Guest Commentary March 6, 2009
By Jeff Liesendahl
Credit card fraud is a key concern for online ticket sellers, and no wonder: Tickets to major music and sports events are in high demand and criminals are increasingly aggressive in finding new ways to make money from it. Ticket sellers invest a significant amount of time and resources to ensure that transactions are authorized and legitimate. And yet fraud has caused the cancellation of thousands of ticket purchases to popular concerts and games, including the Olympics and Super Bowl, leaving fans and ticket sellers stuck.
Sophisticated criminal networks use stolen cards and compromised card information to obtain tickets via the web in order to resell them for a profit.
The key concern for ticket brokers is “card-not-present” (CNP) fraud—the industry term for transactions made when a credit card is not physically available for the merchant’s inspection. CNP fraud is a significant factor that erodes merchant profitability. When fraud occurs in CNP transactions, the merchant loses the full value of the tickets sold, along with payment processing fees and the charge-back penalty.
Many merchants focus on managing charge-backs. But to understand the total cost of e-commerce fraud, ticket companies should look at the larger picture. They can restore significant revenue to their bottom lines by reducing the total impact of fraud.
Fraud impacts an organization well beyond the direct revenue losses tied to charge-backs. There’s the expense of screening orders for fraud and administering fraud claims, as well as the cost of rejecting valid orders that may appear suspect. For many brokers, the fear of fraud unnecessarily limits scalability and the ability to expand your business. There is also a customer service cost: consumers expect to use credit cards without hassle or waiting, and customer relationships are undermined when valid transactions are questioned or rejected due to suspected fraud.
Several years ago, when I was VP/Corporate Controller at the online travel agency, Orbitz, I was responsible for solving a significant fraud problem. Losses due to fraudulent airline ticket transactions were approaching $1 million per month and rising at breathtaking speed. We purchased an automated screening system to catch suspicious transactions. But these screening systems also flag many valid purchases. So our fraud team had to manually review a mountain of transactions each day to decide whether to accept or reject them.
Our screening process was reliant upon a variety of applications and significant manual effort was required of analysts who had to pull the relevant transaction data elements together and analyze them. The cumbersome review process required them to toggle back and forth among various screens of data and make calls to banks and various third-party data providers.
One of our biggest challenges was trying to keep up with increasingly sophisticated fraud schemes. Each time we bolstered our defenses, criminals developed new ways of getting around them. Even when we added more analysts, the mountain of suspect transactions kept growing.
We learned that no single tool was going to solve the problem so we quit searching for the silver bullet. Instead, we developed a new end-to-end platform that closed the gaps in our system by integrating all of the functions we needed to combat fraud.
This new workbench enabled us to leverage the combined power of our anti-fraud arsenal and get control of our transaction data. Analysts finally had all the information they needed at their fingertips. Many manual review procedures were automated. We could adapt the system on the fly and add new anti-fraud technologies as they became available.
This new approach successfully reduced fraud losses by 90 percent, while more than doubling our fraud team’s productivity. By getting a handle on the problem, Orbitz was able to decrease the size of its fraud department and pursue new revenue channels, such as international bookings that are associated with higher fraud rates.
The experience taught me that online merchants can significantly cut their CNP fraud losses by taking the following steps:
1.) Choose a comprehensive fraud-prevention program that fully integrates the front-end screening system with the manual-review and chargeback management processes. Taking an end-to-end approach will improve the performance of your fraud team time and save your company money.
2.) Utilize a platform that provides multiple tools to screen for suspicious orders. A fraudster who successfully bypasses the address verification service (AVS) and card-verification-number (CVN) checks may be caught by device identification, identify verification or geo-location technologies, or by a negative file check.
3.) Use an automated system to dynamically sort, rank and prioritize suspicious orders. This will keep analysts focused on high-dollar transactions or orders that need to be shipped soonest.
4.) Create “negative” files for checking orders based on rejected transactions and fraudulent orders that resulted in charge backs, keeping them updated automatically. Also create “positive” files from data in your customer records so you can stop flagging good customers as suspected fraudsters when their buying habits innocently make them appear risky. Both approaches will reduce the volume of manual reviews.
5.) Share negative file information with others who sell over the Internet and stop fighting the problem within a silo.
6.) Use an automated, case management “workbench” that aggregates all relevant data elements, displays them real-time on a single screen and automates the validation of order information. Analysts will be able to work faster and make better decisions, reducing the time spent per order.
7.) Design your fraud solution to be flexible. The system should permit non-technical users to modify screening rules so they don’t have to wait for help from time-pressed IT departments. It should also allow easy plug-in of new tools for responding to ever-changing fraud schemes.
These concepts formed the basis of Accertify’s fraud prevention platform, which is relied upon by leading ticket sellers, e-retailers and airlines for combating fraud. The ticket sellers that are most likely to maximize profits and win the battle against fraud are those that reduce the manual effort required to screen transactions and plug the holes in their defenses by integrating their fraud prevention applications. A more comprehensive, workbench approach to fraud prevention will result in lower fraud losses, fewer incidents of fraud and the ability to scale retailing-commerce operations without fear of fraud.
(Jeffrey Liesendahl is Chief Executive Officer of Accertify, Accertify.com, a Chicago-based provider of leading-edge fraud solutions to merchants that accept transactions when a credit card is not present. Accertify has also been a sponsor of Ticket Summit.)