Fraud Consumes U.S. Online Commerce With An Appetite For Apparel

Lane Leskela

In our continuing saga on the wide world of large-scale fraud schemes, enter the invisible army of online commerce operators with the motivation and ability to steal consumer credit accounts and to create new accounts. One of their current objectives is to commit fraud by buying clothes and shoes and accessories to resell or to receive illegal chargebacks.

In fact, the apparel industry suffered a whopping 70% year-on-year increase in U.S.-based fraud attacks in 2016. This is according to new research that examines online fraud activity from the e-commerce fraud prevention provider Forter together with the Merchant Risk Council.

Let’s take a closer look at the results of the research, and examine what businesses can do to protect themselves from the growing threats.

Forter’s 2016 Fraud Attack Index

Israel-based Forter looked at data on more than 136 million transactions to compile its 2016 Fraud Attack Index, revealing a 79% increase in fraud incidents for U.S. domestic retail orders when comparing Q4 2015 to Q4 2016. Interestingly, online fraud attempts on international orders in Q4 2016 decreased by 13% when compared to incidents recorded in the same period in 2015. Nevertheless, fraud activity in online retail orders from outside the U.S. were 62% higher than in domestic orders during the fourth quarter of 2016.

Impact of EMV adoption

According to fraud research analysts at Forter, after the October 2015 adoption of EMV (microchip) credit cards in the United States, a rise in the number of domestic fraud attacks on online commerce sites was anticipated. As hoped, U.S.-based operators were negatively affected by not being able to easily copy the necessary data from physical cards. However, domestic fraudsters then shifted to increase their online pursuits, dramatically boosting domestic CNP (card not present) fraud activity last year.

Increase in online payment hacking

The 2016 Forter report noted an alarming upward trend in the Account Takeover (ATO) domain. Fraud operators have also shifted focus from “Merchant ATO” (breaking into accounts managed on the seller’s website in order to masquerade as returning customers) to “online payment ATO” (hacking into customer accounts managed by online payment services including PayPal, Apple Pay, Google Pay, and Amazon Payments).

Thus Merchant ATO activity, which was on the rise in 2015, actually decreased last year. However, this represented a shift in account targeting by type rather than indicating an overall decrease in activity. The 2016 Fraud Attack Index reveals a 131% increase in all ATO attempts against U.S. online payment accounts.

Online payment fraud prevalent in apparel, with a 69% increase

Evaluating the online payment fraud differences between retail categories, Forter analysts also published the year-on-year percentage increases or decreases in fraud attacks for specific product verticals:

  • Apparel – 69% increase
  • Food and beverages 49.8% increase
  • Electronics – 1.8% decrease
  • Luxury goods – 8.4% decrease
  • Digital goods – 22.6% decrease
  • Travel & hospitality – 33% decrease

With an increase of nearly 50% over 2015, Forter’s data reveals that the food and beverage trade has also seen a dramatic increase in online fraudulent payments in the past year. As the five-quarter graphical analysis shows, the apparel industry remains under the threat of online fraud more than any other U.S. retail sector. Some of the contributing factors include widening deceptive buying practices and the large and growing market for stolen credit card information.

Forter’s report also warns online merchants and consumers that botnets are becoming increasingly popular with fraud players due to their ability to increase both the scale and reach of online attacks.

What to do

Fortunately, solutions are available that can help detect fraudulent activity and to prevent losses due to payment fraud. These solutions can:

  • Help customers reduce fraud-related financial losses by screening multiple payment scenarios while providing increased security for transactions in key business processes
  • Capture and analyze high volumes of transaction data from multiple sources and provide real-time detection to help quickly identify and halt fraud activity
  • Stop payment processing in real time on transactions that are associated with revealed fraud patterns
  • Offer prebuilt rules for fraud detection – for example, identifying customers located in high fraud-risk countries, and screening full customer addresses against politically exposed persons (PEP) lists
  • Prevent open access to identifying customer data and improve protection against sensitive information misuse
  • Mask sensitive data-capture fields before field values are handed over to a user interface

Learn more

Learn more about SAP solutions for fraud management and UI masking. Read the other blogs in our GRC series.

This article, GRC Tuesdays: Fraud Consumes U.S. Online commerce with an Appetite for Apparel, originally appeared on the SAP BusinessObjects Analytics blog and has been republished with permission.

