Chargeback Fraud Setting Back E-commerce Businesses: Is There a Way Out?

chargeback fraud ecommerce razorpay thirdwatch

Online e-commerce fraud needs no introduction. With the advent of modern technology, seamless payment modes and flexible regulations, processing online purchases is getting easier by the day.

However, this also has a dark side. It has become increasingly easier for cunning fraudsters to find loopholes in order to dupe online merchants. 

One such loophole is chargeback fraud, also popularly referred to as friendly fraud.

Unfortunately for us, there’s nothing friendly about friendly fraud.

What is chargeback fraud?

Chargeback fraud occurs when a consumer makes an online shopping purchase with their own credit card and then requests a chargeback from the issuing bank after receiving the purchased goods or services. 

Once approved, the chargeback cancels the financial transaction, and the consumer receives a refund of the money they spent. And the tricky part? When a chargeback occurs, the merchant is accountable, regardless of whatever measures they took to verify the transaction.

What can risk analysts do about chargeback fraud?

The primary goal for a risk analyst is to identify the source of a risky online payment and mitigate ways to overcome it. 

In order to do so, the analyst attempts to discover whether the order was placed by the authorized cardholder or a fraudster who’s using the legal cardholder’s information. 

Seems pretty straightforward, right? That’s the case for most scenarios, but not chargeback fraud.

For this small subsection, the authorized cardholder and the likely fraudster is the same person. This is known as friendly fraud and is nearly impossible to detect in a cash-driven market like India. 

Let’s now address some of the pain points that Indian business owners face while fighting chargeback fraud and the possible solutions that can be devised for the same. 

What are the types of chargebacks?

Though chargeback fraud is an umbrella of different activities, in order to mitigate it, it’s important to take a step back and evaluate the different disputes that a merchant can face from a chargeback. 

Actual fraud:

This is perhaps the most obvious reason for chargeback and the most common, too. A fraudulent customer used a legitimate cardholder’s information, made a purchase from a merchant and the merchant shipped the order to the fraudster. Upon reviewing their transaction statement, the authorized cardholder identifies a charge as illegitimate due to fraud and files a chargeback, requesting a refund.

Merchant error:

In this case, when the customer places an order on the website, the merchant either never ships out the order or ships out an item that was broken or different than described. This causes the frustrated customer to file for a chargeback compensation.

Friendly fraud:

A chargeback or friendly fraud is the reversal of payment made through debit/credit card by the user, which is debited directly from the bank account of the e-commerce seller. Chargeback enables the consumer to get his/her money back and protects them from fraudulent sellers online.

Under what cases can a consumer file for a chargeback?

There are numerous instances in which chargeback can be availed by the consumers from e-commerce seller. These instances include:  

  • The Quality of the product or services received were not as advertised by the seller at the time of purchase.
  • The consumer claims that he/she has fallen victim to identity theft or has not sanctioned the purchase.
  • There has been some mistake in the Billing amount, or there are issues regarding duplicate billing of a purchase made.
  • The product or service purchased were not received by the consumer.

How is chargeback misused?

Chargebacks are created to protect consumers from deceitful sellers online, however, this option for refund has been grossly misused by fraudsters in recent years. Criminals have found loopholes in the chargeback process and intentionally misuse the option to swindle e-commerce businesses of millions in revenue!

A person commits chargeback fraud by authorising a credit/debit card transaction, receiving the product or service, and later filing a false chargeback request to get the item for free. Common chargeback frauds suffered by e-commerce sellers include:  

  • The purchased product or service received is claimed to be undelivered
  • The original transaction authorised is claimed to be unauthorised
  • The genuine product or service received is claimed to be faulty or deficient

What is the extended impact of chargeback on businesses?

E-commerce sellers are hit hard by chargeback frauds in the past years with the increase in digital payments and approval of credit card purchases. Online sellers not only lose a big chunk of their revenue to chargeback frauds, but their reputation and goodwill is also damaged immensely. 

The fraudulent consumers not only defraud the seller with false chargebacks but also end up leaving erroneous reviews and ratings, further injuring the business. In many cases, the bank in which the seller has its account ends up blocking the seller’s account thinking they are not genuine.

What’s the way out?

There are numerous ways through which e-commerce sellers can fight chargeback frauds; the simplest being a clear return and refund policy on the website or app. The business must keep clear records of each transaction performed, and copies of every bill or invoice sent. 

A more advanced and reliable solution is to leverage technology. In the era of skyrocketing advancements and artificial intelligence, the smartest way to deal with chargeback frauds is to use fraud prevention tools that can keep a record of everything without affecting your time.

How can Razorpay Thirdwatch help you?

E-commerce fraud prevention tools like Razorpay Thirdwatch enable online platforms to detect multiple kinds of frauds and abuses, including chargeback fraud in real-time. 

With AI that utilises the power of natural language processing and predictive analysis, Thirdwatch is able to detect fraud by scanning each transaction on hundreds of variables.

