Nourish Sales and Exfoliate Fraud: Health & Beauty eCommerce Tips

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:

  1. Never Too Much Data. The more data analyzed, the greater the accuracy and the better the fraud detection.
  2. Multiple Fraud Screening Technologies. Single factor tools or static lookups can be easily circumvented by today’s sophisticated fraudsters and bots.
  3. Artificial Intelligence and Continuous Machine Learning. These provide game-changing capabilities for detecting rapidly-changing fraud attacks and emerging threats.
  4. Real-Time Risk Assessment. Detect fraud even when criminals rapidly change devices, IP addresses, proxies, etc.
  5. Policy-Based Decisions. Decide what response is best for your business (don’t surrender control to blind algorithms or “black boxes”).
  6. Chargeback Management. Integrate chargeback dispute processing and fraud prevention to improve win rates and lower costs.
  7. Determine Benchmarks and Goals. No single chargeback rate, decline rate, or manual review rate is correct for every business.
  8. 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.”

Health and Beauty eBook