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Lane Leskela

About Lane Leskela

Lane Leskela is Global Business Development Principal, Governance, Risk, Compliance and Security at SAP.

Can Fintech Startups Continue To Shake Things Up?

Lucy Thorpe

The financial technology revolution is taking the world by storm – nowhere more so than in the UK, where this red-hot sector directly employs 135,000 people. Britain’s fintech sector generates billions of pounds for the UK economy; London leads the way, but other British cities, including Manchester, Leeds, and Belfast, are up there as well.

Disruptive innovators

Whether operating in areas like international money transfers, loans, or investment management, these agile startups are making a big impression and attracting venture capital investment. Not surprisingly, their influence has attracted the attention of the established banking sector, which, rather than be overtaken, has opened a dialogue with many of them, including discussions about blockchain.

The result has been rapid growth, with the best of the bunch already helping themselves to a healthy slice of market share. But is their maverick reputation as disruptive innovators a cause for concern?

Growing up fast

Making life easier for customers by cutting fees and middlemen is all very well. But do such businesses have the backend support they need to ensure that they can carry on offering a reliable, consistent, and compliant service as they expand? Crucially, can they convince investors that they can scale and grow while remaining compliant in this highly regulated sector?

One consideration is adopting business management software accessed through the cloud, which can help support their scalability. Most solutions are now built on the highest standards of accountancy, reporting, project management, customer relationship management, and talent management, so would prove to be a smart choice for delivering a consistently high standard of service.

Invest to impress

Investors look favorably on those who can show they are taking the future of their businesses seriously. With cloud-based software, businesses can benefit straightaway from real-time insights and analytics from any device at any time. With robust systems in place, fintech entrepreneurs are in a better position to attract investors, who can be more confident that they are protecting their investments.

Want to learn more about how banks can improve customer relationships? Download the report “Engaging the Unengaged Customer.”

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Lucy Thorpe

About Lucy Thorpe

Lucy Thorpe is a digital marketer and writer with SAP platinum partner In Cloud Solutions. Based in the UK, she is a former BBC journalist and presenter. Much of her work is now focused on explaining the benefits of digital enterprise resource planning (ERP) systems for small and midsize businesses.

How Lean Is Your (Financial) Supply Chain?

Drew Hofler

Billions of dollars and millions of people-hours are dedicated each year to improving supply chains. From process improvements in manufacturing and just-in-time supply, to technology infrastructure for managing goods in transit and assessing supply and supplier risk, companies are investing like never before in their supply chains. And for good reason! A healthy physical supply chain is the beating heart of every company that produces goods to sell.

But if the physical supply chain is the beating heart of a healthy company, the financial supply chain is its lifeblood.  For every movement of goods in the physical supply chain, there is a corresponding transactional cash flow (often referred to as the procure-to-pay or source-to-settle process) that impacts the working capital and financial health of all participants. And many leading companies are now approaching the financial supply chain with the same rigor as they are applying to the physical.

In fact, in a new report, “The CFO’s Guide to Streamlining the Financial Supply Chain,” published by CFO, an Argyle company, one executive stated that “the CFO and supply chain leadership are both shifting from a backward-looking view to a forward-looking view” of the financial supply chain. This is in order to gain the visibility and capability needed to transform payables from a balance-sheet liability into a strategic asset. They are doing so by addressing the inherent challenges of the P2P process, enabling them to leverage their payables to reduce supply chain liquidity risk, free up working capital and deliver value through collaboration with their suppliers

Addressing current challenges

Too often, the financial supply chain is made up of a disparate collection of systems and processes, which makes it difficult to have complete visibility into payable performance and opportunities to improve cash flow. The first step, therefore, in improving a financial supply chain is often implementing systems and processes built upon a common platform and business network to create efficiencies and enable end-to-end visibility into the entire source to settle process.  With such a platform in place, the right information can now be made available to the right parties at the right time to enable them to make right decisions and so drive the right business results.

Reducing liquidity risks and driving value

The right results in a financial supply chain often include reducing liquidity risk in the supply chain while at the same time delivering significant free cash flow and earnings on cash to the paying organization. More and more companies are pushing out their payment terms in order to improve their working capital and free up cash. Unfortunately, their suppliers often find themselves cash constrained and unable to access the cash flow they need due to those longer payment terms. The result is an increased level of liquidity risk in the supply chain, which ultimately can affect even the physical chain.

