How to use customer profiling to reduce online credit card fraud

E-commerce fraud prevention tools, such as FraudGuard, can reduce the risk of a business being stung by online credit card fraud. These tools can also build up a detailed customer profile that can be used for marketing and customer service. SecurePay’s Tim Foster-Johnson explains five benefits of using FraudGuard.

An online business owner only needs to be hit by a fraudulent payment once to realise the benefit of using a fraud-prevention tool, according to SecurePay’s Customer Services Manager, Tim Foster-Johnson.

Fraud-prevention tools, such as SecurePay’s FraudGuard, can help to reduce an e-commerce business’s exposure to fraudulent transactions. Such tools can also build up detailed customer profiles that can provide valuable insights into customers’ locations, shopping preferences and purchasing habits.

Foster-Johnson advises that even small or start-up businesses embrace fraud-prevention practices from the first day they go online.

“Not having it [FraudGuard] could result in costs with chargebacks and that could go on to impact your credit rating,” says Foster-Johnson.

Here are five things you need to know about FraudGuard and how it can help your online business.

“Profiling can help you know whether a transaction is legitimate or fraudulent.”

Tim Foster-Johnson, SecurePay’s Customer Services Manager

1. Customer profiling

Knowing who your customers are and where they are located plays a key role in helping online businesses identify suspicious transactions.

“If you know what your customer profile is, you can investigate any suspicious transactions more closely,” says Foster-Johnson. “Profiling can help you know whether a transaction is legitimate or fraudulent.”

He says FraudGuard can be particularly useful for new businesses that need to build up their customer profile from scratch. “When you first go online, you don’t know who or where your customers are,” he explains, adding that FraudGuard not only tells you about your customers but also identifies the countries your sales are coming from.

Foster-Johnson says it can be slightly easier to profile the customers of businesses that sell physical products. “You can look at the standard basket size and the typical seasonal flows,” he says.

2. Reviewing your customer profile

A business should review its customer profile regularly, particularly as the online business grows.

“I recommend initially looking at your customer profile every fortnight,” says Foster-Johnson. “Start-up businesses tend to apply too many rules or not enough.”

Profiling should also take seasonality into account. “For instance,” he says, “the run-up to Christmas is a busy sales period. There is usually a higher cart value, with higher volumes. Your customer profile will change at these times, compared with other times of the year.”

Foster-Johnson adds that, when reviewing its customer profile, a business should also consider how frequently it is receiving notification of issues. If it’s receiving a lot of alerts from FraudGuard about problematic transactions, the business might need to review its profile more often. If a business rarely receives any notifications, it might indicate that its profiles are still relevant. The value of the goods that a business is selling online will also impact how many and what types of rules it sets up.

“If your profile is high-volume and low-dollar value, the approach will be different to a profile that is low-volume and high-dollar value – there are different risks, but both could generate chargebacks,” says Foster-Johnson.

Keep reviewing your customer profile as your business grows over time – it becomes part of your business intelligence. It can also highlight trends; for instance, you could apply a gift service if that emerges as a clear trend for your business based on your customer profiling.

3. Customising the FraudGuard rules

SecurePay’s FraudGuard allows business owners to configure their fraud rules and settings according to which ones they would like to apply and what they would like them to do. These help to automatically determine whether a transaction can be processed or whether it will be flagged as potentially problematic or blocked entirely.

An e-commerce business, for example, can set up an alert about transactions over a certain dollar value or around multiple purchase attempts.

FraudGuard uses a points system for this customisation process. If the Fraud Score exceeds 100, then the transaction will be flagged as fraudulent and not passed to the bank.

One FraudGuard rule that Foster-Johnson recommends all businesses apply is a requirement for the country where the card was issued to match the IP where the purchase is being made.

There are other rules that relate to countries, too – website owners can opt to block purchases from some countries entirely, if they wish. They can also apply rules around the delivery country; for example, stating that the delivery country must match the country in which the card was issued.

4. Marketing and customer service

The valuable customer insights that FraudGuard can offer business owners can be used for a range of marketing and customer service purposes.

For instance, says Foster-Jones: “If 80 per cent of your sales are locally based and, of that, 60 per cent are state-based, you can then use that to determine how and where you will spend your advertising budget.”

When it comes to improving customer service, he uses the example of FraudGuard rules that can alert a business owner when a customer has difficulty making a purchase. “If that happens, you could decide to put a complimentary note with the delivery, which adds value to the customer experience,” he says.

5. Competitive pricing

FraudGuard offers competitive pricing of around five cents per transaction, depending on a business’s billing agreement, says Foster-Johnson.

And as he points out, this tends to be a low amount compared with the money that online businesses stand to lose if they are hit by a fraudulent transaction.

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