Razorpay Thirdwatch is a powerhouse that quarantines fake or fraudulent transactions by marking them ‘red’ and approves genuine transactions by flagging them as ‘green’ transactions. It also evaluates and maps every device through which a transaction is made, its own ‘fingerprint’ to check future transactions made through it.

E-commerce merchants need to be aware of the different frauds that cause losses and employ intelligent measures to detect and prevent them. With Thirdwatch, business owners can now focus on their growth and leave the hard labour to us!

Install Razorpay Thirdwatch today and simplify e-commerce like never before!

A Summary of the Razorpay Thirdwatch Webinar

Razorpay Thirdwatch e-commerce webinar

We’re starting this article off on a happy note, basking in the success of Razorpay’s first e-commerce webinar! We had over 250 attendees from different parallels of the e-commerce industry coming together to discuss the state of today’s e-commerce fraud. For everyone who wants a second look at everything that went down and for those who want a first look because they missed it, here’s a summary of the Razorpay Thirdwatch webinar held last month.

About Razorpay Thirdwatch

Razorpay Thirdwatch is a state-of-the-art fraud detection tool with functionalities across different e-commerce parallels like Shopify, WooCommerce and Magento. Thirdwatch, with its AI-powered engine, helps merchants detect and profile fraudulent users, suspicious orders, incomplete addresses, etc. Thirdwatch also helps merchants flag suspicious orders and prevent Return-To-Origin and Cash-On-Delivery fraud.

About the speakers

Shashank Agarwal, Associate Director, Razorpay 

Shashank Agarwal is the founder of Thirdwatch and is currently the Associate Director at Razorpay. The brain behind the fraud detection solution, Shashank brought Thirdwatch into the business about 3 years ago. Thirdwatch is now a full-fledged fraud detection platform with features like Buyer Action, Address Parser feature, dashboard actions, etc. Razorpay acquired Thirdwatch in August 2019.

After having spent almost 4 years in the field of risk and fraud detection, Shashank addressed the problems and impact of fraud and RTO orders in today’s e-commerce industry. 

Dinesh Verma, Senior Director- Finance, Flipkart

Dinesh Verma is a risk industry veteran with an exclusive 5 years of experience heading Flipkart’s risk team. Complementing Shashank’s knowledge of fraud in micro and medium e-commerce businesses, Dinesh helped the audience get an inside look into risk and fraud in one of India’s biggest e-commerce players. 

Topics covered:

During the course of the webinar, we managed to scoop out some of the most enriching discussions between the two speakers. Here’s a condensed list of all the topics covered at the Razorpay Thirdwatch webinar.

ecommerce fraud webinar india razorpay thirdwatch trending topics

  • State of today’s e-commerce industry

E-Commerce today has evolved into a trillion-dollar market with demand and competition increasing every day. With the phenomenal rise, however, came a lot of rising problems as well. 

Fraud has increased 6-fold in the last 2 years and small companies are finding it increasingly difficult to get a cost-efficient solution in the market for fraud detection.

  • Growth of e-commerce in India vs globally

E-Commerce in India is definitely on an upward slope with thousands of businesses being introduced to the market every year. By 2034, believe it or not, Indian e-commerce is expected to surpass the US market!

However, what makes India primarily different from other countries’ e-commerce models is how cash-driven the economy is. Reports show that Cash-On-Delivery is still the preferred mode of payment for 60% of the consumers.

Due to this high preference of COD model, e-commerce merchants are faced with mounting levels of fraud, suspicious orders and impulse purchases.

This is a strong contrast to the Western market as their fraudulent activities do not occur in this way due to a strong online presence. Indian merchants must keep up with the changing times and constantly look for solutions to keep their profits afloat.

Indian merchants are faced with RTO rates as high as 30%, on average. Big players in India are faced with similar issues, too, and battle risks with a competent internal team.

  • Innovations in Indian e-commerce

With the changing market trends, it’s also important to keep an eye on risks that may occur. Retailers and merchants need to invest in fraud prevention techniques and also keep up with the pace of technology.

There is an increasing amount of new methods introduced to increase customer experience like voice search, Internet of Things (IoT), Augmented Reality, drone delivery, etc. 

Large Indian e-commerce players are expected to bring in e-commerce innovations like drone delivery in the next few years. These are expected to pique customer interest in purchasing and most importantly, retaining the purchase.

  • Share of RTO in an e-commerce business

COD suits the Indian mindset and can make up to 70 percent of Indian e-commerce businesses. With smaller players, customer credibility is also in question, which can further accelerate the need to introduce COD to their business.

RTO is when orders cannot be delivered and have to be shipped back to the warehouse. This puts a significant cost burden on e-commerce firms as they lose a lot of money in shipping it back and forth.

Here’s how e-commerce companies lose money in these orders:

  • Forward & reverse logistics
  • Blocked Inventory (Items stuck in transit)
  • Physical Quality check and re-packaging of returned items
  • Increased probability of damage to fragile items, and hence more money spent in shipping them
  • Operations cost in processing this order

Here’s what Thirdwatch noticed- in case of COD orders, the percentage of RTO orders can be as high as 30-40 percent!

