Putting the Brakes on Fraud When Selling Auto Parts Online
The global automotive aftermarket business is growing fast, and it’s an increasingly appealing target for card-not-present (CNP) fraud. By 2023, the total value of the industry will exceed $1 trillion, thanks in part to the rapid growth in e-commerce for auto parts and accessories. The projected compound annual growth rate (CAGR) for online aftermarket auto parts sales from 2018 through 2022 is nearly 19%. The bulk of that growth will come from consumers, hobbyists, and small automotive-related businesses. However, there are some clear reasons why the auto parts industry in particular attracts fraudsters and some ways online retailers can fight back.
What are auto parts fraudsters after?
It’s important to understand that even though some lone wolf individuals use stolen card data to get products for themselves, the vast majority of CNP fraud comes from organized criminals intent on reselling products on a large scale. This may come as a surprise, considering the number and size of auto parts complicates their storage, handling, listing, and shipping costs for re-selling them on and off- line. But organized criminals work around the problem of complex logistics by selectively targeting certain types of auto parts and then selling them to corrupt middlemen. These middlemen mark up the stolen parts and sell them to auto repair shops who pay below-market rates for these stolen parts but bill insurers for the full price of new parts. Other thieves re-sell stolen parts online or offer them locally on sites like Craigslist.
Due to market demand, criminal groups are more likely to go after items for the top-selling makes and models, such as the Honda Civic, instead of parts for rarer cars like the Maserati Ghibli. That being said, some fraudsters do specialize in parts associated with luxury brands, as well as the accessories and electronics that go into high-end customizations. Thanks to the popularity of car modding, there’s a thriving niche demand for unusual wheels, bumpers, and exhausts, as well as for the parts needed to “tune-up” a car to enhance performance.
It’s also important to know that the high cost of shipping auto parts, compared to most other goods sold online, doesn’t impact fraudsters the way it does to most legitimate consumers because they’re not using their own money to make purchases. That may be one of the reasons why the typical fraudulent automotive parts order in 2014 had an average value of nearly $1,700, significantly higher than the $1,000 average fraudulent order for all goods.
What are your CNP fraud metrics?
Fraud prevention is a numbers game, and the most important key performance indicators (KPIs) to watch are your chargeback rate and your decline rate. Your chargeback rate is the total dollar value of all orders that ended up being chargebacks during a given period, divided by your total credit card online sales during that time. Your decline rate is the number of order attempts that were stopped by any type of fraud filter—provided by your payment gateway, your fraud prevention provider, automatic screening tools, and/or manual review—divided by your total number of orders during that period of time. It’s not always easy to assess your declines, because some fraud prevention providers and payment gateways omit those orders from their reports. To get an accurate decline rate you must include all sources of declines.
In general, if your domestic chargeback rate is above 0.25% and/or your decline rate is above 1.5%, you have a problem. Acceptable rates for cross-border chargebacks and declines can be a bit higher but not by much. For example, cross-border chargeback rates for North American retailers of all types declined between 2012 and 2017, dropping from more than three times the domestic CNP fraud rate to the same rate.
Fighting fraud without losing loyal customers
Manually reviewing orders with flags—like high ticket value or a total shipping cost that’s more than 20% of the order value—can help to reduce fraud while avoiding false declines.
But auto parts is a seasonal business, with peaks in spring and fall as consumers prepare their cars for summer and then winterize before cold weather arrives. During those times when order volume rises, merchants are more vulnerable to fraud, because the sheer number of orders coming in can overwhelm their in-house manual review capacity—and fraudsters know it.
What’s more, good customers in the auto parts space demand excellent service. They buy often, interact frequently with customer service and don’t take kindly to having their orders declined by mistake. Fraud chargebacks are costly, but falsely declining a good auto parts customer costs more, because they tend to take their business elsewhere and not return.
Outsourcing can solve the problem
Sales peaks leave auto parts sellers more vulnerable to fraud but also at risk for order-approval bottlenecks and false declines that drive customers to the competition. One solution for auto parts merchants is to outsource their manual review process during peaks in sales activity. Outsourcing can provide experienced, well-trained reviewers to spot fraud and interact with customers, and it provides service based on the latest tactics in fraud’s endless cat-and-mouse game. This option also frees merchants to focus their attention and resources on customer service and operations during seasonal sales peaks.
There’s a lot of opportunity in online auto parts retail now, but it’s also accompanied by a rising fraud risk. Smart retailers will make the most of it by keeping an eye on their fraud KPIs and by finding an order-review solution that reduces fraud and chargeback costs while keeping their good customers happy and coming back to shop again.