Why Merchants Need to Balance Digital Innovation and Fraud Prevention - Kount

As published on Payments Journal, Feb. 24, 2020


Merchants and retailers are well aware of the fact that consumers’ expectations for a seamless customer experience are rising as new digital capabilities emerge. However, while improved digital capabilities are undoubtedly convenient for consumers, they have also opened up new vulnerabilities for fraudsters to exploit.

With that issue in mind, Kount sponsored an original report, “Protecting Digital Innovation: Emerging Fraud and Attack Vectors,” which “provides insights & education to retailers and merchants to demonstrate how digital transformation also brings about more complex fraud scenarios.”

Retailers and merchants must ensure that they are dedicating enough of their attention to preventing fraud— while staying up-to-date with the digital capabilities that keep customers satisfied.

Balancing security and consumer expectations

Businesses that consider themselves to be digitally mature face the greatest fraud challenges, with 42% reporting that fraud has inhibited their digital innovation efforts. Current fraud controls are often unable to address new types of digital use cases, making it important to develop digital innovation and fraud prevention side-by-side.

“There is a constant tension between security and customer service. Retailers don’t want to lose business, but nevertheless need to limit their losses as fraudsters find new weaknesses to exploit,” explained Aaron McPherson, vice president of Research Operations at Mercator Advisory Group. “A layered approach, which increases security as the risk of fraud increases, allows retailers to manage their costs while providing a good experience to the vast majority of customers.”

Industries have differing priorities for digital innovation, but there is some overlap

Kount’s report digs deeper into the digital innovation priorities of four industries: bankingfood serviceinsurance, and retail. The report found that restaurants are heavily focused on investment in digital features, rolling out new digital products at a quicker pace than other industries. Financial institutions, on the other hand, are more heavily invested in mitigating digital fraud.

The report also noted that merchant and restaurant customers are especially likely to react negatively to purchase disruptions, saying “customers expect high-value goods like digital gift cards to be delivered immediately, leaving no opportunity for manual review.”

The challenge with this expectation is that it “effectively requires industries, especially restaurants, to plunge head-first into real-time fraud management and embrace fully automated fraud decisioning platforms while expanding into digital commerce.”

In other words “while different industries have unique use cases and exploitation outcomes, criminals attack digital infrastructures with similar methods that transcend industry.” This provides learning opportunities for businesses, as “learning from different verticals is crucial to minimizing exposure.”


It can be challenging for merchants to stay on top of digital innovation while effectively mitigating fraud, but a balanced approach makes it possible.

Modernizing authentication, shifting away from one-time passwords, identifying key fraud risks, and using well-informed, risk-based authentication are just some of the recommendations made in the report to effectively balance digital innovation and fraud prevention.

If you’re interested in learning more, Kount’s report “Protecting Digital Innovation: Emerging Fraud and Attack Vectors” can be accessed here.

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