A Guide to Driving Digital Transformation with Adaptive Risk Management

All this data also creates an opportunity for fraud. Whether compromised identity data, breached financial data, social engineering-derived information, or even malware, fraudsters have access to their own large data sets and unprecedented access to sophisticated tools and forums. To fight fraud, firms must work with a partner that can leverage the insights of a vast risk intelligence network to outmaneuver fraudsters. Traditional fraud and risk solutions are becoming less and less effective at supporting merchants in this environment.

Digital transformation is accelerating, and consumer expectations are rising

IDC has witnessed an economywide shift to digital commerce thanks to the proliferation of digital, mobile-first experiences and consumers’ adoption of these experiences. This shift has been gradual but clear over the past decade, with the U.S. Census Bureau reporting that over 11% of all retail transactions occurred online in 2019. Savvy merchants understand that if they want to succeed, every business and technology decision they make must be centered around the customer experience. This includes fraud prevention, where merchants must prioritize a solution that addresses end-to-end fraud, provides robust data analytics, and quickly adapts as fraud evolves.

Online merchants struggle to grow while mitigating fraud

Unfortunately, the massive growth in ecommerce has also led to rapid growth in fraud, in terms of volume and sophistication. Fraudsters have made significant investments in data, technology, and business models required to be successful at their jobs. In addition to data, fraudsters can turn to a considerable set of tools and services to streamline their operations. As merchants scale their businesses and expand their ecommerce footprint, they must address unique risk challenges head-on and at all stages of business growth.

IDC recommends that online merchants focus on the following initiatives:

• Chargeback costs that impact profit
• Increases in transaction volume that impact operations
• Keeping up with regulations, including know your customer (KYC)
• Developing new offerings/programs such as account creation/management, in-house checkout, and loyalty/reward programs

Fraudsters have adapted to today’s digital economy, increasing the potential risk involved in selling online. Merchants must also become smarter by adopting an adaptive risk management system that works alongside their digital commerce and payments infrastructure.

Key trends in fraud management

Major trends that will shape the fraud management, digital payments, and ecommerce market over the next 36 months include the following:

• Ability to balance convenience and risk
• Card not present (CNP)–driven omni-channel commerce: This raises the risk of CNP fraud with compromised cards.
• Artificial intelligence (AI)
• Regulatory shifts to protect customer data: GDPR and the mandate for Strong Customer Authentication (SCA) under PSD2

Benefits of using an adaptive risk management solution

Merchants have complex business and risk challenges when selling online across geographies and customer segments. Partnering with the right fraud solution provider can help sellers solve several competing priorities. A robust fraud solution provides online merchants with the following key benefits:

• Fewer transaction declines
• Chargeback reduction
• A vast network of global risk intelligence
• Superior customer experiences
• Transparency
• Future-proof fraud management
• Unlocked real-time decision making

When properly implemented, a comprehensive fraud management solution will allow merchants to focus on what they really want to focus on — growing their business.

Integrated risk management on the PayPal Commerce Platform

PayPal’s two-sided network provides a rich source of data that feeds its predictive models. The data comes from over 360 million active consumers and over 28 million merchants across the globe. PayPal’s risk solutions are the only offerings in the industry that leverage PayPal’s extensive two-sided network combined with industry-recognized machine learning and analytics, helping more accurately detect and block fraud in real time (see Figure 1).

The results can include the following:

• Fewer chargebacks
• Lower false positive rates
• Less customer friction
• Lower fraud losses
• Improved operational efficiency

PayPal makes standalone and integrated solutions available to ecommerce and financial services businesses of all sizes, providing scalability as businesses grow.

PayPal risk offerings built for eCommerce

• Chargeback Protection
• Fraud Protection: Fraud Protection is a fraud toolkit that provides merchants with more insight into and control over the decisioning process of their card transactions to better balance chargebacks and declines: Empowers large ecommerce firms and financial institutions with best-in-class machine learning
• Fraud Protection Advanced: Arms fraud teams with robust capabilities to help identify and investigate suspicious transactions, analyze patterns, uncover key insights.
• Fraud Protection Custom: This adaptive decisioning platform empowers large ecommerce firms and financial institutions with best-in-class machine learning to dynamically decision across a user’s life cycle
• Risk APIs: This risk mitigation service was created to help the world’s largest ecommerce merchants fight transaction fraud through an easy-to-integrate API.

PayPal Enterprise Solutions

IDC believes that robust fraud solutions will grow in importance as the shift to digital commerce continues to drive more and more transactions online. PayPal, with its range of solutions built on its unique data assets, is well positioned to succeed in the digital commerce market.