Companies often perceive these costs as “mandatory” since there’s no proper solution set in place. Companies have little choice and fewer tools to prevent RTO — they just take it as a ‘cost of doing business’.

Unique solutions like Razorpay Thirdwatch help small players battle these problems at scale while keeping costs low.

  • Implications of fraud in Indian e-commerce

The real implication of e-commerce fraud is the cost incurred to the merchant. Every failed or retracted order causes a heavy cost to the merchant. Just like we specified earlier, the merchant is set to lose out on a lot due to forward and reverse logistics costs, operations costs, etc.

Another fact we found out is that the merchant will not be able to resell the same product after it is cancelled and he will have to bear the losses. 

  • How large vs. small businesses handle fraud

While both small and large companies are finding it difficult to deal with rising fraud, larger companies have it easier due to lack of funding problems.

On the other hand, smaller companies have issues of scaling and pricing when employing an exclusive solution. There are currently no solutions for small businesses other than Razorpay Thirdwatch, which helps you identify fraudulent orders in real-time.

  • Use of AI and ML in fraud detection and prevention

Machine Learning technology offers an attractive solution as it addresses all the challenges in preventing fraud — scale, complexity and changing patterns.

  • Employing Machine Learning for fraud detection

Catching digital frauds requires us to first gather the ‘Forensic Evidence’. Every user interaction leaves behind a subtle digital forensics trail like proxy IP, device ID, email address, time to order, etc. 

Machine learning models combine hundreds of such innocuous parameters, which are seemingly unrelated, to identify the patterns that indicate fraud. These patterns are later used to zero down on customers who perform a fraud across different websites and make it to the blacklist.

  • Enriching the data

Machine learning and natural language processing are used to differentiate between real and fake addresses. This is only the beginning. Transaction and user data can be enriched by adding context to it.

For example, by adding the price of the user’s phone device or categorizing an address as five stars to one star, we turn meaningless data (Phone model) into actionable information that increases the accuracy of the red or green flag that the machine learning models generate for every transaction.

  • Observing the user

Fraudsters are habitual in nature. They leave similar footprints on multiple sites. Network effects can be harnessed by pooling in anonymized data to predict and prevent fraudulent behaviour. This de-incentivises and penalises fraudulent behaviour across the ecosystem.

  • Tips for emerging startups
  1. Keep a regular check on your user database for any suspicious patterns
  2. Do not go for large-scale fraud detection (with a dedicated team) if you can’t afford it
  3. Do not be afraid to experiment with AI and ML to automate mundane tasks
  4. Avoid blacklisting users blindly. This can affect genuine customers as well
  5. Make sure to offer all modes for payment (and not block any) to ensure customer satisfaction
  6. Target Tier 2 and Tier 3 cities to maximise penetration of your product

That ends the summary for the Razorpay Thirdwatch webinar. We’ve also answered all the questions that you had asked us, make sure to check it out! Below is the webinar recording too, in case you’d like to revisit the session! Please feel free to get in touch with us if you have any questions for us.

Meanwhile, check out how Razorpay Thirdwatch is helping businesses bring their RTO percentage significantly here!

Installing Razorpay Thirdwatch for WooCommerce in 5 Simple Steps

WooCommerce is one of the biggest platforms in the world for setting up an online store and rightfully so, owing to its seamless functionalities and ease of use. Thirdwatch from Razorpay is a plugin designed to detect fraudulent orders and reduce RTO for e-commerce businesses. If you haven’t been aware of Razorpay’s entry into the e-commerce industry, allow us to explain to you what we’ve been up to and how to install Razorpay Thirdwatch in 4 simple steps.

What is Razorpay Thirdwatch?

Razorpay Thirdwatch is a first-of-its-kind solution for fraud prevention for e-commerce businesses. Thirdwatch is an AI-powered platform that enables online sellers to prevent Return-To-Origin (RTO) orders and reduce losses up to 30 percent. Thirdwatch’s AI engine evaluates every order in real-time and provides actionable results to weed out orders likely to result in RTO. 

One of the small, yet significant components of Thirdwatch is Buyer Action, a feature that automates confirmation from customers. This can significantly reduce manual intervention while keeping fraud at bay. Read more about Buyer Action and how it impacts business here.

How does Thirdwatch’s AI-engine work?

Once integrated, the solution captures 200+ parameters from your online store analytics. It leverages an ensemble of AI algorithms and graph algorithms to flag an order with a high risk of RTO and enables the seller to either cancel or take corrective actions.

What happens to the processed orders?

The processed orders transition into the following two states –

  • Red: If the order is marked red, then the seller can either decline the order or take corrective actions like updating the address or getting a confirmation from the customer on order quantity, etc
  • Green: If the order is flagged green, then the sellers can go ahead with the usual flow and ship the order

What is the basis of screening orders?

There are a variety of parameters used to judge whether an order is risky or not. Following are the key parameters that play a critical role in screening the orders:

  • Shipping Address Profile
  • Device Fingerprint
  • IP Address Profile
  • Buyer’s History
  • Buyer’s Navigation Behaviour
  • Network Effects

Are there any customization options available?

