Mastering the holiday hustle: Lakshmi Sushma Daggubati's expert insights on navigating fraud challenges in payments

The holiday season can be a joyous and profitable time of year for merchants. But, if merchants do not take a proactive approach to protecting their enterprise against fraud, they could find themselves struggling to keep up with ongoing challenges. Although fraud is repeatedly characterised as simply a cost of doing business, the attitude and approach toward fraud should not be carelessly indifferent. Taking this approach will only lead to financial complications and stress.

Lakshmi Sushma Daggubati, product manager at Mastercard, dives into what the fraud landscape looks like, and what strategies merchants can implement to mitigate fraud. Renowned for her pioneering work in transformative projects, Sushma has become a trailblazer in advancing payment technology and refining financial services. Currently, she holds a key role as a leading product manager at Mastercard, specialising in commercial expense reporting and analytics, Sushma's influence extends to critical facets of the financial landscape. She holds three patents, she is acknowledged as a thought leader and pioneer in the payments domain, driving real advancements in the industry.

Friendly fraud vigilance: Navigating holiday season challenges for merchants

As the holiday season approaches, merchants face the dual challenges of increased transaction volumes and a corresponding rise in fraud risks. A significant portion of this fraud stems from their customers, often through chargebacks post-purchase. This trend, known as 'friendly fraud,' is becoming more common, including cases of synthetic identity fraud. Moreover, the diversification of payment methods and evolving consumer behaviours add complexity to transaction processes. To navigate these challenges, Sushma advises merchants to adapt to new consumer buying patterns and ensure secure, efficient checkout experiences.

Despite the pandemic's impact on buying preferences, consumers continue to seek quick, frictionless checkout experiences. Sushma emphasises the importance of authenticating customers' digital identities to reduce the risks of friendly and synthetic fraud. She warns that lacking such authentication tools could increase businesses' vulnerability to fraud or lead to unnecessary costs from declining legitimate transactions.

"The holiday season intensifies existing problems," says Sushma, noting that merchants often focus on sales and defer addressing issues. However, she warns against this approach with friendly fraud, which tends to increase during the holidays. She emphasises the necessity of having a proactive plan to tackle such issues, particularly friendly fraud, rather than ignoring them.

Navigating the surge: Tackling the rising tide of friendly fraud challenges

Daggubati notes that there are up to 30 types of friendly fraud committed by genuine customers, with the most common being customers making purchases and then refusing to pay. This includes claims of non-receipt or dissatisfaction, leading to chargebacks despite evidence of their purchase. Additionally, she highlights refund and return abuse, where customers return different or damaged items, yet receive refunds, causing further losses for merchants.

“Friendly fraud has increased significantly,” Sushma said. “The 2023 Chargeback Field Report researched by chargebacks911 showed that friendly fraud was a much larger concern than criminal fraud. When asked to estimate the percentage of chargebacks that were the result of friendly fraud, merchants reported an average of 44 per cent—with retailers making more than $100 million in annual revenue being more likely to identify disputes as friendly fraud. This isn’t a problem that’s going to go away.”

She adds that the more mitigating steps and the more consideration that merchants place on understanding their returns and refund data, the better.

Daggubati highlights the frequent disconnect between sales and the refund/return process, handled by different teams, leading to various types of friendly fraud. She stresses that this isn't a single-problem scenario with a one-size-fits-all solution. Instead, it's a complex issue requiring multifaceted solutions.

The refund tracking system is key

No single solution can eliminate all fraud, but businesses can employ strategies to mitigate it effectively. According to Daggubati, a key factor is leveraging data, especially beyond the checkout phase. Utilizing behavioural analytics to understand consumer navigational behaviour is crucial. She also emphasizes using historical data on returns and refunds and employing network intelligence. This approach involves pooling anonymized data from various customers and merchants to identify patterns of known frauds, providing valuable insights that can help predict and prevent potential fraud at the checkout phase.

The objective, Daggubati explains, is to be precise in targeting instances of fraud. “The tools help a lot in making sure you are not just pointing at your customers randomly and offending people who are not committing any kind of fraud,” she says. “There’s a different weight to it sometimes than other types of fraud because you are policing your customers in a way that you are not always, which doesn’t mean that you shouldn’t do it. It just means it requires some additional thought and care as you go through the process.”

Fraud defense strategies: Beyond quick fixes

Daggubati counters the industry notion of a single fraud solution, stating that no such 'silver bullet' exists. Instead, she advocates for a combination of tools and technologies tailored to each merchant's specific needs, considering factors like geographic location, product range, and payment methods. This customised approach to fraud management not only alleviates the burden on merchants but also optimises their revenue channels effectively.

Daggubati advises that effectively mitigating fraud involves curating and understanding data, comprehending the problem, and strategically using available tools. She emphasises that there's no single, universal solution to prevent all instances of friendly fraud. While these measures can limit fraud, it's also crucial for merchants to prepare strategies to address it post-occurrence, accepting that various types of fraud are an inherent part of doing business.

Disclaimer: The thoughts expressed are those of the subject and not of the Khaleej Times.

• KT Network