Why Your E-Commerce Business Needs a Fraud Prevention Tool Right Now

In the wake of COVID-19, non-essential e-commerce has essentially come to a halt in India, as well as many parts of the world. This has caused a lot of damage to both consumers and businesses. With a nationwide lockdown in place until May 3 2020 (as of April 14 2020), we don’t know how the next month will pan out for Indian e-commerce yet.

Many businesses all over the world have introduced a series of relief measures to help support daily wagers and those who live between paychecks. We’re going to look at some effects that the current lockdown has on the e-commerce industry, a projection of what you can expect in the future and optimal ways to keep your business safe for post-lockdown.

Assessing the impact of COVID-19 on Indian e-commerce

First up, let’s look at the actual impact of COVID-19 on Indian retailers and the extended impact of it on consumer behaviour. Due to the restrictions imposed by the government, there are several repercussions faced by online sellers. Here are some major takeaways from research conducted by data companies:

1. Within just one week of ‘Janta Curfew’, Indian e-commerce lost $400 million in sales
2. If this situation is extended for months, this could mean a $1 billion loss in Gross Merchant Value in the coming weeks
3. E-commerce companies are experiencing difficulties in keeping their warehouses open during this time due to the intervention of authority. This applies to small and big players alike
4. E-commerce operations began gradually picking up after central and state authorities intervened, but e-commerce giants like Flipkart and Amazon are now only taking orders for essential services, as of April 13th
5. Hyperlocal delivery giants such as BigBasket and Grofers are operating at only 30-40 percent capacity due to shortage of staff. However, many e-commerce players and retailers have teamed up with hyperlocal delivery companies like Swiggy, Zomato, etc. to home-deliver groceries and essentials
6. Smartphones and fashion contribute over 50 percent of sales on e-commerce. Both categories, however, have now been hit due to the current lockdown and there’s no denying that the supply chain has also faltered due to the lockdown
7. Groceries are in high demand on online platforms and are expected to grow faster, but the sector contributes only 6 percent to overall GMV. Online grocery sales stood at $2 billion in 2019, as per Forrester’s report
8. The personal care and hygiene segment is also growing, and currently contributes 4.5 percent of total GMV for e-commerce platforms

Source

A look at the silver lining

We can, however, expect a few good things to happen after this lockdown period is over with. Segments across e-commerce are helping ease peoples’ anxieties by helping bring solutions both virtually as well as to your doorstep. These testing times are bringing to fore the accelerated adoption of online services, according to The Economic Times.

The rise of the grocery sector:

One of the most important segments is grocery in e-commerce and is arguably the only sector that has been making progress since the lockdown. The players in this segment includes everyone from supplying groceries and other household essentials, food delivery from your favourite restaurant to delivering documents. These hyperlocal delivery companies are now assisting the country in putting up a strong fight against the virus.

Some noteworthy collaborations:

Over the last week, we also saw transport aggregators such as Uber and Ola team up with food delivery apps like Swiggy, Zomato, BigBasket and Grofers to assist in last-mile delivery. These companies, together, have played a major role in preventing the supply chain from collapsing and have gone a long way in making people stay home at all times.

However, it’s worth noting that the government must take heroic measures and work in tandem with food delivery companies lest we are looking at a higher spread in the near future. The government has already issued an exempt status to e-commerce companies classifying it as an essential service, and it is imperative that the segment is enabled to accelerate helping on the frontlines.

The slow, yet steady comeback of e-commerce:

Apart from this, we can also expect e-commerce businesses to also slowly limp back to business after the lockdown. Even during the lockdown, smooth operations of essentials can be attributed to delivery agents working in the frontline and ensuring smooth delivery of essentials. The heroism of delivery agents is now compared to those of healthcare workers, risking their own lives to provide service to the public.

Some e-commerce companies are expected to resume operations in part, albeit warning customers about high order demand and delayed delivery. Amazon and Flipkart, too, have resumed operations in specific segments and are slowly increasing their operating capacities with caution.

A look at the future of online sellers:

Though there has been a sharp decline in sales all over the world to the tune of billions, we can expect the market to make a powerful comeback with the right contingent plan.

