The top 4 digital fraud challenges in the health and beauty market

The online health and beauty world covers a wide range of market segments: health supplements, cosmetics, natural products, nutraceuticals and much more.

Regardless of market niche, every online health and beauty business faces many of the same challenges that other eCommerce operations do: friendly fraud, card-not-present fraud, account takeover (ATO), fraudulent account creation, and much more.

However, online health and beauty sellers also encounter a number of fraud challenges that are unique:

  • Subscription billing. 38% of US consumers who regularly purchase health and beauty products online utilize subscription billing. This method tends to have higher chargeback rates due to friendly fraud and other factors.
  • Social buying. While Forbes called Instagram “the world’s most powerful selling tool,” the dramatic increase in recent years of account takeover crime (up 16%) and fraudulent account creation means higher risk for social selling and buying.
  • Commission fraud. As businesses seek more ways to drive revenue, they’ve expanded into new sales channels. The use of Direct Sellers and/or Affiliates introduces new and unexpected risks, including consultant fraud, plus the operational difficulties of using antifraud solutions not suited for direct sales and commission scenarios.
  • Omni-channel. At the same time that traditional brick-and-mortar Health and Beauty retailers are expanding into online sales, eCommerce operations are also building stores with physical locations. Because of these omni-channel sales models, both are aggressively pursuing click-and-collect and/or click-for-delivery sales, which are popular with customers. Nearly half of U.S. consumers (44%) want the option to collect their purchases at a physical store immediately after purchasing online. Yet these purchase methods have higher rates of fraud than card-present or traditional eCommerce sales.

As a result of these unique challenges—as well as the more conventional ones—online Health and Beauty businesses can incur a number of ugly, fraud-related costs:

  • Chargeback fees and fines. Depending on chargeback volume, these costs can range from $15 to $100 per order. Further, the coming May 2018 changes to Visa chargeback rules will limit the number of chargebacks that can be disputed. Merchants may be left with fewer opportunities to represent chargebacks.
  • Lost/stolen merchandise. Products fraudulently obtained by criminals are 100% losses.
  • Manual reviews. Merchants typically react to increased fraud by performing more manual reviews, which leads to increased time and expense.
  • Lost shipping expense. Orders with expedited shipping that are fraudulent result in substantial shipping losses.
  • Wasted labor. Representments, complaints, audits, and other administrative issues related to fraud—typically resolved by higher cost employees—steal time from profitable activities.
  • False positives. Decline and cancellation rates are often more than twice as high as the actual incidence of fraud, which represents huge revenue loss.
  • High transaction fees and escrow account requirements. High rates of fraud and chargebacks can lead to higher processing fees and possibly escrow requirements from processors.

Fortunately, online health and beauty businesses can employ proven fraud-fighting practices combat fraud and reduce losses…while actually helping boost sales through the reduction of false positives.

  • Never Too Much Data. The more data analyzed, the better the accuracy of fraud detection.
  • Multiple Fraud Screening Technologies. Static, single-factor tools can be easily defeated by sophisticated fraudsters and bots.
  • Artificial Intelligence and Continuous Machine Learning. Together, these advanced technologies change the game when it comes to detecting emerging threats.
  • Real-Time Risk Assessment. Criminals rapidly changing devices, IP addresses, proxies, etc. to escape detection get tripped up by real-time capabilities.
  • Policy-Based Decisions. Don’t surrender control to blind algorithms or “black boxes.” Establish rules and policies that deliver maximum profitability for your unique Health and Beauty business.
  • Chargeback Management. Improve win rates by integrating chargeback dispute processing into your all-in-one fraud prevention solution.
  • Determine Benchmarks and Goals. The optimal chargeback rate, decline rate, or manual review rate is different for every business. Dial in your optimal rates using data, not hunches.
  • Experienced Human Intelligence. Countering ever-changing fraud tactics and rapidly-evolving technologies requires industry experts on the leading edge of online fraud prevention and risk assessment.

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