Ways to mitigate post-purchase fraud during the holidays

With many retailers extending online holiday sales, consumers are taking advantage of the ease of shopping from home. Online shopping can also enable more impulse buying, which in turn increases the likelihood of returns and cancelations – and can open the door to abuse and fraud. Merchants need the right tools and controls to help reduce fraud and maximize their holiday revenue.

Here are some proactive and reactive ways to mitigate fraud and related losses during the high-volume holiday sales season.

Do a fraud check before the order is shipped

While it is common to do a fraud check at the time of checkout for online purchases, another effective method to protect against fraud is to do an assessment before the order is ready to be shipped. This will ensure that any change in the status of orders, during the time elapsed since checkout, gets accounted for. To get an idea of the fraud vulnerabilities that exist in your system, try to identify a user placing several orders repeatedly and then canceling the orders.

Doing this additional fraud check also helps prevent the loss of goods and saves the associated shipping costs. It’s especially important for your retail business, when most of what you sell are physical goods – the fraud loss could influence the overall profit efficiency of your business.

To reduce loss, you can create a segment of high purchase value products and apply a distinctive fraud strategy for that segment. In addition, if you have a manual review process in place for reviewing orders, you can control the overall manual review volume by choosing to send orders for products that experience a high-fraud rate category instead of sending all orders for review.

Frequently look for patterns in consumer purchases

While proactive ways to stop fraud are ideal, another way to detect fraud is to reactively look for patterns in bulk data from the most recent orders.

Running anomaly detection on purchase orders placed in the last hour, identifying outliers in the data, and sending those specific outliers for further investigation is a good control that complements the real-time fraud checks.

This is also a good feedback loop for the real-time systems that use artificial intelligence to improve precision and accuracy in identifying fraudulent orders. A reactive fraud strategy is a good way to supplement overall fraud controls that are already in place.

Deriving insights through reporting

In addition to responding proactively and reactively, having robust reporting can provide additional insights and enable analytics. The ability to drill down to a specific product level to review transaction lines, see the specific reason code applied, and having access to the entire journal would enable fraud analysts and investigations teams to make decisions rapidly. Setting up alerts on when specific conditions and thresholds are met for products (or markets) that have been traditionally subject to fraud gives you the ability to respond quickly and adjust fraud strategies rapidly.

How Microsoft can help reduce post-purchase fraud loss

Reactive fraud assessment features can help to identify specific vulnerabilities existing at the store, point of sale, product levels, and so on. The Dynamics 365 Fraud Prevention tool provides a risk-based ranking of staff and point of sale terminals, analyzes underlying transaction data, and helps drive investigations. It provides the ability to drill down to specific transaction lines and review what reason codes were applied by the staff at the point of sale to order. This helps fraud investigators understand which business process such as returns, cancellations, or price overrides is the most susceptible to abuse. It also helps to identify where controls are needed the most (such as region, district, or store). Running your reactive fraud processes frequently will help your overall fraud strategy to be more effective over time.

Next steps

If you are currently using Dynamics 365 Fraud Protection, you can get a fraud check in real-time. The scorecard gives you a real-time view of the performance and support tool that helps to search and investigate all transactions including risk information and history. You can also enable loss prevention, which is based on anomaly detection for protecting against the abuse that happens in relation to returns and cancellations.