Rafael Lourenco, the Executive Vice President and Partner at ClearSale, a card-not-present fraud prevention operation that helps retailers increase sales and eliminate chargebacks before they happen, shared his insight with Payment Expert on what he’s seen from the sector.
Payment Expert: Firstly, can you tell us more about which sectors have significantly fluctuated in terms of e-commerce during COVID-19?
Rafael Lourenco: Some industries are seeing a higher intensity of orders and others have taken a drastic dive. Our data revealed that e-commerce order volumes surged among home improvement hardware, home furnishings, house appliances, office supplies, and food and beverage industries, while orders in travel, jewelry, automotive, and apparel industries saw tremendous drops in the two weeks after the COVID-19 outbreak was declared a national emergency.
Surprisingly, we have also seen consistent growth among small businesses (making less than $5MM in annual revenue) in the current climate. For instance, book, flower, and gift stores have experienced a whopping 421% increase in order volume, food and beverage has seen up to a 362% increase, and home improvement businesses are up by 234%.
PE: How have these sectors adapted to dealing with enhanced transactions in a period of uncertainty?
RL: In order to fulfill demand, many merchants have reconfigured their operations and taken measures to make the customer experience as seamless as possible. This includes updating their website to reflect new shipping times, providing different payment options, being accessible to customers, and placing limits on essential items so that as many customers as possible can purchase them.
The extreme changes in consumer shopping habits, including an uptick in orders, means it would be vital that e-commerce merchants have an agile fraud protection solution in place that is equipped for this kind of novel ecosystem. A good fraud prevention solution should ensure that good orders aren’t being declined, in addition to fighting fraud. False declines can threaten retailer profits, since more than 60% of customers say that if they are declined on an online channel they’ll no longer shop on the site or at least reduce the frequency at which they shop with the online store. Therefore, it is vital that merchants work to prevent fraud, reduce false declines, and improve the overall customer experience — all at once.
PE: Which payment methods have been best to serve these sectors and how crucial has the payment journey been?
RL: There is an increased need for alternative payment methods due to the increased need for people to shop online. We’ve seen an unprecedented amount of first-time buyers that are now going online, and in a time when unemployment is at an all-time high, the cash flow of most consumers is limited.
White-labeled store credit cards offering delayed payback plans, buy now pay later, small personal loans, and other types of installment plans are giving people the freedom to still purchase what they need. This is especially true for the sectors of home appliances, furnishings and office supplies, all of which are important for families who are now spending more time at home or have had to transition to a work from home situation.
These sorts of products that have a high average order value (AOV) are traditionally shopped for in brick and mortar locations, but with retail stores closed across the country, online is now the only place to find them. Most consumers can’t afford to pay upfront for a refrigerator or a new office desk, so there is a good opportunity for alternative payment options to provide smaller interest rates or slower payback plans than a credit card.
PE: In terms of the threat of fraud how have companies had to adapt?
RL: Adapting to this new world will take a lot of awareness and collaboration. Below are some of the main abnormalities we are seeing in the space, and how fraud professionals need to adjust to them:
Variation in volumes – Merchants are seeing spikes of more sales on some items and sales on other goods are declining. These variations affect fraud rates, as generally speaking, when the number of good orders moves up or down, the fraud rate moves in the opposite direction (higher good orders result in lower fraud rate, lower good orders result in higher fraud rate).
Changes in buyer profiles – With brick and mortar stores closed, shoppers making purchases online for the first time. When the number of first-time buyers increases, it raises the risks, since we don’t have a purchase history for these shoppers. That said, due to the influx of these types of new shoppers, the risk level for first-time buyers is actually lowering and that needs to be accounted for.
Shipping to alternate addresses – Many consumers are spending the quarantine in locations other than their known permanent addresses. Some are staying with family or choosing to spend it in a vacation home. New addresses raise red flags, but we need to be mindful of this new world, and look at the recent purchase history that may give you the new address for the buyer. This can be tricky, as it is a common practice for fraudsters to use a new address, and if it works, to use it again. But I stress again that this is a new atmosphere we are in, so careful scrutinization is important.
Recurrency and changes in velocity rules – People making online purchases of the same goods at a far more frequent pace than before. Algorithms may be flagging orders with these velocity checks, but we have to adjust to the new velocity of buyers to ensure that we aren’t rejecting these orders.
It is important to adapt our understanding– and in a lot of cases — adjust our algorithms, to this “new normal” of buying habits. This is how COVID-19 is affecting fraud KPIs, so fraud teams need to make sure they are aware of the changes and adapting their review process to ensure that it isn’t overly conservative and running the risk of rejecting good orders.
PE: Has consumer affordability changed and has the approach to assessing it also had to be flexible?
RL: As mentioned above, with the skyrocketing unemployment rates, consumer affordability has most certainly changed. Credit companies are charged with assessing a consumer’s ability to pay any line of credit extended to them, and these times are filled with uncertainty that is totally unprecedented. On top of the highest unemployment rates in history, many businesses are heading towards bankruptcy. Americans are turning towards credit at a much higher rate, as liquidity is down, and payment tools are more necessary than ever to survive and keep their families and employees above water.
What it comes down to is this – the payment methods that don’t depend on immediate access to cash will be the ones that ultimately succeed during this time.
As far as assessing that affordability, while I am not a credit card company, I can say that it is vital for this process to be sped up and to reassess some of the caps that may have been in place previously. This pandemic has caused dramatic shifts in a consumer’s lifestyle and their ability to afford that lifestyle.