Globally, payment card fraud losses increased to $24.3 billion in 2017 as a result of rising data breaches, an uptick in card usage, and the emergence of sophisticated fraud schemes. As surging e-commerce drives fraud to digital channels — which now comprise two-thirds of all payment fraud — payments enablers working with merchants are adding new fraud prevention solutions and bolstering existing ones in an attempt to better protect their businesses. But tightened rules and new security initiatives can complicate the checkout process for consumers by adding steps and potentially increasing false positives, when “good” transactions are declined, which can decrease conversion rates and hurt business for sellers.
Business Insider Intelligence spoke to Johan Gerber, executive vice president of security and decision products at Mastercard, about how the card network is leveraging artificial intelligence (AI) and other emerging technologies to not only detect fraud, but also prevent and resolve it, while promoting commerce and maintaining the customer experience.
Initially, rule-based fraud prevention systems relied on key performance indicators (KPIs) that were focused on fraud reduction, but with fairly modest goals, according to Gerber. Historically, firms were looking to detect 70-75% of fraud, with a false positive rate of at least five to one, meaning that players could miss 25% of fraud and incorrectly flag safe transactions a fifth of the time. And a laser-focus on fraud reduction, and training rule-based algorithms accordingly, often “ends up in best-spending customers being caught up more often” since they tend to be more frequent buyers and higher spenders. While these tactics worked to reduce some fraud, the spike in false declines they caused had a meaningful impact: Merchants lost $303 billion in the US alone to false declines in 2017. Additionally, over one-third of shoppers will stop shopping at a merchant after a false decline, which can lead to longer-term sales losses and revenue declines. This focus on reducing fraud rather than “promoting commerce in a safe, secure, convenient way” meant that merchants were losing out on [...]