Microsoft helps boost revenue, reduce fraud costs, and simplify customer transactions with AI-powered fraud protection for e-commerce

Fraud grows where e-commerce goes

In 2020, the worldwide online retail market will be worth almost $4 trillion, with a compound annual growth rate above 19 percent (Worldwide Retail and Ecommerce Sales: eMarketer’s Estimates for 2016–2021). But as fast as e-commerce grows, fraud grows with it. The online sales industry currently loses more than $250 billion in annual costs from fraudulent transactions (LexisNexis®Risk Solutions 2018 True Cost of Fraud℠ Study Retail Edition, October 2017).

As a top e-commerce merchant with more than 1 billion transactions a year across online stores, cloud services, subscriptions, and other channels, Microsoft is a big part of the online retail industry—with its own share of fraud challenges. Each year, Microsoft safeguards its online retail operations against more than $1 billion in attempted fraud.

Microsoft combined its e-commerce experience with its deep expertise in digital technology to build an advanced internal fraud protection system that it called Modern Risk. After developing, testing, and running the system to prove its value, Microsoft released Microsoft Dynamics 365 Fraud Protection for public preview in April 2019. Now all online retailers can use Dynamics 365 Fraud Protection to help reduce fraud and its related costs, increase revenue, and deliver better buying experiences with lower friction and more support.

How Microsoft protects online revenue

Like all online retailers, Microsoft needed to stop fraudulent activity without rejecting legitimate purchases or discouraging buyers with friction in the purchasing experience. Across e-commerce, 10 to 20 percent of legitimate transactions get rejected, which often leads to lost revenue. Microsoft wanted to decrease fraud-related costs and protect online revenue with better detection, higher acceptance, and seamless transactions.

For example, instead of letting fraud hide in holiday demand or other high traffic, Microsoft retail teams can automate more assessments and concentrate manual reviews on examining truly ambiguous transactions and finding new fraud patterns. “The Microsoft fraud protection system has enabled us to keep review volume under control even as our business expands,” says Stirling McBride, Director of Risk Business Operations at Microsoft. “Now, we can operate efficiently and predictably, while continuing to generate the most business value.”

With more agility, Microsoft uses the system to quickly identify the fraud protection it needs, apply adaptive AI to the millions of decisions necessary, and put content providers at ease. So product teams can run bigger launches with the least buying friction necessary, reject fewer legitimate transactions, and still protect high-growth offerings like Microsoft Azure and Xbox from fraud. 

“Integration with the fraud protection system for all payments allows Xbox to focus our efforts on providing the most compelling entertainment and gaming platform,” says Erik Yeager, Director of Xbox Live Store at Microsoft.

Boost revenue, enhance the industry, battle fraud

Between 2016 and 2018, Microsoft used its fraud protection system to reduce false positives and increase bank acceptance, increasing revenue by almost 10 percent. By reducing fraud losses and its manual review rate, the company saved more than $76 million in operational expenditure costs (based on a two-year performance theme on Microsoft in e-commerce). Altogether, the e-commerce giant used fraud protection to help boost revenue by hundreds of millions of dollars.

Microsoft launched Dynamics 365 Fraud Protection to enhance the industry’s ability to combat fraud and complete more legitimate transactions. Fraud Protection could have a major effect on e-commerce, and the technology behind it spurred INFORMS to recognize Microsoft as a 2019 finalist for the prestigious Franz Edelman Award for Achievements in Advanced Analytics, Operations Research, and Management Science. 

Amplify fraud protection with AI

In e-commerce, the impact of fraud is spread across consumers, merchants, online retail networks, and issuing banks. The market won’t tolerate high fraud rates in a competitive e-commerce landscape, and today’s online buyers expect seamless transactions. Customers won’t soon forget an online merchant who rejects their legitimate purchases or annoys them by putting too much friction in their buying experience. Merchants want to deter fraud attempts and lower fraud losses, and they want to elevate acceptance rates so that potential customers aren’t driven to abandon purchases.

E-commerce networks and issuing banks earn their fees per each transaction, so to promote high volume, they need environments that consumers and merchants trust. But like consumers and merchants, they dislike anything that interrupts the flow of transactions. Microsoft has equipped Fraud Protection with unique, advanced AI and other digital capabilities to help online merchants build trust, streamline transactions, and amplify their fraud protection activities.

Optimize protection—and profitability

With Dynamics 365 Fraud Protection, fraud managers optimize protection controls with specialized AI technology that continuously adapts based on real-time learning from the processed datasets. They can use connected knowledge tools in Fraud Protection to build broad awareness of fraud activity across the globe, while always safeguarding confidential information and shoppers’ privacy. By sharing transactional trust knowledge with issuing banks, merchants can help boost authorization rates. 

Fraud is an ongoing problem for the e-commerce industry and significantly impacts customers who increasingly rely on online shopping. But with Fraud Protection, the retailers, networks, and banks that support e-commerce will find it easier to safeguard against fraud, protect revenue, and still drive growth by delivering the seamless transactions that consumers expect.

“We’ve shown it’s possible to simultaneously achieve low fraud and high customer success,” says Dave O’Hara, Chief Financial Officer for Cloud and AI at Microsoft. “The innovations in Dynamics 365 Fraud Protection made a very significant impact on our operations and profitability.”

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