The global e-commerce market has grown exponentially in recent years and is expected to reach a market size of $6.3 trillion by 2027. However, as more transactions and more customers place orders through e-commerce sites every day, the risk of fraud also increases.
As concerns about threats to consumers and merchants increase, payment service providers play a critical role in helping merchants mitigate fraud risks.
What are the emerging risks?
Card-not-present (CNP) fraud has increased in recent months and years, and this method is expected to surge by 40% by 2026. Regulatory interventions such as Europe’s Secure Customer Authentication (SCA) have made some difference in reducing the risk, but chargeback fraud from CNP payments remains a major challenge. This is especially true for merchants handling high-value physical goods such as electronics or jewellery.
How to minimize risk
The three most important ways for sellers to reduce their potential fraud risk are to leverage the power of data, maintain strong regulatory compliance, and leverage modern technology.
- Harnessing the power of data – Merchants and payment service providers collect a huge amount of data every day. This can be about how users interact with websites and apps, what payment methods are most preferred in certain regions, what time of day is most popular for purchases, or other things. This data is essential for fraud prevention measures, as it can be used to identify patterns and anomalies to inform strategies. The key is for merchants and payment service providers to work closely together to collect this data and create a more informed and accurate picture.
- Maintain strong regulatory compliance – Especially as the space continues to change, we see industry standards and regulations evolving and being introduced regularly. Paying close attention to these nuanced regulations is critical to combating fraud, as they often inform best practices. Naturally, merchant businesses often lack the expertise or know-how to navigate payment and financial regulation, so payment providers can play a vital role in navigating the changing regulations, providing guidance and adapting their services accordingly. This collaboration is mandated by some regulations, such as the PSR repayment requirements for APP fraud and the Payment Services (Amendment) Regulations 2024, which require collaboration between merchants and providers to ensure compliance and leverage new rules for business benefit.
- Leveraging technology – As more technological advancements are made in the financial sector, we are also seeing the rise of new technologies for fraud detection, particularly AI and machine learning. AI can be used to detect patterns, anomalies, and unusual behaviors in the vast amounts of data collected by merchants and payment service providers. The technology can then predict potential fraud, assign risk scores to specific scenarios, and authenticate identities. The proactive nature of AI allows it to detect and adapt to potential threats in real time. However, the collaboration between humans and technology is still essential to mitigate fraud, and the two must work closely together.
There is one important theme that runs through all risk mitigation strategies: collaboration. Specifically, collaboration between merchants and payment providers.
Payment service providers can be trusted allies and strategic partners to merchants, providing them with the tools, know-how, and support they need to navigate the complex and ever-changing e-commerce landscape.
Collaboration between merchants and payment providers can change the course of the e-commerce landscape, reducing the pressure and financial risk faced by individual merchants and enhancing transparency and customer protection. By leveraging the vast amounts of data they collect, closely monitoring regulatory changes, and keeping up with cutting-edge technologies, merchants and payment providers can create a safer and more robust e-commerce ecosystem for everyone.