Just a few years ago, drones were only available to the military.
But falling technology costs have now made them widely accessible to the public – creating both huge rewards and high risks for online drone retailers.
Today, drones are used for stunning aerial photography, seen whizzing around kiosks in malls and are even being considered by Amazon as its newest delivery method.
And yet, the high-value nature of drones makes e-commerce retailers a big target for fraudsters.
Why Is Card-Not-Present Fraud a Problem in the Drone Industry?
The production of drones for recreational and commercial use is growing rapidly, with global market revenue expected to increase 34% from 2016 to 2017. Gartner predicts three million drones will ship in 2017 – which equates to more than six billion dollars in revenue. And by 2020, it’s estimated that the drone market will be worth more than $11.2 billion.
But it’s not all good news. This increase in online sales and expansion into the recreational market means merchants can also expect an increase in fraudulent transactions because:
There is an incredible consumer demand for drones, and fraudsters know they can quickly find a buyer for most new products.
Fraudsters know they can easily resell merchandise at close to the purchase price, resulting in bigger profits.
The small size of most drones makes them easy to ship and transport, increasing their appeal to fraudsters.
It’s a tough battle, and fraudsters are determined. To make matters worse, drone retailers must be prepared to tackle several complex selling scenarios, including:
False declines. Drone merchants specializing in high-end merchandise may see numerous transactions with high dollar amounts or the same customer making frequent purchases. While these are often flagged as high-risk, they may also be collectors making legitimate purchases.
Holiday-based volume spikes. Retailers can expect an increase in fraud risk around Black Friday, Cyber Monday and Christmas as shoppers buy recreational drones as gifts.
Increased chargeback risks and friendly fraud. Flying a drone isn’t as easy as it seems, and if the maiden voyage results in a lost or a broken drone, frustrated customers may use chargebacks to recoup their investment.
How Can Drone Retailers Minimize Fraud Exposure and Chargeback Risks?
Card-not-present fraud, friendly fraud and chargebacks are devastating to any online retailer, and drone merchants are no exception.
Just one fraudulent transaction of a high-tech drone can result in a costly hit to a merchant’s profit margin and bottom line. Fortunately, there are several key steps merchants can take to minimize their fraud risk:
Monitor activity. Merchants should keep an eye on even the smallest changes to normal online ordering activity. For example, are there increased orders that appear to be initiated within the United States but the IP addresses indicate they’re overseas? Are there several small orders followed quickly by larger orders? If so, it may be a sign of a fraud attack.
Be proactive. If merchants only report fraudulent transactions after they’ve been processed, it’s already too late. Once a fraudulent order goes through successfully, online systems tend to recognize the fraudster as a legitimate customer, making future fraud attacks harder to flag and stop. Instead, be sure you have a system to proactively identify and flag suspected fraud attempts before the transaction is processed, to minimize losses.
Screen every order. Because of the high value of a single piece of merchandise, screening every transaction is important. Then, send flagged transactions to analysts for additional review.
Identify shipping scams. Are packages being re-routed after they’re on the truck for delivery? If so, the order may be fraudulent. Merchants should ask carriers to return packages to their business if an in-transit reroute is requested.
Creating a seamless shopping experience for customers is essential, but it’s just as important for merchants to protect themselves against fraudsters and potential fraud attacks. Implementing a comprehensive, multilayered fraud protection solution helps drone merchants achieve both goals while also protecting against excessive chargebacks.
About The Author
Rafael Lourenco is Executive Vice President at ClearSale, a card-not-present fraud prevention operation that helps retailers increase sales and eliminate chargebacks before they happen. The company’s proprietary technology and in-house staff of seasoned analysts provide an end-to-end outsourced fraud detection solution for online retailers to achieve industry-high approval rates while virtually eliminating false positives. Follow on twitter at @ClearSaleUS or visit http://clear.sale/.