The Merchant Risk Council’s MRC Vegas 2023 conference was a success based on feedback from fraud fighting professionals at major merchants in attendance. A number of interesting trends in terms of the economy, fraud and anti-fraud technology were noted at the show. Most important among them for fraud prevention and trust and safety professionals was the trend of moving forward customer identity authentication in the user flow from the checkout page to earlier in the user journey.
It’s the labor market, stupid
On a macroeconomic level, Visa reported encouraging news for merchants worried by how their organizations will be affected by the ongoing economic downturn. The core message from Visa’s Principal US Economist, Michael Brown, was quite reassuring on that front. “Whether we have a recession or not is irrelevant,” said Brown. He explained that due to the strong performance of the U.S. labor market, even if there is a technical recession, the recovery would be quite rapid based on the analysis of his team of economists at Visa. He also indicated that U.S. GDP is still expected to grow relative to last year, albeit mildly, and consumer spending is still decent.
Brown elaborated in his presentation that the core weakness in the U.S. labor market to date had been concentrated in the tech sector and that the one side of the economy experiencing a decline in GDP is industrial production. Other sectors in the economy, however, are showing resiliency in the face of interest rate hikes.
Companies tackle refund fraud with renewed focus
In terms of fraud attack vectors, a topic of discussion that came up a good deal during the conference was refund fraud. While refund fraud has been a major attack vector since late 2019, it appears merchants are finally developing processes to handle it more effectively.
“This was the first year that merchants have reported that their leadership has given ownership of the problem [of refund fraud] to a specific department and a mandate to solve it,” said Shmuli Goldberg, SVP Partnerships at Identiq. “In previous years, the problem would fall between the cracks between the logistics and fraud departments.”
Indeed, refund claim fraud was considered a primary responsibility of fraud departments by 65 percent of respondents in this year’s 1st annual Fraudology Online Fraud Benchmarking Study, sponsored by Forter. Only one other area of responsibility received a higher response, which was preventing payment disputes, which came in at 66 percent. The survey polled over 500 online companies with fraud departments on a variety of questions related to anti-fraud operations. While the survey will be published in the near future, an early preview of results was shared with a select group of merchants at MRC Vegas 2023.
According to Karisse Hendrick, owner of Chargelytics Consulting and one of the proponents of the fight against refund fraud, the shift in responsibility for handling refund fraud to fraud teams took several years because it took time for fraud teams to realize they had an addressable problem and even longer for senior management at major retailers to become comfortable with addressing returns as potential source of fraud instead of automatically trusting customers. Traditional payment fraud technology and methods cannot detect refund fraud, explained Hendricks. However, fraud teams can apply similar skills that they use in looking for patterns and solutions in payment fraud to identify patterns and solutions for refund fraud as well.
“It has taken this long for fraud departments to explain to their respective leadership that this is a form of theft/fraud,” said Hendrick. “The business side of retail has always been very concerned about not denying justified claims requests for good customers. So, it took a long time for fraud teams to perform trend & root cause analysis and to make the business feel comfortable with the ways they were identifying these fraudulent claims or policies they were implementing to make it more difficult for fraudulent claims to be made.”
Identity authentication is moving earlier in the customer journey
In terms of fraud technology solutions, implementing identity authentication early in the user flow was a major topic of discussion at the MRC Vegas. The goal of early identity authentication is to reduce user friction thereby increasing customer satisfaction and online sales conversion rates.
“Merchants are understanding the value of doing identity verification at the right stage,” said a representative of LexisNexis who wished to remain anonymous due to corporate external communication rules. “People are doing verification earlier in the user journey.”
“The focus is now on bringing identity authentication before the transaction, so the decision [to approve or deny an order] made at checkout is simple. This buys more time to analyze customers and offers the opportunity to provide less friction to good customers in the buyer experience,” said Goldberg from Identiq. “This is new approach is like night and day compared to where the industry was two years ago.”
Many on the merchant side that spoke with Merchant Fraud Journal agreed as well that early identity verification of users was a major topic of interest.
“This conference in particular saw a lot of talk about ATO (account takeover) and it’s clear it’s a growing issue” said a fraud product leader at a major global marketplace. “The other side of preventing ATO is quickly identifying if you have a good user, so identity verification has also been a topic of significant discussion.”
According to Matthew Hertz, CEO of identity data provider Pipl, this increased interest in identity verification is not a completely new phenomenon, but rather a sign of maturation in fraud fighting efforts at large organizations. As companies must rationalize what tools they acquire for their anti-fraud arsenal, identity verification simply makes sense given its application a wide variety of fraud scenarios.
“Identity verification is the thread that goes through all the different types of fraud,” said Hertz.
MRC still crucial venue for merchants to talk shop
While the open panel sessions held at the event were enlightening for many, for fraud fighters at merchants the most valued elements of MRC Vegas this year as in past years were still the ability to talk shop with colleagues at other large merchant organizations, and the opportunity to strengthen existing relationships with solution vendors through face-to-face meeting at the show’s exhibition hall.
“This is my first time here at the conference,” said a risk manager for a large online auction site. “I was sent by my organization to scope out a few new potential vendors for us. Until now all our conversations were done via Zoom, and it’s really great to have an opportunity to meet them face to face.”
Based on feedback from last year’s conference, the Merchant Risk Council sought to maximize the quality time spent between merchants by allocating merchant-only tables at mealtimes and dedicating the last half-day of the show to merchant only discussion panels.
However, this did not deter solution vendors. According to MRC CEO Julie Fergerson, there were a whopping 79 vendor booths in the exhibit hall this year. In addition, multiple returning merchants and vendors noted to Merchant Fraud Journal that this was largest MRC conference to date.