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The silent revenue-sucker

The e-commerce boom is upon Australia, and it’s changing everything. Online shopping is fast outpacing traditional retail, with an annual growth rate of 13.5 per cent, according to IBIS World.

As a result, more merchants are looking to diversify or move their entire operations online to capture their own slice of the $20 billion market. The transfer to online retail is set to have a big impact on the Australian economy, on how retailers market and do business, and, in particular, how Australian retailers deal with payments.

The way we make payments has significantly changed over the last few years, and the rate of change is only getting faster. Rapid advancements in technology have created a digitally connected environment, with more and more consumers choosing digital payment options over cash and cheques.

As Australians jump onto the bandwagon of ‘contactless’ cards, online shopping and mobile payments continue to grow. In fact, the steady rise in online shopping reflects many of the changes in the payments landscape.

Globally, by 2020, forecasts estimate that online shopping will account for 14.6 per cent of all retail sales. Meanwhile, in the Australian market, online spending is growing five times faster than traditional retail spending.

With the death of cash and the inbound move of some of the world’s largest online retailers (think Amazon, and potentially, Alibaba), this is unlikely to slow any time soon.

While there are many benefits to these advances, there is also a significant downside. The rise in online shopping in Australia has also seen a rise in online payment fraud and chargebacks. Known as card-not- present (CNP) fraud, this accounted for 78 per cent of all fraud on Australian cards in 2016, according to the Australian Payments Network Fraud Report.

CNP fraud is essentially the result of valid card details being stolen and used to make purchases or other payments without the card, typically online or via phone. The benefits of CNP transactions are obvious for consumers, but unfortunately this payment method also provides increased scope for fraud and chargebacks, as there is greater potential for the transaction to be facilitated by someone other than the cardholder.

As a result, the significant increase in e-commerce and online transactions in Australia has corresponded with a substantial increase in payments fraud chargebacks.

Fraud is a burden on customers, who have to trace back the payment, cancel their card and lodge a fraud complaint or chargeback request with the card-issuing bank.

It’s a significant burden on retailers, too. Merchants must deal with the swathe of chargebacks and the loss of time and money that comes with it, including the loss of the product value and the cost of the chargeback itself.

While fraud prevention technologies are going to become a mainstay for Australian retailers dealing with the issue over the coming years, they must also find the right balance between prevention technology and compromising the user experience with a more arduous payments process.

The e-commerce boom is tracking along but significant growth is still to come. For online retailers, this is a favourable trend; however, it is important to remember that e-commerce brings other trends with it as well.

The rise of CNP fraud is a silent revenue-sucker, so it’s essential not to be complacent when it comes to payments and fraud chargeback protection.

Andrew Reszka is regional head for APAC at Verifi.

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