Knowing When to Decline a Transaction Leads to E-Commerce SuccessBy Sofía Hanna | Sun, 01/09/2022 - 19:50
Q: How can data help e-businesses protect against fraud?
A: We are experiencing a transition to 100 percent digital processes. E-commerce businesses generate a great deal of data, including device information, IP addresses and the information provided by the user. Most users have little understanding of how to use machine learning and big data but in fraud prevention, this is the core of the issue. We cross-reference billions of data points from historical transactions to determine risks related to future transactions. It is right here where big data makes more sense. The idea is to understand the specific needs of a business and then develop a product that reduces the number of legitimate clients being declined without affecting the user experience while still preventing fraud, which is very common in Latin America. This is a great opportunity for companies to increase sales.
Currently in Mexico, 14 percent of total e-commerce transactions are declined. The problem is that 60 percent of these are legitimate. Businesses have the opportunity to grow their sales by 8 percent to 10 percent only by improving their fraud detection models.
Q: What are the most common obstacles that small businesses face in terms of fraud?
A: Smaller companies usually seek easy-to-use solutions and sometimes do not dedicate the necessary time to analyze the data regarding how many transactions they are declining or how many chargebacks they have. The main difference between the biggest e-commerce players and the rest of the sector is the investment that companies make in fraud prevention. On average, small and medium-sized businesses decline 50 percent of their transactions versus the 14 percent that the biggest players decline.
Small and medium-sized businesses are investing their resources in social media and digital strategies to attract more users to their sites, only to decline them at the time of the purchase. Declining a transaction with no clear, valid reason is very harmful for a business and the user will probably end up buying directly from its competitor.
In recent years, we have helped companies measure and understand how much money they are losing through the number of transactions they are declining and why. Measuring false positives is the difference between a successful e-commerce business and one that will fail. If you do not know how many clients you are declining and why, you are probably letting a great deal of money go.
Q: How do your fraud consulting services differentiate you from your competition?
A: Our main differentiator is our experience in Latin America. ClearSale is the leading fraud prevention company in the region. We know the market and its particularities better than anyone. There are good companies at the global level, with expertise in the US and the EU; however, Latin America is a different market. In this region, fraud is much more creative and complex. In Mexico, it is very common to see a person using the card of a co-worker to buy a product and then send it to another city. In the US, almost everyone has a card but in Mexico, there is a large banking deficit. People usually lend and share their cards and we perfectly understand this model.
ClearSale was founded in Latin America 20 years ago. We are perfectly aware of the trends, user habits and the evolution of fraud. Our dynamic models, machine learning and big data tools allow us to translate the specific habits of Latin America’s legitimate users and of fraudsters into statistical models for fraud prevention. That is our biggest strength. With our collaborative model, we help over 4,000 businesses, including e-commerce, banking and fintech clients.
Q: What are the most common failures of Latin American companies regarding cybernetic risks?
A: The most common mistake made in Latin America is to try to imitate existing models in other regions of the world. It is necessary to tropicalize these global advances to Latin America’s market. Another common mistake is to abuse the 3DS system, which is a very safe solution. However, this system provides customers with a complicated user experience. We use 3DS carefully. Additionally, implementing strict rules to avoid fraud is not the best practice. For instance, declining transactions of over MX$2,000 (US$100) or declining a potential second sale after the user has already purchased a product. These practices could be very harmful for businesses.
A fraud prevention model must be a dynamic model. Every transaction is analyzed individually and receives an individual score based on the risk it represents. Every transaction could have over 150 variables. It is important to give every transaction its own value and treatment.
Q: How can fraud impact a company’s reputation?
A: If you were victim of fraud, the fact that the business is accepting a transaction with your stolen card tells you many things about that company. On the other hand, when you as a user are declined for no apparent reason, the reputational cost for the company is very high. Fifty-eight percent of users declined from a website never return. Beyond reputation, there is the lifetime value of the customer, meaning you are not only losing the money from that one transaction and creating a poor experience for the user, you are also losing a potential repeat customer.
Q: What are ClearSale’s plans for the near future?
A: ClearSale aims to continue playing a key role educating small and medium-sized businesses because the big companies already have robust strategies to avoid declining legitimate clients. We have offices in Mexico City, Miami, Brazil, Colombia and Argentina and we operate in the entire Latin American region, helping over 4,000 businesses. Our goal is to remain the leader in terms of continuous education for companies and helping them define their KPIs, which will determine the success of their businesses.
ClearSale is a global pioneer and leader in e-commerce fraud protection solutions and chargeback protection guarantee for e-commerce merchants. It was founded in Brazil in 2001.