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Blog / PSD2
CEO of Ravelin, Martin Sweeney, discusses the challenges merchants faced in 2020 and what fraud & payments trends to expect in 2021.
Clearly 2020 was a difficult year, with every industry facing its own challenges.
It’s been a time of industry extremes: Either your industry is collapsing and countless people are losing their jobs, or it’s booming and the challenge is to keep up with enormous transaction volumes. For online retailers, it may have felt like every day in 2020 was Black Friday, with operations being stretched to breaking-point. These extreme situations test your fraud and payments systems, and you may have found that they are less agile than you thought - they’re actually fragile.
Working remotely: There have been dramatic changes in the way businesses work and communicate with teams. Maintaining a productive workplace culture remotely is challenging, often requiring a complete business upheaval.
Issuing banks have been overwhelmed by disputes: Just look at the travel industry - every cancelled holiday could result in a chargeback. Issuers may have had to adopt a blanket ‘charge it back’ policy, and more customer opportunism means a surge in friendly fraud chargebacks.
Online buying boom to continue: Whilst demand won’t be to the full extent of the height of lockdown, a lot of customers have changed their shopping habits permanently. As a result, sellers will have to find long-term solutions to cope with increased volumes and operational changes.
New fraud patterns means it’s time for new fraud equipment: The past year's demanding fraud patterns will prompt merchants to realise that they’ve outgrown their current fraud and payment tools. If businesses are going to survive the next couple of years and then thrive, they’ve got to get ahead of the coming changes by doing less with more - fewer people, greater productivity and better fraud detection.
Economic hardship means friendly fraud will increase: Unemployment is currently being artificially reduced by state subsidy, but once the magic money tree stops shedding, the recession will really bite. People will be poorer, more desperate and more likely to turn to crime. Online fraud is an easy way to commit crimes without feeling like a criminal, as customers can say ‘someone’s been shopping on my credit card’ or ‘hey half of my order didn’t arrive, give me the refund’ and profit.
Refund abuse and promo abuse will increase: Economic difficulties in 2021 will cause people to take advantage of promotions and refunds even more. Struggling customers will need that £5-off promo more than ever, so will find a way to use it more than once. Whilst promo abuse isn’t strictly fraud, it chips away at the unit economics of the merchant and wastes valuable marketing money, damaging a company’s profitability over time.
More international third-party fraud in Europe: CNP third-party fraud isn’t going anywhere. Whilst PSD2 and more 3DS will reduce fraud on EU cards, fraudsters will adapt and simply switch to international cards to attack European merchants. Merchants will suddenly have to be more suspicious of international orders, accepting fewer or accepting more risk.
Issuing banks could lose customers: PSD2 will initially cause disruption. Customers value ease of use, and if an issuer has botched their implementation of 3DS - for example if it’s blocked by ad-blockers or gives a poor user experience - they will just move to another bank. Banks will find it hard to implement strict SCA policies whilst keeping customers happy.
Merchants will face conversion impacts: Merchant conversion rates will drop when they have to use more 3DS as unauthenticated payments will be declined, so there will be a significant adjustment period as merchants work to make payments frictionless.
US industries will move before regulators: Most regulators worldwide have the same aspiration: increase authentication to reduce online fraud. However, the US industry will move before regulators, motivated by the superior technology of 3DS2. Whilst 3DS2 isn’t a cure-all, it is fundamentally better, and that’s why we at Ravelin are investing heavily in our suite of best in class 3DSecure products.
Merchants need a flexible and responsive approach to payments, avoiding a one-size-fits-all ‘let’s just turn on 3DS’ policy. A blanket approach gives complete power over payment acceptance and conversion to the banks, and banks do not have a great track record of user experience and conversion. Ravelin can tell you how each bank is going to behave and shape your user payment journey to be the best possible for any given scenario.
Ultimately: expect more fraud and transactions in 2021 and make sure to be agile - not fragile.
Grace Proctor Content Writer
4 min read
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