To combat this, many companies are turning to network-based tools like supply chain finance to give their suppliers access to third party funded early payment on approved invoices, while holding on their own cash as long as possible.  The result is an increase their own free cash flow while at the same time reducing liquidity risk in their supply chain.   Others are using their own cash to fund supplier cash flow in exchange for discounts that yield far more than similar cash investment vehicles in today’s low interest rate environment.

Improving the financial supply chain turns payables from liabilities into strategic assets

In a prime example cited in “The CFO’s Guide to Streamlining the Financial Supply Chain,” a Fortune 100 pharmaceutical company was seeking to optimize its working capital without disrupting supply chain cash flow. A combination of payment term extensions and dynamic discount programs were used to achieve that objective. The result was over $300 million in free cash flow and a contribution of more than $10 million to the income statement. The company moved $5 billion in spend from net-45-days to net-60-days payment terms across 38,000 suppliers in 40 countries. And early-payment discounts increased by 12% over the previous year, delivering more than $6.5 million in savings from the discounts.

According to business school textbooks, payables are by definition a balance sheet liability. However, by focusing on improving financial supply chain processes, forward-thinking companies, like the one cited above, can transform their payables into strategic assets that deliver significant value to their bottom lines.

To learn more about this, please join us for a live panel discussion on Tuesday, Oct. 24. Finance executives from a cross-section of industries will discuss “How Finance Leaders Are Looking to the Financial Supply Chain to Optimize Working Capital and Liquidity.” Don’t miss this opportunity to hear firsthand from top-performing financial professionals and ask them your questions. Register now!

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube

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Drew Hofler

About Drew Hofler

Drew Hofler is a Senior Director of Solutions Marketing for SAP Ariba. Mr. Hofler is recognized as an expert in the area of collaborative finance and dynamic discounting. He has been interviewed and quoted widely in finance and supply chain industry publications around the topics of e-invoicing, dynamic discounting, supply chain financing, and working capital management-related issues, and has published a number of articles on these subjects. Mr. Hofler is also a regular contributor to various blogs around the issues of the financial supply chain. Mr. Hofler brings almost 20 years of banking and financial services industry experience to SAP Ariba.

The Future Will Be Co-Created

Dan Wellers and Timo Elliott

 

Just 3% of companies have completed enterprise digital transformation projects.
92% of those companies have significantly improved or transformed customer engagement.
81% of business executives say platforms will reshape industries into interconnected ecosystems.
More than half of large enterprises (80% of the Global 500) will join industry platforms by 2018.

Link to Sources


Redefining Customer Experience

Many business leaders think of the customer journey or experience as the interaction an individual or business has with their firm.

But the business value of the future will exist in the much broader, end-to-end experiences of a customer—the experience of travel, for example, or healthcare management or mobility. Individual companies alone, even with their existing supplier networks, lack the capacity to transform these comprehensive experiences.


A Network Effect

Rather than go it alone, companies will develop deep collaborative relationships across industries—even with their customers—to create powerful ecosystems that multiply the breadth and depth of the products, services, and experiences they can deliver. Digital native companies like Baidu and Uber have embraced ecosystem thinking from their early days. But forward-looking legacy companies are beginning to take the approach.

Solutions could include:

  • Packaging provider Weig has integrated partners into production with customers co-inventing custom materials.
  • China’s Ping An insurance company is aggressively expanding beyond its sector with a digital platform to help customers manage their healthcare experience.
  • British roadside assistance provider RAC is delivering a predictive breakdown service for drivers by acquiring and partnering with high-tech companies.

What Color Is Your Ecosystem?

Abandoning long-held notions of business value creation in favor of an ecosystem approach requires new tactics and strategies. Companies can:

1.  Dispassionately map the end-to-end customer experience, including those pieces outside company control.

2.  Employ future planning tactics, such as scenario planning, to examine how that experience might evolve.

3.  Identify organizations in that experience ecosystem with whom you might co-innovate.

4.  Embrace technologies that foster secure collaboration and joint innovation around delivery of experiences, such as cloud computing, APIs, and micro-services.

