As retailers continue to face pressures resulting from geopolitical tensions, ongoing inflation, unprecedented fuel price increases, and persistent labor shortages, the outlook for retail is shaping up to be one of the most challenging in recent history.
If this weren’t enough, retailers also have to contend with the dramatic change in consumer demand not just in volume, but experience and ease of access. After the spike in ecommerce during the pandemic – Adobe found consumers spent $1.7tr online $609bn more than the previous two years combined – consumers now expect convenient, on-demand services that meet their needs.
As consumers also become more conscious of their spending, retailers must keep pace by evaluating, innovating, and investing in solutions that go beyond simply enhancing the customer experience (CX).
Regulations: Helping or Hurting?
Navigating regulatory pressures globally is one of the most tedious things retailers must contend with. Across Europe, merchants must adhere to Strong Customer Authentication (SCA) which requires online buyers to prove their identity through two of three ways — something they know, such as a one-time passcode; something they have, such as a mobile device; and something they are, such as a person with a unique fingerprint.
Sounds straightforward, right?
While SCA has enhanced security protocols, it has also made shopping far more cumbersome, which ultimately means reduced conversions and increased friction across the user journey. And though it lowers fraud attempts at checkout, there’s nothing stopping fraudsters from simply shuffling up or down the chain to another part of the shopping journey, with activity such as Account Takeover (ATO), return fraud, or delivery abuse, all of which are on the rise.
Despite SCA being in place for more than a year now, many merchants still feel underprepared to navigate the requirements and end up acting with added caution when it comes to purchase approvals, meaning they’re leaving money on the table. To combat this, retailers need to find balance: a happy medium between risk management, friction prevention, and overall experience.
Finding a Happy Balance
Merchants can achieve balance by working with their Payment Service Providers (PSPs) to take some of the organizational risks they face, freeing them up to focus on customer experience without having to worry about regulatory ramifications. Those PSPs that use high-quality tools and strategies are able to recognize, and validate with high levels of precision, which orders are legitimate, and which aren’t. That ultimately means merchants can validate transactions seamlessly in the background and identify those transactions that do not need to be authenticated. That means more conversions, fewer empty shopping carts, and better brand loyalty.
Reckoning with Returns
One element retailers will need to focus more energy on now is returns. With the rise of online sales since COVID, we’ve seen a dramatic rise in online returns and refunds. With nearly 4 in 10 (38 percent) consumers now more comfortable with returning online purchases than they were before the pandemic, retailers have a huge opportunity to build loyalty by setting themselves apart with returns.
Right now, the returns process is rarely straightforward. It typically involves submitting a form online, mailing the item in, waiting for it to be received, and then waiting another 5-7 business days for the refund. And with fulfilment costs rising and labor shortages escalating, retailers like New Look and Uniqlo are looking to instigate return fees for online purchases which will likely cause consumers to think twice or look for alternative options with easier returns policies.
As mentioned, fraud is shifting across the shopping lifecycle which means that there is the risk of fraudsters targeting the return too. Case in point, many retailers have been the victim of scammers shipping back items other than the original purchase — such as knockoffs — to receive a quick refund. Even regular consumers have become more relaxed with returns, as illustrated by Signifyd data, showing a 35 percent increase in false claims of damage and a 68 percent increase in missing item claims in 2022.
To mitigate the increase in return fraud without creating extra hoops for customers to jump through, retailers can use data and AI to verify consumers who should receive instant returns. Basing these decisions on previous behavior – identifying who has returned items incorrectly or fraudulently in the past – means that those consumers looking to make genuine exchanges or returns will have positive experiences, while still putting up barriers for those who could take advantage of the system.
To sum up, with retail’s move to online and omnichannel, innovation to balance CX and fraud mitigation is key to staying agile and competitive. By working with the right solution providers and focusing on tech-driven efficiencies, retailers will see greater customer retention, higher rates of conversion, and ultimately a happier profit margin.
The author, Amal Ahmed, is Director, Financial Services and EMEA Marketing at Signifyd.