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Special Report: E-commerce technologies advance
Technologies and tools that secure sites, authenticate payments and make web shopping more enjoyable help e-retailers create web sites that hum with activity.
It takes many technologies working in harmony to deliver the flawless online shopping experience consumers expect. From fraud detection and consumer authentication to payment options and site design, retailers face myriad choices when it comes to picking technology for their online stores.
Since 84% of web retailers Internet Retailer surveyed last fall say they prefer to use services provided by technology vendors, selecting the right vendor is essential to the success of their business, as it can mean the difference between satisfying customers and disappointing them.
"E-commerce is changing rapidly and so is the technology behind it, and that is posing a lot of challenges for retailers," says Mike Keresman, CEO of CardinalCommerce Corp., a provider of payment and customer authentication solutions for card-not-present transactions such as online purchases. "Merchants need to work with a technology partner that can help them optimize their web site, update their technology infrastructure as needed and meet new challenges as changes occur in the marketplace, such as the growing popularity of mobile commerce."
Without question, the mobile channel is transforming the way consumers interact with retailers. Smartphone users will go online to gather product information, compare prices or read product reviews. Tablet users, on the other hand, are more inclined to make purchases. They tend to use their tablets as much, if not more, than their desktop computers to shop.
Understanding how consumer behavior differs across mobile devices is essential for retailers to create mobile experiences fine-tuned to each device and that deliver intuitive, streamlined and secure site design, right down to the checkout page. Increasingly, retailers are turning to so-called "responsive" or "adaptive" techniques that tailor the look of a web page to the device the consumers is using.
"Responsive/adaptive design is a necessity in the mobile channel," says Tony Svanascini, CEO of web site design firm Americaneagle.com. "Additionally, retailers need to understand not just when and how consumers use their mobile devices, but how their behavior differs across those devices so they can develop a strategy to leverage customer data in a non-intrusive way on mobile devices, whether it is through text messages or e-mail."
Three technology platform components an e-retailer cannot afford to overlook are fraud detection, chargeback prevention and customer authentication.
Manually screening transactions after the consumer places an order but before the order is shipped consumes 52% of the e-retailer's annual fraud management budget. It is a huge pain point for e-retailers because it can take five to 15 minutes to complete a manual review and still lead to false positives, where the e-retailer deems the purchase too risky to approve, even though the consumer is in fact legitimate, says Greg Wooten, CEO for SecureBuy, a provider of dynamic fraud detection systems. Manual reviews can also result in a request for further information from the customer to validate his identity, which some consumers find frustrating.
Industry surveys show that retailers manually review 25% of all online orders, costing merchants between $1.87 and $5.61 per transaction. Typically, 75% of manually reviewed orders are accepted and 25% are rejected. Of those orders rejected, 7% turn out to be false positives.
"When all these factors are put into a pot and stirred, it's not a good mix and can actually end up damaging the retailer's business, which degrades its return on investment in the business process automation technology," Wooten says.
Rather than hire an army of fraud analysts to manually review a quarter of transactions, retailers can automate the entire review process with risk-based authentication, so that the decision on approving a transaction is made in seconds and is not a guessing game. "Merchants want transaction reviews to be done quickly and seamlessly," Wooten says. "If the risk score of a transaction crosses the merchant's risk threshold, the customer can be asked to authenticate himself."
A retailer can ask a customer to authenticate himself by seamlessly incorporating Verified by Visa, MasterCard SecureCode or Safekey by American Express within the shopping cart. The consumer enters a password and authenticates himself directly with the bank that issued his credit or debit card. If a consumer has not registered his card with his issuing bank he can do so when the retailer requests authentication.
The entire process takes place in seconds and participating retailers get a discount on the interchange fees they pay under Visa and MasterCard rules. The feature, standard in SecureBuy 2.0, eliminates the need for retailers to manually review high-risk transactions.
Online fraud is expected to spike once U.S. banks reissue their credit and debit cards with computer chips, making them far more secure than the current magnetic stripe cards. That migration to chip cards—a process often referred to as EMV for the technical standard used in chip-based payment cards—is expected to be largely complete by October 2015. After that date banks will have to assume liability for any transactions that take place on less-secure magnetic stripe cards. In Europe and elsewhere the transition to EMV has thwarted criminals trying to make fraudulent purchases in bricks-and-mortar stores—and driven many of them to focus on committing fraud on e-commerce sites.
Having a configurable rules-based engine that gives merchants the flexibility to decide what types of transactions require authentication, and under what circumstances customer authentication is required, can help offset much of the expected increase in risk for e-retailers.
CardinalCommerce's Centinel Select, which is a software-as-a-service platform that the vendor hosts and clients access via the Internet, allows merchants to set authentication rules based on data elements within the transaction, such as shipping address, product price, product type, payment type and the IP location of the computer or mobile device used to initiate the transaction.
"An authentication technology partner can help merchants determine how and with what frequency they deploy their authentication applications and what their risk tolerance is for different types of transactions," Keresman says.