April 6, 2018
Online health and beauty sales have been experiencing double digit growth in recent years. Unsurprisingly, online fraudsters have been increasing their attacks at the same time. Fast-growing market segments include:
- Health Supplements. More than $37 billion in 2016 online sales (19% year-over-year [YoY] growth).
- Natural Products. Amazon alone saw 30% sales increases in 2016 with nutrition accounting for the bulk of sales in the category.
- Online sales account for $2 billion (15.6%) of the total vitamin, mineral, and supplements (VMS) segment.
- Omni-Channel. H2O+ Beauty increased revenue 25% and boosted profitability 70% by shifting from brick-and-mortar to online.
Yet even as sales increase, online health and beauty businesses face unique challenges when fighting fraud:
- Subscription billing. More than 1 in 3 US consumers use subscription billing to purchase health and beauty products online. Subscription billing tends to have higher chargeback rates due to friendly fraud and other factors.
- Social buying. Forbes called Instagram “the world’s most powerful selling tool.” This revolution in sales channels is leading to higher risk social selling and buying.
- Commission fraud. Organizations driven by direct sellers or affiliates face new risks, including antifraud solutions not suited for fighting commission and/or consultant fraud.
- Omni-channel. Click-and-collect sales are increasingly popular and have higher rates of fraud than card-present or traditional eCommerce sales.
When these are added to the more traditional types of online fraud (friendly fraud, card-not-present (CNP) fraud, account takeover, etc.), the result can be ugly costs for health & beauty eCommerce operations:
- Chargeback fees and fines up to $100 per fraudulent order.
- Lost/stolen merchandise and increased cost-of-goods-sold (COGS).
- Increased manual reviews (and costs) as merchants try to stop increasing fraud.
- Lost shipping expense on fraudulent orders.
- Disputing chargebacks and investigating transactions steal time from profitable activities.
- Reduced revenue (false positives, i.e., good orders wrongly declined due to suspicion of fraud.)
- Higher transaction fees levied by payment processors.
Fortunately, enterprise fraud prevention solutions level the playing field and help online health & beauty merchants defeat online fraudsters. But not all antifraud systems are created equal. The following capabilities are essential to success:
- Never Too Much Data. The more data analyzed, the greater the accuracy and the better the fraud detection.
- Multiple Fraud Screening Technologies. Single factor tools or static lookups can be easily circumvented by today’s sophisticated fraudsters and bots.
- Artificial Intelligence and Continuous Machine Learning. These provide game-changing capabilities for detecting rapidly-changing fraud attacks and emerging threats.
- Real-Time Risk Assessment. Detect fraud even when criminals rapidly change devices, IP addresses, proxies, etc.
- Policy-Based Decisions. Decide what response is best for your business (don’t surrender control to blind algorithms or “black boxes”).
- Chargeback Management. Integrate chargeback dispute processing and fraud prevention to improve win rates and lower costs.
- Determine Benchmarks and Goals. No single chargeback rate, decline rate, or manual review rate is correct for every business.
- Experienced Human Intelligence. It takes industry experts in online fraud prevention and risk assessment to counter everchanging fraud tactics and rapidly-evolving technologies.
Find out more ways to increase the profitability of your online health & beauty business by reducing fraud and welcoming more legitimate orders. Download the eBook “Nourish Sales and Exfoliate Fraud.”