vice president of risk management for online jewelry retailer Ice.com.
Today’s crooks have easy access to information, such as addresses, card account numbers and card validation codes, that are designed to prevent fraud, Schaff said at the Internet Retailer 2006 Conference in Chicago last week. That means retailers relying on a single anti-fraud tool-for example, the Address Verification System, are vulnerable, he says.
The value of using multiple anti-fraud measures can be seen in Ice.com’s experience, he says. The online jewelry retailer cut chargeback and cancellation rates by using a variety of fraud-prevention tools to verify a shopper’s identity. In 2001, Ice.com had a chargeback rate of more than 1% and an order cancellation rate of more than 15% of the orders placed. Last year, the chargeback rate dropped to 0.02% and the order cancellation rate dropped to 5%, Schaff says.
Ice.com reviews for multiple signs that might indicate a fraudulent order, such as different shipping and billing addresses, a foreign IP address, or a large number of orders in a short period of time from the same customer. Ice is No. 193 in the Internet Retailer Top 500 Guide to Retail Web Sites.
But Schaff warns that retailers shouldn’t be too quick to cancel suspicious orders. He notes that an order might have a different shipping and billing address because it is a gift. “At Ice.com, over 50% of our orders are gifts, so in 50% or 60% of our orders, we have a different shipping and billing address,” he says. “Within that environment, we had to build a system and set parameters having that in mind.”
Another red flag-multiple orders in a short period of time from the same customer-may be a false alarm if Mother’s Day or Valentine’s Day is approaching, according to Schaff. That could result in lost sales.
“Don’t cancel the order automatically,” he says. “Always place it on hold and attempt to save it.”