Economically, 2020 is proving itself to be one of the most trying years in over a decade, as for the first time in sixty years, the International Monetary Fund projects zero economic growth in Asia for the first time in sixty years. Businesses are rightfully exploring different options to protect their bottom line, starting from cutting unnecessary losses, including those from fraud.
But what many business leaders may not realise is that their customer support teams have an important part to play in nipping fraud in the bud. Connected devices have proved especially attractive targets for fraudsters, for a few reasons.
Smart devices have come to occupy a space in our lives that’s unique among consumer products. What other product category has so rapidly come to appeal to a global market comprised of eager, unusually motivated repeat buyers? And these items occupy a price point that’s low enough to generate high sales volumes, yet high enough to make it worth a scammer’s while to steal and re-sell them.
Smart devices are also typically sold online. Despite the economic slowdown, eCommerce sales have experienced 209% year-on-year growth as of May 2020, according to ACI Worldwide Research.
Put it all together and smart device sales have become subject to an unusual amount of fraud. Specifically, they fall prey to reseller fraud, warrantee fraud and basic credit card fraud – all often carried out with sophistication and at scale.
Fraudsters target ill-equipped customer support teams
Scammers are incredibly adept at finding loopholes in policies and procedures. Put there by design to enhance the customer experience and meet the demand of legitimate buyers, these same policies and procedures help the bad guys steal and resell enormous amounts of product. The net effect severely damages companies and is bad news for consumers because it drives up the price and slows the pace of innovation.
Connected devices are especially attractive targets for fraudsters. Connected devices tend to be trendy products and buyers worldwide are unusually motivated by the need to both acquire them and furthermore, to keep up with the regular release of new versions. This has two important implications.
First, motivated buyers are often willing to purchase such products via non-traditional channels, and second, these products usually occupy a price point that’s high enough to make the risk of fraud worthwhile, yet low enough to keep sales volumes high.
High volumes of sales help mask the actions of the fraudster and motivate the device maker to relax certain controls on purchases so as to smoothly keep up with demand. It’s these relaxed controls that the fraudster works to exploit.
To be successful, a fraudster dishonestly interfaces with their target’s customer support agents, and each of these interactions offers small clues as to their larger modus operandi. Unfortunately, disparate small clues aren’t enough to reveal the entire scam, and the scammers know this. Someone needs to identify and assemble these scraps in a way that reveals the big picture.
The fraud occurs in one of three manners: Credit Card fraud, Warranty fraud, or Reseller fraud.
Credit card fraud, as many of us sadly know first-hand, includes purchases made with stolen or counterfeit credit card numbers. These purchases result in losses to the device maker, card issuing bank and even the legitimate card owner.
Warrantee fraud occurs when a scammer orders a device and falsely reports that it arrived faulty or not at all, and then requests a replacement device or refund. The fraudster will either return something other than the device or not return the required product at all, selling both the original and the replacement before doing it again.
Reseller fraud occurs when a scammer acquires and exploits a discount promo code to purchase large quantities of a device at a steep discount, subsequently reselling these through unauthorized channels. This damages the device maker’s relationship with their authorized vendors and often results in a poor experience for legitimate customers, unfairly damaging the reputation of the device maker.
In every case, the outcome of these scams is damage to both the balance sheets and reputations of entrepreneurial companies often not able to sustain much of either. Additionally, this sends prices up and hampers future innovation.
The good news is, fraudsters can be beat, and it’s happening right now. Teams of smart people working hand in glove with customer support agents learn the scammers’ patterns and use that knowledge to create systems to foil their schemes without impeding the purchases of legitimate buyers. The impact they have is not trivial. In one case, a relatively small team of experts spotted and blocked a single fraud ring, directly preventing almost $10-million in losses.
This is only possible when a fraud prevention team is able to work directly with customer support agents to glean clues from their first-hand experiences and then aggregate large data sets which – when viewed through the proper tools – can reveal how a fraud ring circumvents company controls and how to craft the appropriate response.
Technology is useful in this arena. Artificial intelligence can quickly spot transactions that meet certain, adjustable, thresholds of suspicion and take action accordingly. But falsely flagging legitimate purchases as fraudulent can be as damaging to a brand as failing to catch actual scammers. Unfortunately, AI doesn’t have the degree of cultural understanding and contextual awareness that allow the same action to take on very different meanings in different circumstances, while experienced humans do, and use to differentiate between false and true positives. Thus, AI is a useful tool for preventing fraud, but cannot operate independently.
The key is experience. Intuition plays a vital role in fraud detection and prevention, and an experienced team takes time to congeal. This is in large part where the benefit of outsourcing comes in. Clients of outsourced teams even benefit from the time members have spent learning on other accounts. This, in turn, causes a sharp drop in time to effectiveness, and a concomitant surge in savings.
Every smart device maker knows that reseller, warranty and credit card fraud are bad for their reputations and bottom lines. So why don’t more do something about it? The fact is, effective fraud teams must mature into effectiveness and this gap in productivity often dissuades fraud victims from providing ongoing support or even attempting detection and prevention to begin with.
The good news is, some companies have already built seasoned, highly effective fraud teams able to apply their years of preparation to the benefit of promising connected device innovators, on an outsourced basis.