5.  Hire, train for, and reward creativity, innovation, and customer-centricity.


Evolve or Be Commoditized

Some companies will remain in their traditional industry boxes, churning out products and services in isolation. But they will be commodity players reaping commensurate returns. Companies that want to remain competitive will seek out their new ecosystem or get left out in the cold.


Download the executive brief The Future Will be Co-Created.


Read the full article The Future Belongs to Industry-Busting Ecosystems.

Turn insight into action, make better decisions, and transform your business.  Learn how.

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Dan Wellers

About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

About Timo Elliott

Timo Elliott is an Innovation Evangelist for SAP and a passionate advocate of innovation, digital business, analytics, and artificial intelligence. He was the eighth employee of BusinessObjects and for the last 25 years he has worked closely with SAP customers around the world on new technology directions and their impact on real-world organizations. His articles have appeared in articles such as Harvard Business Review, Forbes, ZDNet, The Guardian, and Digitalist Magazine. He has worked in the UK, Hong Kong, New Zealand, and Silicon Valley, and currently lives in Paris, France. He has a degree in Econometrics and a patent in mobile analytics. 

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Blockchain: Much Ado About Nothing? How Very Wrong!

Juergen Roehricht

Let me start with a quote from McKinsey, that in my view hits the nail right on the head:

“No matter what the context, there’s a strong possibility that blockchain will affect your business. The very big question is when.”

Now, in the industries that I cover in my role as general manager and innovation lead for travel and transportation/cargo, engineering, construction and operations, professional services, and media, I engage with many different digital leaders on a regular basis. We are having visionary conversations about the impact of digital technologies and digital transformation on business models and business processes and the way companies address them. Many topics are at different stages of the hype cycle, but the one that definitely stands out is blockchain as a new enabling technology in the enterprise space.

Just a few weeks ago, a customer said to me: “My board is all about blockchain, but I don’t get what the excitement is about – isn’t this just about Bitcoin and a cryptocurrency?”

I can totally understand his confusion. I’ve been talking to many blockchain experts who know that it will have a big impact on many industries and the related business communities. But even they are uncertain about the where, how, and when, and about the strategy on how to deal with it. The reason is that we often look at it from a technology point of view. This is a common mistake, as the starting point should be the business problem and the business issue or process that you want to solve or create.

In my many interactions with Torsten Zube, vice president and blockchain lead at the SAP Innovation Center Network (ICN) in Potsdam, Germany, he has made it very clear that it’s mandatory to “start by identifying the real business problem and then … figure out how blockchain can add value.” This is the right approach.

What we really need to do is provide guidance for our customers to enable them to bring this into the context of their business in order to understand and define valuable use cases for blockchain. We need to use design thinking or other creative strategies to identify the relevant fields for a particular company. We must work with our customers and review their processes and business models to determine which key blockchain aspects, such as provenance and trust, are crucial elements in their industry. This way, we can identify use cases in which blockchain will benefit their business and make their company more successful.

My highly regarded colleague Ulrich Scholl, who is responsible for externalizing the latest industry innovations, especially blockchain, in our SAP Industries organization, recently said: “These kinds of use cases are often not evident, as blockchain capabilities sometimes provide minor but crucial elements when used in combination with other enabling technologies such as IoT and machine learning.” In one recent and very interesting customer case from the autonomous province of South Tyrol, Italy, blockchain was one of various cloud platform services required to make this scenario happen.

How to identify “blockchainable” processes and business topics (value drivers)

To understand the true value and impact of blockchain, we need to keep in mind that a verified transaction can involve any kind of digital asset such as cryptocurrency, contracts, and records (for instance, assets can be tangible equipment or digital media). While blockchain can be used for many different scenarios, some don’t need blockchain technology because they could be handled by a simple ledger, managed and owned by the company, or have such a large volume of data that a distributed ledger cannot support it. Blockchain would not the right solution for these scenarios.

Here are some common factors that can help identify potential blockchain use cases:

  • Multiparty collaboration: Are many different parties, and not just one, involved in the process or scenario, but one party dominates everything? For example, a company with many parties in the ecosystem that are all connected to it but not in a network or more decentralized structure.
  • Process optimization: Will blockchain massively improve a process that today is performed manually, involves multiple parties, needs to be digitized, and is very cumbersome to manage or be part of?
  • Transparency and auditability: Is it important to offer each party transparency (e.g., on the origin, delivery, geolocation, and hand-overs) and auditable steps? (e.g., How can I be sure that the wine in my bottle really is from Bordeaux?)
  • Risk and fraud minimization: Does it help (or is there a need) to minimize risk and fraud for each party, or at least for most of them in the chain? (e.g., A company might want to know if its goods have suffered any shocks in transit or whether the predefined route was not followed.)

