Cosmetics has been one of the most popular online shopping categories and the growth is ongoing. In 2016, e-commerce was responsible for 10% of the global growth in the cosmetics market, while in-store sales only grew by 0.6%. But as is the case for every e-commerce vertical, the cosmetics market has its own peculiar characteristics, including in the arena of fraud risk, and merchants cannot hide from this. In this article we discuss the most important fraud factors online cosmetics merchants should be aware of.
Be watchful of fraud patterns on overseas trade
Cross-border trade in cosmetics is growing rapidly, in part because cosmetics is such an easy product to ship. Individual products are relatively cheap, making shipping low-risk, but there is also an opportunity for customers to save money, with big price differences for cosmetics in different countries. Though there is a sizeable opportunity for merchants to tap into growing markets, e-commerce stores should be aware of the different fraud risks international market can pose.
One factor to watch would be approval rates, with some countries showing particularly low transaction approval rates on account of fraud risk. High transaction decline rates are a concern. Instead of automatically refusing to do business with customers in higher risk countries, merchants should rely on capable e-commerce fraud protection which can apply fraud prevention measures that are customized to each market. These can minimize false declines while at the same time stopping real fraudsters in their tracks.
That said, merchants can also do their part to reduce the chance that a transaction involving an overseas buyer goes wrong. Making use of reliable delivery partners can help, obtaining tracked delivery receipts where possible – though clearly in some countries this won’t be an option. Getting the basics right are important too, including using a payment provider which is PCI compliant and which supports all the essential card verification features.
Fraud issues peculiar to cosmetics e-commerce
The costs of individual cosmetics products are relatively low, in comparison to the cost of electronics for example, and it is unlikely that many people will order cosmetics from a retail supplier in bulk. This makes cart value an interesting point to watch out for when analyzing the fraud risks of a transaction. In short, a high-value basket could be indicative of fraud. While on the one hand, it is an unlikely order from a real customer, it can be a very lucrative order for a criminal should the fraudster pull it off. In contrast, expending effort in trying to fraudulently buy a single $50 product is not worth the payoff.
Payoff is an important driving factor behind all fraud, so taking note of the resale value of goods is also a method that cosmetics merchants can use to monitor for transactions which are fraudulent. For example, an order for a large number of bottles of one of the most popular, yet expensive, fragrances could be seen as a red flag, as no individual would have much use for such a large quantity of the same fragrance.
As much as order data mismatches is viewed by some to be a card not present (CNP) fraud red flag, the number of reasons why order data may not match is numerous and e-commerce merchants should be wary of falsely refusing bona fide orders in cases where the billing address and the shipping address does not match up. Doing so can reduce transaction volume and therefore profitability. Order data mismatch should only be one point in a wider analysis of the merits of an order: sophisticated fraud detection systems will employ a broad range of parameters that are all merged into a conclusive risk picture.
Though the more complex elements of ecommerce fraud are not overly present in cosmetics ecommerce due to the relatively low value of the individual items, merchants should employ fraud prevention systems that can protect them against fraud rings. The use of proxies for example is easy to detect via a good fraud detection system, whereas an unprotected website will be blissfully unaware. Such a system will also uncover the use of a common shipping address for the purpose of fraudulent re-shipping, which internal systems may not be able to detect.
Fraud risks should not be a deterrent
Clearly, for cosmetics merchants, expanding into international markets – including shipping abroad – carries risks. Yet simply acting as an e-commerce store carries a risk even with a relatively inexpensive product such as cosmetics. Merchants should consider employing a fraud prevention product that is thorough and effective while also minimizing false positives. Finally, many excellent providers of fraud prevention software offer chargeback guarantees which provided an ultimate layer of protection against fraudulent transactions.