Razorpay Thirdwatch comes with a horde of options for easy customization. You can also customise the Thirdwatch plugin at the time of integration by accessing the open-source project, available here

What are the steps to install Razorpay Thirdwatch for WooCommerce?

To make it easier than ever for merchants to install Thirdwatch, we’ve made a step-by-step guide to make your installation process quick, easy and hassle-free. Let’s get started!

Type 1: Direct Installation

Step 1: Download WooCommerce plugin from WordPress store using this link.

Step 2: On your WordPress dashboard, click on “Plugins” on the left tab, and search for “Thirdwatch” on the search bar on the right side.

Step 3: Step 3: Install the Thirdwatch plugin and click on “Activate”. Once you’ve activated, register your business account on Thirdwatch Dashboard from here. If you’ve already created an account on Thirdwatch, log in to your account using your email address and password from here .

Step 4: On the Thirdwatch dashboard, click on “Settings” to get your API Key. To generate an API key, enter your online store’s URL. 

razorpay thirdwatch woocommerce free installation

razorpay thirdwatch woocommerce free plugin install

Step 5: Head over to WordPress dashboard–>Thirdwatch and enter your API key–> Check “Enable Thirdwatch Validation”–> Click on “save changes” (details of API key given below as well)

Type 2: Custom Installation

Step 1: Download the Razorpay Thirdwatch plugin from the WordPress Store, unzip the package and place the folder in the wp-content/plugins

Step 2: Now, click on the Plug-ins option in the left-hand bar on the WordPress dashboard. Under the Thirdwatch tab, click on activate.

Step 3: After successful installation of the plugin, click on the Settings button and check on Enable Thirdwatch Validation.

Step 4: To enter your API Key, you can sign up on the Thirdwatch dashboard for free. Upon signing up, you can find the API key in the Settings tab. Here’s a guide to fill the following details:

  • 🏁 Approve Status (Change order status when an order has been approved by Thirdwatch)
  • 🚩 Review Status (Change order status when an order is flagged by Thirdwatch)
  • ⛔️ Reject Status (Change order status when an order is rejected by Thirdwatch)
  • 💬 Fraud Message (Choose a custom message to be sent to the customer if their order has failed validation)

Step 5:  Head back to the WordPress dashboard–>Thirdwatch. Click on save changes, and you’re good to go!

Yes, it’s that easy to install Razorpay Thirdwatch! With all-new features like Buyer Action on Thirdwatch, it’s easier than ever to keep a check on fraud and the losses that come with it. 

Install Thirdwatch for WooCommerce today and supercharge your business like never before Start saving money by optimizing your e-commerce operations with Thirdwatch. If you have any questions, make sure to get in touch with us here, and we’ll be happy to help you with them. 

Introducing Buyer Action on Razorpay Thirdwatch

ecommerce fraud prevention solution

The e-commerce market in the world is growing at a rate faster than we can comprehend and with unforeseen growth, comes unforeseen responsibilities. Studies show that e-commerce sales worldwide are predicted to reach $632 billion by 2020!

But, do you know what’s bigger than the market itself? It’s the implications of fraud that come with it. As the trade grows, it’s only fair to assume that the online market has become a breeding ground for online fraudsters to innovate their tactics.

E-commerce fraud is one of the least talked about things for an industry so big. Most merchants assume the losses or fraud instances experienced during their stint is just “cost of doing business”. 

Related read: Is 30% RTO the Cost of Running an E-commerce Business?

A closer look at e-commerce frauds

Before we understand the impact of buyer action on an e-commerce business, it’s essential to evaluate the problem statement. So, let’s dive right in!

Here’s the thing– e-commerce businesses don’t have it easy, especially the small ones. In a hypercompetitive e-commerce environment, the only way to stand out is to offer exceptional customer satisfaction.

To meet with the mounting expectations of customers, merchants often don’t have a choice but to ship risky orders, in the fear of losing out on a genuine customer. This can often put a toll on the merchant’s budget, as Return-To-Orders take up the cost of logistics back and forth, often leading to losses. 

Here’s how e-commerce companies lose money in processing these orders:

  • Forward & reverse logistics
  • Blocked Inventory (Items stuck in transit)
  • Physical quality check and re-packaging of returned items
  • Increased probability of damage to fragile items, and hence more money spent in shipping them
  • Operations costs in processing these orders

We took the time out to check out the RTO numbers and their true impact on business. Here’s what we found– in case of COD orders, the percentage of RTO orders can be as high as 40 percent!

So, how does this impact the merchant? 

With e-commerce and internet advertising booming, merchants have begun to experience a large influx of orders online. This does not, however, translate to all of them being genuine.

When it comes to small businesses, merchants waste a lot of money in the process of “confirming” the order. This means that they will have to send out communication from the company in the form of emails, IMs and such to double-check whether the customer actually intends to make a purchase. 

This can prove to be an expensive exercise for merchants to tackle. We took the time out to speak to a few merchants on how much they spend on communications and we found out that they shell out a shocking INR 5-10 per communication!

