KUALA LUMPUR: By combining data from billions of transactions that took place on its network from the year 2019 to 2021, Stripe, a financial infrastructure platform released a report that shows the biggest trend in fraud is e-commerce fraud, which has halted growth for many businesses.
The report illustrates global fraud patterns across locations and business models as it gathered responses from more than 2,500 businesses from nine countries namely Australia, Canada, France, Germany, Japan, the Netherlands, Singapore, the United Kingdom, and the United States. It details the growing burden global businesses face from e-commerce fraud – the difficult choices they must make, and the steps they can take to fight back to protect their margins.
The volume and sophistication of fraud varies dramatically across markets, requiring tools that adapt to local fraud patterns. France for instance, has nearly twice the fraud rate of Germany, while Singapore experienced half the rate of the wider Asia-Pacific region.
It also shows that nearly three-quarters of businesses have diverted engineering resources, and more than half have curtailed expansion plans, due to fraud concerns.
"Fraud doesn't slow down when the economy does. It's vital for businesses to maximise the value of every dollar by turning away as many fraudulent actors as possible without blocking good customers—and this report shows them how they can do it," said Stripe Radar product lead Will Megson. Stripe Radar is Stripe's main fraud prevention product.
According to the report, more than half of businesses surveyed said that fraud is a growing concern. It also shows that subscription-based businesses struggle most with fraud where 72 per cent of the respondents think they will lose more money to fraud in 2022 than 2021.
This changing risk environment has had a particular impact on businesses offering B2B SaaS products and B2C subscriptions where they are more susceptible to fraud, the report explains, because they are "more likely to be household brands, making it easier for fraudulent actors to resell the stolen goods or services" such as buying a digital subscription with a stolen credit card, then selling it for a lower price.
Business leaders face tough choices about how to respond to the reality of such fraud as the more they try to prevent fraudulent transactions, the higher the chances they are blocking legitimate charges.
To prevent more transaction frauds, businesses can mitigate fraud risk through extensive manual review of flagged charges, but this method requires a massive commitment of human resources—something scaleups and startups often can't afford.
The report identifies that the optimal sensitivity for such a fraud model depends on the business's margins—the higher the margins, the less sensitive the model should be.
Over the last year, Stripe has invested substantially in its fraud prevention tools to help businesses maximise resource allocation during a time of economic slowdown. In 2021, Radar reduced dispute rates by 40 per cent, and the new improvements have helped businesses such as 7-Eleven, AdBlock, the British Council, Deliveroo, and Kickstarter to save money across the transaction flow, generating revenue and freeing resources for core business activities.
"It's not well understood just how hard fraud makes it to grow a business online. We've been a target for card testing attacks for years, one of which was so intense we were nearly kicked out of the card networks, which would have effectively ended our ability to run our business. Stripe offered us ongoing protection that we could fine-tune against card testers, nearly eliminating fraud losses as we grew," said Adblock chief executive officer Matthew Maier. Adblock, which helps more than 100 million users protect their privacy and control their experience online, is also using Radar and Stripe Checkout solutions to accelerate its global expansion, at the same time protecting transactions.
According to the report, regular updates to Radar's machine learning models block more fraud while letting through more good customers.
Stripe estimates one incremental improvement made in May blocking US$40 million fraudulent transactions and recovers an additional US$70 million in revenue for users every year—on top of the billions of dollars Radar saved.