The challenges and rewards of digital wallets for e-commerce businesses
Like e-commerce, digital wallet usage has been affected by the pandemic. As shoppers searched for contactless payment methods in stores and bought more online, digital wallets offered physical distance and convenience. Now, with new consumer habits in place after more than two years of adaptation, the digital wallet market is expected to grow 18.9% year-over-year through 2028. Already in March 2021, when ClearSale surveyed 5,000 online shoppers in the US, UK, Mexico, Canada and Australia, 71% said they always or sometimes pay with a digital wallet.
Accepting digital wallet payments can increase conversions by simplifying payment, but this payment method can complicate efforts to mitigate chargebacks by businesses in the event of fraud. To get the most out of digital wallets while minimizing potential downsides, businesses need to understand why customers want wallet options – and they need to create a fraud prevention strategy that addresses the unique fraud risk profile of wallets. digital.
Online shoppers prefer to pay with digital wallets
It’s easy to see why shoppers would choose contactless payments in stores during a pandemic, to maintain safe distances from cashiers and avoid touching terminals. The motivations for using online digital wallets are different: data security and convenience. The 71% of consumers who always or sometimes use digital wallets do so instead of entering their credit card information directly on websites.
This reduces their concerns about exposing their payment data to retailers. Specifically, 42% of consumers surveyed said “not knowing if the website is legit or not” further deters them from buying online, while 38% said concerns about website data security prevented them from buying more online. Consistent with these concerns, surveyed consumers are extremely ruthless in the face of fraud, with 84% saying they would never buy from a website that allowed a fraudster to make a purchase with their credit card again. So even retailers that have strong protection against CNP fraud and account takeover fraud can benefit from offering customers a digital wallet option that they may perceive to be more secure than credit card payments.
The other benefit of digital wallets for consumers is convenience, especially for younger shoppers. While 40% of consumers of all ages say they always have their mobile phone handy when shopping online, only 20% of shoppers under the age of 55 have their credit card handy every time they are shopping. The added friction of having to get their physical card and enter the data can be enough to cause cart abandonment. 36% of consumers surveyed had abandoned an online purchase because payment was too complex or took too long. With a digital wallet, there is no need to find the card and enter the data, as it is stored in the wallet.
Overcoming Obstacles to Fighting Digital Wallet Fraud
As online shopping has increased during the pandemic, so has fraud. 80% of retailers reported an increase in so-called friendly fraud in 2021, and 31% reported issues disputing friendly fraud chargebacks. This is important because while digital wallets offer authentication features such as codes, fingerprints, or face scans to prevent account takeover in the event the customer’s phone is lost or stolen, these features do not cannot prevent fraud committed by an otherwise legitimate customer.
If a customer buys an item and then claims it never arrived, the business loses unless they can prove the claim to be false. Its not always easy. A 2020 survey found that 48% of businesses reported the most success in disputing credit card chargebacks, while only 5% reported the best results in digital wallet chargebacks. With each chargeback costing the business at least $20 in fees, plus lost marketing, fulfillment, shipping, and processing costs, successful chargeback mitigation is critical to profitability.
Eliminating digital wallet purchases would only drive customers to competitors that accept digital wallets. Imposing overly rigid fraud rules that automatically reject orders could increase false positives, which also drives customers away. 40% of consumers surveyed said they would boycott a website after a false rejection. Instead, retailers can manage their digital wallet fraud risk by following a few best practices:
- Filter digital wallet orders the same way you filter card payment orders. Even though digital wallets are more secure than cards against third-party fraud, performing your own anti-fraud scan can identify issues such as an unknown device, unlikely new location, or other issue that flags a review. manual.
- Review the customer’s history with your store. Sometimes a customer starts a friendly cheating habit after realizing how easy it can be to charge for a purchase. Data about your customers’ chargeback history with your store should be part of your fraud screening for all orders, including those paid for with digital wallets. If a pattern emerges, customer orders must be manually reviewed or, in extreme cases, blocked.
- Provide end-to-end order tracking and delivery confirmation. Fake non-delivery claims are the friendly scammer’s favorite method. With real-time order tracking and delivery confirmation – including a photo of the package delivered to the delivery address – your business will have better evidence to dispute these claims. Another benefit is that real-time delivery tracking helps your good customers deliver items before package thieves can grab them.
- Check social media for signs of chargeback fraud. When you suspect friendly fraud after a chargeback for a high-value item like a designer bag, jewelry, or large TV, it may be worth the cost to look into the customer’s social media to prove they received the money. ‘article. Time-stamped and dated screenshots may help your case.
- Consider a chargeback mitigation team. Because managing chargeback issues can divert a team’s attention from order review, customer service, and other core tasks, companies with the internal resources to do so can designate a group just to work on chargebacks. Others may decide to outsource some or all of their chargeback management issues to a third party to reduce losses and keep their chargeback rate low enough to avoid higher processing rates.
It is clear that digital wallets are rapidly becoming a mainstream means of payment, which many consumers already prefer to credit cards. By proactively managing digital wallet orders, businesses can reap the benefits of offering digital payments while protecting their revenue from friendly fraud.