Calculating risks of inefficiency

For a merchant to trigger the communication activities for the customer in question, it’s important to first calculate the risks involved. The best way to approach this problem is to profile your customers and observe their actions on your website.

This can be consolidated into a “risk score” of sorts– an accessory that lets you determine the authenticity of your customer’s behaviour. A risk score can be modelled from a variety of data points, namely, the number of orders placed, attempts to cancel, cancelled orders, etc. This will help map out the personality of the user in ways that can supercharge the verification process. 

In a fraud detection software like Thirdwatch, EVERY user is assigned a risk score, which is based on the historical data across websites. This risk score is displayed at the decision-making crossroads, where the merchant is expected to take the order forward or reject it.

Find out more: Check out how we’re making life easier for e-commerce merchants

Devising a solution to keep track

When the basic cost of communication is higher than ever and fraud shows no signs of stopping, what is the way out?

Introducing “Buyer Action” from Thirdwatch- a product feature that solves all the above problems seamlessly. With buyer action, merchants can now track the status of confirmation with just a click. Allow us to explain that in detail.

As we mentioned earlier, merchants don’t have it easy. Imagine having to manually filter out risky orders and have a team of people call them up individually to confirm every order in question. This can be extremely monotonous and time-consuming, not to mention incurring the expenses involved.

The “Buyer Action” feature on the Thirdwatch dashboard solves the solution with a single button instead. The merchant simply has to click on “Request confirmation” and communication is automatically triggered in various forms. The different forms of confirmation that are sent out are:

  • IVR call
  • Email confirmation
  • SMS

A message is sent along with a link to the order page, where the customer can choose to accept, modify or cancel items altogether. This feature also allows the customer to remotely make changes, leaving no place for time constraints or miscommunication.

With this feature, not only is the humongous task of following up completed in mere seconds but manual intervention is also significantly reduced.

The true impact of Buyer Action

With RTO rates up to 40% for e-commerce merchants on an average, one can only imagine the efforts that go into reducing it. For smaller merchants, it can be worse as they are required to deliver products blindly to build credibility. 

Thirdwatch aims to make life easier for e-commerce merchants in terms of effort, credibility and human intervention. With an advanced Machine Learning algorithm, Thirdwatch helps detect fraud orders, impulse purchases, non-deliverable addresses and flag risky transactions in real-time to improve profitability.

With a feature like Buyer Action set in place, the merchant does not have to worry about intervening into the specifics of every order. 

What’s better? Buyer Action helps save a lot of money, too!

Buyer Action helps merchants cut costs while communicating with the customer and provides a seamless structure in place for any last-minute follow-ups, all while making sure that customer satisfaction isn’t compromised. With a smooth automation mechanism set in place, you can be sure to focus on the important things, while leaving customer delight to us. 

So, are you game? Join hundreds of merchants in using Razorpay Thirdwatch today and scale your business like never before!

Fraud Prevention Solution Thirdwatch Trending on Shopify!

ecommerce fraud prevention solution Thirdwatch from Razorpay

Fraud prevention application Thirdwatch helps E-Commerce businesses on Shopify save a lot of money on Return-to-Origin (RTO) costs especially for Cash on Delivery (COD) orders. Before we get into the details of how to install Thirdwatch and how it can be effective, allow us to explain the advantages and features of Shopify as an e-commerce business hosting platform.

A little over a decade ago, if you had told us that there was one website that garnered over 218 million buyers from 175 countries in just a year, we would’ve laughed at the sheer uncertainty. 

But, things have changed beyond imagination in the last decade. As we’re hitting the ceiling with hypercompetitive creativity, it’s important to take a step back and look at how we got here.

In this article, we’ll be speaking about how a single-player, Shopify has transformed the e-commerce industry as we know it and most importantly, how you can use the channel to supercharge your business.

What does Shopify do?

To start with, Shopify is an all-in-one platform to start, run, and grow an e-commerce business. India is a country majorly driven by small and medium businesses and for small players to grow, there needs to be a platform that allows them to run their business seamlessly. This is where Shopify steps in.

With a Shopify account, here is the multitude of things that e-commerce merchants can do:

  • Start your business journey: Find a business name, buy a domain, and create a brand with Shopify’s free tools suite.
  • Sell everywhere: Use one platform to sell products to anyone, anywhere—online with your e-commerce store, online marketplaces, and social media, and in-person with point of sale.
  • Market your business: Take the guesswork out of marketing with built-in tools that help you create, execute, and analyze campaigns on Facebook and Google.
  • Manage your operations: Use a single dashboard to manage orders, shipping, and payments anywhere you go. Gain the insights and knowledge you need to grow.

What is the Shopify App Store?

Once you’ve set up your Shopify account, it’s easy to find a ton of features and plug-ins designed to accelerate your business. Shopify’s App Store is filled with thousands of applications designed to cater to your every business need.

And that’s Thirdwatch’s entry into this article! The protagonist of this story has finally come into the limelight.

The e-commerce market in the world is growing at a rate faster than we can comprehend. With unforeseen growth comes unforeseen responsibilities. E-commerce sales worldwide are predicted to reach $632 billion by 2020!

