Ecommerce Fraud Statistics for 2021: The New Era of Ecommerce and Fraud Prevention

We are no doubt at the dawn of a new era in ecommerce. The gradual shift from brick-and-mortar stores to online buying that has been ongoing for more than a decade accelerated dramatically as lives were turned upside down by the COVID-19 pandemic.

Everyone is talking about it. There is a lesser known transformation underway, however, in the midst of the ecommerce renaissance: The fraud management profession is shifting to a risk intelligence model, a field that relies even more heavily on ecommerce fraud statistics and defines itself not as a defensive bulwark, but as a business optimization engine.

With the new approach comes new goals. Stopping fraud is not the end-all. Instead, risk intelligence professionals work to eliminate friction throughout the buying process, while still protecting the enterprise. Managing fraud properly isn’t about avoiding losses. It is about increasing wins and thereby increasing revenue.

Again, COVID is partly responsible for this mindshift. With consumers facing lockdown and trepidation about shopping in physical stores, ecommerce has enjoyed a historic surge in business. Orders are up. Revenue is up. The percentage of sales driven by ecommerce is way up.

Ecommerce Sales in 2020

Global ecommerce sales rose 49% in 2020 over 2019, according to Signifyd’s Ecommerce Pulse data. In February, sales were still tracking 31% above their year-ago figures. In fact, IBM reported that pandemic-induced behavior shifts have propelled ecommerce sales five years into the future.

Fraud Prevention’s Defensive Crouch is a Thing of the Past

Retailers that embrace this new reality and the new role of risk intelligence will be the ones that best navigate the new era of ecommerce. They know that the risk team no longer works from a defensive crouch. The work is now about unlocking revenue through fearless commerce. Modern risk professionals now apply their decisioning skills and technology across the entire buying journey. They optimize revenue and have a clear connection to the enterprises top line.

The new approach to risk intelligence is made possible by advances in technology and fraud prevention strategy. Fraud and consumer abuse prevention that harnesses big data and machine learning allows enterprises to more accurately make split-second decisions on whether an order is legitimate or fraudulent.

When those two elements are bolstered by a financial guarantee on approved orders, a merchant’s buying funnel opens up to orders that might have been declined at the authorization stage or the fraud review stage. In short, more orders are approved and merchant fraud statistics improve.

Deploying a Risk Strategy: False Declines Mean More Than Losing the Immediate sale

It is hard to overstate the harm that approaching risk from a fearful posture can have. Turning down a legitimate order results in the loss of the initial sale, of course. But it also quite often means losing the disappointed customer behind that order for life.

So, what does this mean for finding, assembling or redirecting a risk strategy for the new era of ecommerce? For starters, it means realigning the key performance indicators that fraud teams have historically lived by. Let’s take a look at the old and the new.

Historically, risk professionals have focused on avoiding chargebacks. The problem with a laser focus on improving chargeback statistics is that the best way to avoid chargebacks is to not ship any orders at all. No one would shut down all order, but you get the point. A fixation on avoiding chargebacks leads to declining good orders.

Another downside to an obsession with the rise and fall in chargebacks is that chargebacks are a lagging indicator. The chargeback needs to be discovered by the rightful credit card holder and reported to the credit card holder’s bank. That can take months. By the time a risk team can analyze the reason chargebacks are arriving, it’s often too late to do anything about the proximate problem.

Risk professionals also have historically spent a lot of time and energy defending their decisions to decline orders. Others in the organization with responsibility for profit and loss, are naturally not fond of seeing orders turned down.

The combination of trying to avoid chargebacks and building a defense in advance for declined orders comes at the cost of speed — something consumers have come to expect with online orders.

Chargeback Statistics: Consumer Feedback

In fact, of those consumers who have filed a chargeback after ordering online, more than 29% of them — a plurality — told Signifyd they did so because the product arrived later than promised.

Our chargeback statistics reveal 5 more reasons why consumers take this action:

Order Automation: Boosting the Value of Fraud Prevention Teams

Again, order automation provides retail enterprises with the speed they need. It also frees up risk intelligence professionals to identify larger fraud trends. Armed with those analyses they can develop and execute on strategic initiatives that have a large impact on the enterprise overall — programs such as buy-online-pick-up-in-store, curbside pickup and cross-border expansion.

Those initiatives transform risk intelligence teams from organizations that are frequently being asked to cut costs while maintaining efficiency into teams that are maximizing order approval rates in real time and helping to open up new sales channels.

We live in a new era of ecommerce. And with a hearty embrace of risk intelligence, the future looks very bright.