Anti-fraud systems largely cater to credit card fraud – So what does the future of fraud control look like as a growing number of consumers swap credit cards for alternate payment channels such as Buy Now Pay Later (BNPL), Bank Transfer / Open Banking, Digital Currencies and QR Code payments?
Network branded credit and debit cards (i.e., Visa, Mastercard, Amex, Discover etc.) remain the predominant payment method for online commerce worldwide. Over many years these networks have developed robust tools, rules & processes that effectively deal with and resolve any customer dispute or fraudulent transaction which may occur on their branded payment product. Congruent to this, an increasing number of third-party companies have developed their own tools to help eCommerce merchants manage card-related fraud, disputes and comply with the card networks’ regulations.
The COVID-19 pandemic accelerated digital adoption causing widespread disruption across the global eCommerce landscape. This coupled with a generation of consumers (millennials) who are debt adverse and favour BNPL payment options and the recent tightening of rules by card networks (making obtaining and keeping a card accepting merchant account even more challenging) has contributed to the rise of Alternate Payment Methods (APMs). This shift in consumer and business behaviours and preferences for APMs in response to the pandemic has created a “perfect storm” for fraudsters, leaving merchants exposed to a host of new fraud threats.
Validating this shift in payment types, the Reserve Bank of Australia reported the number of credit card accounts in Australia dropped from 13.78M in January 2020 to 12.99M in September 2020, with 70 thousand credit accounts cancelled from August to September alone. Further, The Australian Payments Network, reported in December 2020, that card fraud fell from $528.8M in FY19 to $447.2M in FY20.
Despite recent reports showing fraud figures trending down, these statistics cannot be used as an indicator for overall fraud. In fact, findings are quite literally the opposite. Fraud levels are trending upwards, driven by the adoption of digitisation and subsequent rise of new and alternate payment types. The payments landscape has evolved and fraud has evolved with it, shifting from traditional to new channels such as refund, and account takeover fraud.
The truth is most of the fraud and dispute management tools and processes available in the market today simply cannot keep pace with the adoption of APMs and therefore are being exploited by fraudsters and consumers alike.
Whilst some positive action has been taken, stakeholders need stronger mitigation strategies and/or tools and policies that better protect merchants and consumers when using these new payment channels. Unfortunately, this is no easy task. There is no “silver bullet” or single solution when it comes to fighting APM fraud. It will take significant industry action on a country-by-country basis to start seeing results. So let’s start with the most popular alternative payment type and work from there.
If you need help with strategies to reduce the levels of disputes or fraud in your business, please contact us.