But, do you know what’s bigger than the market itself? It’s the implications of fraud that come with it. As the trade grows, it’s only fair to assume that the online market has become a breeding ground for online fraudsters to innovate their tactics.

E-commerce fraud is one of the least talked about things for an industry so big. Most merchants assume the losses or fraud instances experienced during their stint is just “cost of doing business”. 

A closer look at e-commerce fraud

Here’s the thing– e-commerce businesses don’t have it easy, especially the small ones. In a hypercompetitive e-commerce environment, the only way to stand out is to offer exceptional customer satisfaction.

To meet with the mounting expectations of customers, businesses often don’t have a choice but to ship risky orders, in the fear of losing out on a genuine customer. This can often put a toll on their budget, as Return-To-Origin (RTO) orders take up the cost of logistics back and forth, often leading to losses. 

Here’s how e-commerce companies lose money in processing these orders:

  • Forward & reverse logistics
  • Blocked Inventory (Items stuck in transit)
  • Physical quality check and re-packaging of returned items
  • Increased probability of damage to fragile items, and hence more money spent in shipping them
  • Operations costs in processing these orders

We took the time out to check out the RTO numbers and their true impact on business. Here’s what we found– in case of COD orders, the percentage of RTO orders can be as high as 40 percent!

Imagine spending double the shipping costs for 40% of all your orders, let alone the opportunity cost on the blocked inventory and operations costs to handle them.

Read more: Is 30% RTO the Cost of Running an E-commerce Business?

How can Thirdwatch help reduce RTO costs?

Thirdwatch is a simple plug-in that helps you detect fraud orders, impulse purchases, non-deliverable addresses and flag risky transactions in real-time and finally, improve profitability. 

And what’s better? If you’re a Shopify merchant, Thirdwatch integration can be done in minutes, it’s that easy! Here are the simple steps:

Step 1: Install the Plug-in on the Shopify dashboard

Step 2: Sign up on the Thirdwatch dashboard with your account ID and password.

Step 3: Your centralized dashboard will be updated with the order status, along with actions for decision making. Start detecting fraud and saving money!

Thirdwatch runs on Artificial Intelligence and Machine Learning to help identify fraudsters across different platforms. Machine Learning technology offers the right solution as it addresses all the challenges in preventing fraud — scale, complexity and changing patterns.

For example, by adding the price of the user’s phone device or categorizing an address as five stars or one star, we turn meaningless data (phone model) into actionable information. This increases the accuracy of the red or green flag that the machine learning models generate for every transaction.

Network effects can be harnessed by pooling in anonymized data to predict and prevent fraudulent behaviour. This de-incentivises and penalises fraudulent behaviour across the ecosystem.

Moreover, e-commerce firms will truly know their customers so that goods are delivered to a person not merely to an address.

Most importantly, RTO will no longer be just the “cost of doing business”.

Here’s what Shabaaz, Founder of Nicci SkinCare, an established online cosmetics store on the Shopify platform, had to say about Thirdwatch.

We’ve been in the business for a few years now and Return-To-Origin orders are a big problem for businesses like ours. Using Thirdwatch has helped us in dealing with incomplete addresses and in detecting impulse and fraudulent orders. Our RTO rate (significantly) reduced by 30% because of Thirdwatch and we saved over INR 1.5 lakhs monthly in shipping costs! Highly satisfied with the product 

Curious to know more about how we’re solving this for merchants? Get in touch with a Thirdwatch expert today!

Is 30% RTO the Cost of Running an E-commerce Business?

thirdwatch ecommerce return to origin fraud

It is no surprise that the Indian economy is more of a cash-driven market, especially in the e-commerce sector. Unlike the e-commerce industry in USA/Europe, COD is the forerunner in the Indian market. 

COD suits the Indian mindset and can make up to 70 percent of Indian e-commerce businesses. With smaller players, customer credibility is also in question, which can further accelerate the need to introduce COD to their business.

However, there’s a bigger problem in question when it comes to the Indian e-commerce industry– Return to Origin (RTO) costs. These RTO costs can be especially high in the case of COD orders.

What is RTO?

RTO is when orders cannot be delivered and have to be shipped back to the warehouse. This puts a significant cost burden on e-commerce firms as they lose a lot of money in shipping it back and forth.

Here’s how e-commerce companies lose money in these orders:

  • Forward & reverse logistics
  • Blocked Inventory (Items stuck in transit)
  • Physical quality check and re-packaging of returned items
  • Increased probability of damage to fragile items, and hence more money spent in shipping them
  • Operations cost in processing this order

We took time out to see what the actual numbers of RTO orders and what their share was. Here’s what we found– in case of COD orders, the percentage of RTO orders can be as high as 40 percent!

This means that at least one out of three orders were failed orders and were returned. When one-third of your orders have the potential to damage your bottom line, rather than adding value to it, it’s no doubt that the situation is worrisome.

Is there a pattern to these cancelled orders?

