Digital goods: protecting fraudsters’ favorite target

WHY MONETA INVESTED IN nSURE.AI

Scammers often use stolen credit cards to fraudulently order goods online. Some retailers are able to prevent the theft for physical goods by doing a manual review before products ship. But what if the stolen credit card details were used to purchase a $200 Amazon eGift Card, which was redeemed a few seconds later? Or a flight ticket that had already boarded?

Unlike physical goods, digital goods are bought and delivered instantly online. These include games, e-books, music, event tickets, in-app purchases, eGift Cards, and more. With Covid-19 increasing eCommerce, payments are moving online, and scammers are following.

Payment fraud is already a lucrative business which costs a fortune to online merchants. Online payment fraud costs businesses $230B annually (around 1.8% of all revenue). For every $1 of fraud from chargebacks, online retailers lose an extra US $2.94 from loss of the goods, refund values, and chargeback fees.

Existing anti-fraud solutions in the market handle fraud fairly well for merchants who sell physical goods, where deals are not as time sensitive. However, the real-time nature of the online digital goods industry, and its intrinsically low margin, makes it impossible to allow retailers to allocate resources for a post-sales manual review. The result is an exceptionally low tolerance of fraud risk, which causes all of the current tools to decline over 30% of transactions in the “gray area”, including many legitimate ones. With such a high false-positive ratio, retailers are afraid to sell gift cards. Take Walmart for instance, which terminated a whole line of third-party eGift products.

nSure.ai has developed an anti-fraud solution tailored to merchants who sell digital goods. It allows online merchants to increase their acceptance rate of purchases from legitimate buyers, while turning away scammers who are attempting to use a stolen card number.

nSure’s unique approach is helping merchants accept 5x more purchases in the “gray area,” which other solutions would simply decline after falsely identifying as fraud. nSure excels in fighting the “gray area” by training segment-specific models to increase accuracy, and by employing “soft approval” techniques for the automatic investigation of inconclusive evaluations.

This is a game-changer for every digital goods seller. It means that out of the 16% of all transactions considered “grey transactions,” instead of 5/16 being declined, only 1/16 is declined. For merchants such as Walmart, Target, etc., this represents a huge number of deals that will be transformed from “red” to “green”, thereby allowing better conversion and retention rates and unlocking significantly more revenue.

But sometimes, the best defense is a good offense; that’s why nSure applies another unique method to fight fraud. It became clear that by just playing defense against fraud, the “gray area” would remain large and “noisy.” So nSure developed a unique method to eliminate the incentive for fraudsters ever to return to the merchant. The idea is to punish fraudsters by using their own methods against them. The back-pressure method has proved to be very effective, lowering fraud rates from 5% to 1%, which translates to reducing a business’s decline rate from 11% to 2%.

In addition to its core technology, nSure offers a critical risk-insurance framework: by shifting the liability from the merchant to nSure and guaranteeing chargeback in the event of a dispute, companies can confidently approve transactions despite risk. Simply put, nSure’s confidence in its risk modelling allows it to offer customers an insurance plan, which, in turn, allows the customers to approve far more “gray transactions.”

In sum, nSure is the only solution specifically designed to prevent fraud associated with online commerce of virtual/digital goods, the most difficult type to protect, and offers online retailers 100% peace of mind.