In any case, it can be expected that smaller companies need to resort to omnichannel retail to have an edge over the rest. We can also expect non-essential e-commerce sales to bounce back after the lockdown is lifted. There is no lying, however, that a significant amount of chaos will ensue after the lockdown in terms of purchase and delayed delivery pipelines. 

Let’s look at why fraud detection will be an important part of the post-lockdown period and how much it will impact the company’s savings.

Why fraud prevention is crucial post-lockdown

There is no doubt that the post-lockdown phase will bring to light the transformation of societal behaviour as we know it. This will include changing patterns in customer behaviour. Post-lockdown may bring a spike in impulse purchases and may cause a lot more damage to your business than you think. Allow us to explain how so.

The lockdown period has restricted normal life and purchase behaviour due to an abrupt, unpredictable halt. Once the lockdown is lifted, we can expect the newfound ‘freedom’ to cause a lot of disruption for online sellers. We can also expect online demand to go back up once the lockdown restrictions are lifted.

We have found that a high percentage of these ‘impulse purchases’ are very likely to result in cancellations. Unsuspecting merchants are hit severely with these returned/cancelled orders since they end up spending double shipping costs for forward and backward logistics. These orders never actually reach the customer and are also termed as RTO (Return-To-Origin) or Non-Deliverable Returns (NDR) orders. An RTO/NDR order is a cost that the seller perceives as ‘inevitable’ and can put a lot of strain on his business.

Due to the gap in business and the high inflow of orders, all merchants aren’t at the liberty of cancelling these suspicious orders. There are also multiple reasons why methods like blanket blacklisting won’t work well for the online seller’s business.

Here are a few other trends that we’re expecting to make a comeback after the lockdown period:

1. High amount of non-deliverable/incomplete addresses from Tier 3 and Tier 4 cities 
2. Deep discounting by merchants in order to bring customers back, which can result in a huge number of impulse purchases
3. Since e-commerce companies have their guard down in these tough times, this can also provide chances for habitual fraudsters to return to these fraudulent activities
4. Individual monitoring of orders may not be possible during the post-lockdown phase owing to the high demand of non-essential orders; this can lead to an increased probability of the number of chargebacks filed, and consequently, chargeback fraud itself
5. Shipping and deliverability can be affected if the lockdown is released only in a few places or in a phased manner, this can lead to a lot of cancellations and losses for the merchant

To survive losses from new avenues of fraud, RTO and NDR orders, online sellers must employ methods to stay wary to fully understand and stay one step ahead of their user base. Fraud detection in e-commerce happens with the help of robust Machine Learning engines.

Here are some key areas of focus usually employed in fraud detection tools:

• The role of ML in fraud detection

Detecting impulse purchases or fraud orders requires us to first gather the ‘Forensic Evidence’ or in simple terms, observe the user’s patterns. Every user interaction leaves behind a subtle digital forensics trail like proxy IP, device ID, email address, time to order, etc. 

Machine learning models combine hundreds of such innocuous parameters, which are seemingly unrelated, to identify the patterns that indicate fraud. These patterns are later used to zero down on customers who perform a fraud across different websites and make it to the blacklist.

• Converting random data into ‘useful’ information

Machine learning and natural language processing are used to differentiate between real and fake addresses. This is only the beginning. Transaction and user data can be enriched by adding context to it.

For example, by adding the price of the user’s phone device or categorizing an address as five stars or one star, it turns meaningless data (phone model) into actionable information that increases the accuracy of the red or green flag that the machine learning models generate for every transaction.

• Analyzing user behaviour

Fraudsters are habitual in nature and leave similar footprints on multiple sites. Network effects can be harnessed by pooling in anonymized data to predict and prevent fraudulent behaviour. This de-incentivises and penalises fraudulent behaviours across the ecosystem. Moreover, e-commerce sellers will truly know their customers so that goods are delivered to a person not merely to an address.

We at Razorpay Thirdwatch, are helping businesses stay prepared for the future by providing an in-depth AI/ML based solution for e-commerce companies to tackle RTO and COD fraud and having a good look at both the best and worst-case scenarios. While there is no prediction on the true impact of COVID-19 yet, we can all definitely hope for the best and prepare for the post-lockdown era. All we know is that e-commerce businesses need to brace themselves and adapt quickly to the wave of change that may change ‘normal’ life as we know it. 

Godspeed!