We took a closer look to see if there were any patterns to these orders, and if these patterns followed a Modus Operandi and we discovered a few interesting insights. Here’s what we found out:

  • Customer error (Intent is there but incomplete address, phone number, etc)
  • Orders from transitory addresses (hotels, friend’s place, etc)
  • Price-sensitive intent (Reorder because of drop in price)
  • Impulse buy but without paying (there is no downside to refusing delivery)
  • Intent to fraud (Habitual fraudsters)
  • Placing an order without any genuine intent

So, what is the solution to this?

Companies often perceive these costs as “mandatory” since there’s no proper solution set in place. Companies have little choice and fewer tools to prevent RTO — they just take it as a ‘cost of doing business’.

Some businesses also resort to static, generic solutions like the following:

  • Blocking all transactions on International credit cards
  • Not delivering to certain pin codes or cities
  • Capping the order size

But, what’s wrong with static solutions?

Well, sometimes, static solutions can do more harm than good as many genuine orders are lost in the process, not to mention customer dissatisfaction when they hit a dead end on a static solution. This can even affect customer relationships on a long-term basis. 

Solving the RTO problem by manually scanning every order does not work either due to the sheer scale of the problem and evolving nature of fraud techniques. 

With the Indian e-commerce market becoming hyper-competitive, firms need better solutions as they cannot afford to lose customers and orders. 

The way forward

Machine Learning technology offers an attractive solution as it addresses all the challenges in preventing fraud — scale, complexity and changing patterns.

  • Employing Machine Learning for fraud detection

Catching digital frauds requires us to first gather the ‘Forensic Evidence’. Every user interaction leaves behind a subtle digital forensics trail like proxy IP, device ID, email address, time to order, etc. 

Machine learning models combine hundreds of such innocuous parameters, which are seemingly unrelated, to identify the patterns that indicate fraud. These patterns are later used to zero down on customers who perform a fraud across different websites and make it to the blacklist.

  • Enriching the data

Machine learning and natural language processing are used to differentiate between real and fake address. This is only the beginning. Transaction and user data can be enriched by adding context to it.

For example, by adding the price of the user’s phone device or categorizing an address as five stars or one star, we turn meaningless data (phone model) into actionable information that increases the accuracy of the red or green flag that the machine learning models generate for every transaction.

  • Observing the user

Fraudsters are habitual in nature. They leave similar footprints on multiple sites. Network effects can be harnessed by pooling in anonymized data to predict and prevent fraudulent behaviour. This de-incentivises and penalises fraudulent behaviour across the ecosystem.

Moreover, e-commerce firms will truly know their customers so that goods are delivered to a person not merely to an address.

Most importantly, RTO will no longer be just the “cost of doing business”.

Curious to know more about how we’re solving this for merchants? Get in touch with a Thirdwatch expert today!

A Closer Look into UPI Fraud and How it’s Done

Digital transactions are the need of the hour, and with the country rushing towards a cashless economy, it’s important to stay vigilant of all the loopholes in the system. 

UPI, being one of the foundation stones of the digital economy, needs to be airtight when it comes to security. With UPI transactions hitting an all-time high this year, it’s no surprise that UPI is one of the most preferred methods of payment in recent times. 

And why wouldn’t it be?

All you need is a 4-digit PIN to authorize your transaction and the deal is done in seconds. Of course, something so awesome definitely comes with its share of liabilities– and that’s what we’re going to see in this article. 

Amid a massive spike in online banking fraud, HDFC Bank issued a warning to all online banking users. According to the alert, fraudsters are stealing money from users’ bank accounts via UPI. Hackers access users’ mobile phones remotely through a device control app called AnyDesk.

So, how do we deal with UPI fraud? How do hackers take your information? What is the best way to keep yourself safe from so many seemingly intelligent tricksters online?

Let’s begin!

#1 Types of cyber frauds

Before you stay vigilant, you must first be aware of the types of fraudulent cyber activities out there. While there are one too many types of frauds, we’ll be discussing those pertaining to UPI scamming, in this article. Here goes:

  • Phishing

Fraudsters send bogus e-mails to access sensitive information of the potential victim. Once the victim keys in their details (password or PIN) into the fraudulent site, the information is immediately passed on to the hacker for misuse.

  • Malware

Malware is one of the most common forms of cyber fraud and can be mistakenly downloaded from a fake e-mail attachment or an unsecured website. Malware is designed to extract and copy data from the infected device.

  • Money Mule

Money Mule is a more elaborate fraud where once the victim’s data is obtained, fraud rings transfer money to an intermediary account to house the loot. This account acts as one of the money mules to park money collected from different victims.

  • SIM Cloning 

SIM cloning is a recent addition that has mushroomed after the OTP-mandatory rule by banks. If a fraudster clones your SIM, he can even change the UPI PIN. The fraudster gets hold of the victim’s bank account details and ID proof to reset the PIN. 

  • Vishing

Vishing is mostly scamsters posing as bank representatives, asking questions ‘on behalf of the bank’. These individuals weave a web of lies and enquire about the victim’s personal information to extract their PIN or password. 

