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The price of e-commerce growth

The holiday season is not just a time for festivities, it’s also become a key shopping moment filled with last minute purchases and sales frenzies.

This time of year is one of the most lucrative for Aussie businesses and with the retail space heating up locally, all signs are pointing towards this holiday shopping season being a big one.

The Commonwealth Bank’s Consumer Spending Survey estimates Aussies will spend more than $11 billion in the lead up to Christmas this year.

Unfortunately for online businesses, a spike in shopping comes with its own price: fraud. Around the world, fraudsters buy stolen credit card information and use those stolen cards to make online purchases.

When the real cardholder finds out, they dispute the payment and are reimbursed by their credit card issuer. However, unlike their brick-and-mortar counterparts, online businesses are responsible for paying the associated costs, including reimbursements and chargeback fees to the credit card companies.

Estimates vary, but most experts agree that online retailers collectively lose $40-80 billion every year globally to fraud.

When we looked back at our fraud data for 2016, across hundreds of thousands of businesses globally, we found a few notable patterns, each with its own lesson for online businesses.

When you least expect it

While the overall volume of fraud is higher on heavy shopping days like Click Frenzy and Cyber Monday, fraud rates tend to be lower. Instead, the fraud rate as a percentage of overall traffic tends to rise when regular people aren’t shopping as much, such as Christmas Day and Australia Day. The same is true within a given day: fraud rates peak at quiet hours late at night and dip during the day.

To protect against fraudsters working across different geographies and time zones, consider adding extra scrutiny to purchases made outside of normal business hours, either through manual reviews or other more stringent automated filters.

Location matters

Fraud rates also vary by country. In particular, the country where a given card was issued can affect the likelihood that a transaction is legitimate, sometimes altering fraud rates by as much as 300 per cent.

For example, cards from Argentina, Brazil, India, Malaysia, Mexico, and Turkey tend to be more fraud-prone than many other countries. But even cards here in Australia, as well as in New Zealand, the US, Canada, and France are susceptible.

Therefore it’s critical not to overcompensate, as fraudulent transactions represent a very small percentage of overall shopping volume.

Rather than block all purchases from a given country or region, test different geography-based rules on transactions and ask for more information from all customers (like CVV numbers and full addresses).

Keep up with the pace

While you may expect that fraudsters are buying expensive televisions or jewellery, our data shows that most online fraud happens on purchases that are the same size as legitimate transactions.

But fraudsters are not making small transactions to “blend in” with normal purchases — their purchases are highly conspicuous in other respects.

After a fraudster makes a successful charge on a credit card with a particular merchant, he or she tends to make additional charges with that same merchant very quickly — up to 10 times faster than legitimate cardholders. Three-quarters of all fraudulent transactions are not the first fraudulent transaction on a given card.

Be cautious with many rapid-fire transactions from the same customer. Use automated tools to limit the speed of repeat purchases to a rate that will facilitate legitimate purchases while deterring fraudsters.

Mac Wang is ANZ head of growth at Stripe.

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