Connecting blockchain with the Internet of Things

This is where blockchain’s value can be increased and automated. Just think about a blockchain that is not just maintained or simply added by a human, but automatically acquires different signals from sensors, such as geolocation, temperature, shock, usage hours, alerts, etc. One that knows when a payment or any kind of money transfer has been made, a delivery has been received or arrived at its destination, or a digital asset has been downloaded from the Internet. The relevant automated actions or signals are then recorded in the distributed ledger/blockchain.

Of course, given the massive amount of data that is created by those sensors, automated signals, and data streams, it is imperative that only the very few pieces of data coming from a signal that are relevant for a specific business process or transaction be stored in a blockchain. By recording non-relevant data in a blockchain, we would soon hit data size and performance issues.

Ideas to ignite thinking in specific industries

  • The digital, “blockchained” physical asset (asset lifecycle management): No matter whether you build, use, or maintain an asset, such as a machine, a piece of equipment, a turbine, or a whole aircraft, a blockchain transaction (genesis block) can be created when the asset is created. The blockchain will contain all the contracts and information for the asset as a whole and its parts. In this scenario, an entry is made in the blockchain every time an asset is: sold; maintained by the producer or owner’s maintenance team; audited by a third-party auditor; has malfunctioning parts; sends or receives information from sensors; meets specific thresholds; has spare parts built in; requires a change to the purpose or the capability of the assets due to age or usage duration; receives (or doesn’t receive) payments; etc.
  • The delivery chain, bill of lading: In today’s world, shipping freight from A to B involves lots of manual steps. For example, a carrier receives a booking from a shipper or forwarder, confirms it, and, before the document cut-off time, receives the shipping instructions describing the content and how the master bill of lading should be created. The carrier creates the original bill of lading and hands it over to the ordering party (the current owner of the cargo). Today, that original paper-based bill of lading is required for the freight (the container) to be picked up at the destination (the port of discharge). Imagine if we could do this as a blockchain transaction and by forwarding a PDF by email. There would be one transaction at the beginning, when the shipping carrier creates the bill of lading. Then there would be look-ups, e.g., by the import and release processing clerk of the shipper at the port of discharge and the new owner of the cargo at the destination. Then another transaction could document that the container had been handed over.

The future

I personally believe in the massive transformative power of blockchain, even though we are just at the very beginning. This transformation will be achieved by looking at larger networks with many participants that all have a nearly equal part in a process. Today, many blockchain ideas still have a more centralistic approach, in which one company has a more prominent role than the (many) others and often is “managing” this blockchain/distributed ledger-supported process/approach.

But think about the delivery scenario today, where goods are shipped from one door or company to another door or company, across many parties in the delivery chain: from the shipper/producer via the third-party logistics service provider and/or freight forwarder; to the companies doing the actual transport, like vessels, trucks, aircraft, trains, cars, ferries, and so on; to the final destination/receiver. And all of this happens across many countries, many borders, many handovers, customs, etc., and involves a lot of paperwork, across all constituents.

“Blockchaining” this will be truly transformational. But it will need all constituents in the process or network to participate, even if they have different interests, and to agree on basic principles and an approach.

As Torsten Zube put it, I am not a “blockchain extremist” nor a denier that believes this is just a hype, but a realist open to embracing a new technology in order to change our processes for our collective benefit.

Turn insight into action, make better decisions, and transform your business. Learn how.

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Juergen Roehricht

About Juergen Roehricht

Juergen Roehricht is General Manager of Services Industries and Innovation Lead of the Middle and Eastern Europe region for SAP. The industries he covers include travel and transportation; professional services; media; and engineering, construction and operations. Besides managing the business in those segments, Juergen is focused on supporting innovation and digital transformation strategies of SAP customers. With more than 20 years of experience in IT, he stays up to date on the leading edge of innovation, pioneering and bringing new technologies to market and providing thought leadership. He has published several articles and books, including Collaborative Business and The Multi-Channel Company.