#2 The Execution

It’s been observed that fraudsters follow a pattern whilst executing these elaborate plans. We’ve managed to weave a step-wise timeline of how these plans are generally executed. Take a look:

Step 1

Fraudsters usually call targets to get their attention, as opposed to texting. They commonly disguise themselves as a bank representative, calling for a seemingly harmless issue.

Step 2

To make the call sound legit, they proceed to ask verification questions like your date of birth, name or mobile number.

Step 3

There is always a problem. Hackers usually use technical difficulties in the app or website to get to talk to the victim. They usually weave a false story that the victim may have to forfeit their personal information to resolve the issue.

Step 4

Once the fraudster has convinced the victim, they proceed to ask the latter to download an application on their phone. Some of the apps are AnyDesk and ScreenShare, which are available on the Google Play Store.

Step 5

While downloading AnyDesk or any similar application, it asks for the user’s privacy permission, like any regular app. But don’t be fooled, these apps can access everything on your phone.

Step 6

The fraudster will then ask the victim for a 9-digit OTP, which is generated on their phone. As soon as the victim reveals the code, the hacker will also ask to grant permission from the phone.

Step 7

When the app acquires all permissions required, the caller starts to take full control of the victim’s phone without their knowledge. After getting full access to your phone, a hacker steals passwords and begins transacting with the victim’s UPI account.

We identified other approaches, too. Fraudsters send an SMS and ask the victim to forward it on another number that they provide. After the message is successfully sent, it permits the fraudster to link the victim’s mobile number or account through UPI to their mobile. 

Fraudsters also send a ‘collect request‘ or a refund request to your Virtual Payment Address (for ex: name@bankname) on apps like Google Pay, PhonePe, etc. 

Most users authorize these requests without paying attention, and this can lead to any amount of money being collected from their account.

#3 Staying Vigilant: A Guide

Scamsters aren’t inevitable; they can, of course, be avoided by taking some essential precautions. These aren’t just to keep you away from fraud; these are also fundamental things to keep in mind to keep all your information safe in the era of the Internet.

  • Beware of engaging with fraudsters

As vague as it sounds, the best way to protect yourself from fraudsters is to stay away from engaging with them. Your bank will never call to discuss your sensitive information; if you receive any call asking you to do the same, that’s a red flag right there.

You can check for the authenticity of unknown numbers with apps like Truecaller, which has a global database of numbers flagged by users.

  • Take extra precaution while requesting/accepting requests

Fraudsters take advantage of the “request money” feature on apps like Google Pay, PhonePe, BHIM, etc.  Imposters express interest in buying a product advertised on various online platforms and engage with the seller on a phone call.

They make the seller of the product to transfer the money using UPI apps’ ‘request money’ option. A small careless click can sometimes cost you thousands. Remember, receiving money requires no PIN.

  • Pay attention to SPAM warnings on your UPI app

UPI apps like Google Pay and PhonePe generally gives users a spam warning if they’re receiving a request from an unknown account. Do keep an eye out for such statements, and if you do spot any such suspicious accounts, make sure to report as spam!

  • Be wary of malicious apps

Frauds have also been found using fake mobile apps to cheat people. They create an app that is similar to the original bank app and submit it on the Google Play Store.

When a customer accidentally downloads and installs the fake app on his/her mobile phone and gives necessary permissions, then the app starts sending out sensitive data to enable fraudsters to withdraw money from the victim’s account.

Several fake apps like Modi Bhim, Bhim Modi App, BHIM Payment-UPI Guide, BHIM Banking Guide, Modi ka Bhim, etc. have been reported to have stolen personal data of customers in the name of providing some valuable banking service.

  • Follow security practices

Make sure that you don’t reveal your PIN to strangers under any circumstances. Also, make sure to protect your UPI apps with biometric recognition software. This way, hackers cannot misuse your account. It’s also recommended that you install anti-virus software to keep an eye out for other malicious software. 

  • Never open e-mails without checking their authenticity

E-mails are one of the easiest ways to trick a user into downloading Malware and subsequently obtaining their information. Make sure to always scan your e-mails for viruses/Malware.

  • Keep a check, every once in a while

Once in a few months, sift through your account activity to check for any suspicious behaviour on your account. We often forget to keep track and may miss a few red flags along the way. It’s always best to do a thorough check once in a few months. If you notice any unusual pattern, make sure to alert the bank right away.

  • Avoid using open Wi-Fi

Using an open Wi-Fi is never a good idea as it may give the hacker a good chance to access everything that’s on your device. Instead, always check if the Wi-Fi is trustworthy before connecting to it.

  • Keep track of all your bank messages

Take a closer look when you receive messages from your bank. Know the difference between a password, PIN and an OTP and carefully examine the message for inconsistencies to stay safe. Keep track of all your bank messages to make sure you’re aware of all the transactions to and from your account.

While no application is entirely fool-proof, the only way to stay safe is to be wary of fraudsters who can go to any level to fool you. In any case, make sure to contact your bank if you think something’s not right. 

We’ll see you next time with more useful tips on keeping your money safe!  

Also read: IPL & World Cup Contribute to 15% of Digital Payments