B2B payment fraud keeps sellers diligent

In today’s rapidly changing payments landscape staying on top of the latest digital payment options is necessary for B2B ecommerce sellers if they want to deliver a better customer experience and reach new buyers. So too is staying abreast of fraud trends. While B2B fraud does not receive as much media exposure as consumer-related fraud, it is a prevalent and growing problem nonetheless that sellers need to effectively manage.

On the payments side, bank transfers, digital wallets and cards continue to be the most widely accepted payment methods among ecommerce merchants with 67% accepting bank transfers/direct debit, 66% accepting digital wallets, and 66% accepting cards, up 9% from a year earlier, according to the 2023 Global Ecommerce Payments & Fraud Survey from The Merchant Risk Council, Cybersource, and Verifi Inc.

In addition, 50% of respondents accept mobile payments, such as Amazon one-click, down 7% from a year earlier, and 45% accept cash. Another payment option rapidly gaining traction is buy now, pay later (BNPL) loans. More than one-third (36%) of ecommerce merchants now offer BNPL, compared to about one-quarter of respondents in 2021, according to the report.

The Merchant Risk Council, Cybersource and Verifi surveyed 1,072 merchants between November and December of 2022, across North American, Europe, Latin America, and Asia Pacific (APAC) and that represented a broad range of annual ecommerce revenues.

The primary reason ecommerce merchants add new payments is to improve the buyer experience. Other reasons include reaching new customer segments or markets. At the same time, about 90% of ecommerce merchants encourage customers to pay via preferred methods, primarily to minimize fraud risks, maximize how quickly funds become available, and lower processing costs.

Another key takeaway from the report is that ecommerce sellers continue to leverage multiple payment processors and acquiring banks to support omnichannel payments. On average, merchants rely on four payment processors or gateway connections, and three acquiring banks to support omnichannel payments. The top reasons why sellers utilize multiple acquirers include operational flexibility, geographic coverage, and payment authorizations.

The deployment of new customer-facing and internal payment management approaches by ecommerce merchants is prompting them to track more of the key performance metrics (KPIs) around payments. The Top Four payment KPIs tracked by ecommerce merchants are payment success rate (50%), revenue (48%), cost of payment (45%), and authorization (34%). Respondents could cite the tracking of more than KPI.

When it comes to optimizing payment optimization, ecommerce merchants tend to employ two to three different approaches or techniques. Over the past year, the use of machine learning to fine-tune fraud management, as well as intelligent payment routing, have seen increased adoption, with about 4 in 10 utilizing each of these approaches, according to the report. Merchants in APAC, as well as enterprise and mid-market merchants, are using more of these approaches, in contrast to small businesses.

“While fraud management has historically been seen as a separate function to payment processing, sophisticated fraud management is also seen today as a means of optimizing payment authorization through its emphasis on lowering of false positives and even influencing issuer acceptance by achieving lower merchant fraud rates,” the report says.

On a global basis, merchants continue to spend about one-tenth of their annual ecommerce revenue on managing payment fraud, a figure that has stayed consistent for the three consecutive years the study has been conducted. “We have also seen a notable decline in the share of merchants who tell us that they “don’t know” or “don’t track” this metric – from 30% in our 2021 study to 23% this year – suggesting that merchants are keeping a closer eye on fraud management spending as time goes on,” the report says.

On the plus side, respondents reported improvement across key fraud management metrics, such as the share of ecommerce revenue lost to fraud, domestic order rejection and fraud rates, and the share of ecommerce orders that led to fraud-related chargebacks. The improvement was most evident in North America, where spending on fraud management rose significantly in 2021. At the same time, anti-fraud spending rose significantly in APAC and Latin America, as well as among small businesses, suggesting that these segments may hope to see improvement in their fraud metrics in the coming year.

Small-and-medium ecommerce merchants that generate between $50,000 and $5 million in ecommerce annually were among the most active spenders on fraud management solutions. Merchants in this category doubled their estimated fraud management spending over the past year, from 6% to 12% of ecommerce revenue, the report says.

Increasingly, ecommerce merchants are looking to reduce the manual review of suspect orders. About six in ten respondents said they are seeking to reduce or eliminate manual reviews as part of their fraud management strategy. Merchant size plays a significant role in a merchant’s decision to eliminate manual reviews. Small-and-medium-sized businesses are most likely to attempt to reduce manual reviews, while larger merchants are more inclined to continue the process, the report says.

When it comes to the type of fraud ecommerce merchants are experiencing the Top 4 attack vectors are phishing/pharming/whaling, friendly fraud/chargeback fraud, which ranked fourth in 2021, card testing, which ranked second in 2021, and identity theft, which ranked third in 2021. The jump in phishing/pharming/whaling was especially significant, with 43% of respondents saying they experienced these attacks during the past year, up from 35% a year earlier.

Friendly fraud is also a significant problem, with 34% of respondents saying they experienced it in 2022. In addition, 62% of respondents reported an increase in friendly fraud disputes in 2022. It costs merchants $35 to manage friendly fraud for every $100 in disputes. Overall, 18% of all fraudulent disputes should be attributed to first-party misuse, the report says.

When it comes to detecting fraud, the leading tools ecommerce merchants are relying on are:

  • Credit card verification services 55%
  • Identity validation / verification services 50%
  • Two-factor phone authentication 44%
  • 3-D Secure authentication 39%

Respondents could cite the use of more than one fraud detection tool.

Despite ongoing challenges ecommerce merchants face when it comes to management payments and fighting fraud, the findings in the report show that ecommerce merchants are making meaningful progress on both fronts.

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