Analysis paralysis: How to deal with suspicious transaction reviews

A crushing blow

Fraudsters have never had it so good. They live in an age of burner phones, spoofed IP addresses, deepfakes, one-time email addresses and a mountain of stolen identities. Faced with these odds, it can be incredibly difficult for any retailer to know if the customer they are dealing with is good or bad, or even real. They’re also dealing with an agile adversary. If a retailer bans international orders, fraudsters might simply use a freight forwarding address. If they blacklist an email or phone number, the scammer may use a new, stolen one.

This is enough to keep any e-commerce business owner awake at night. If they approve a transaction that results in fraud, the merchant loses both transaction funds and the shipped item. Depending on the size of the order, that could be a crushing financial blow. A single transaction that ends up as a chargeback could wipe out the profits from five, 10, or even 20+ orders, depending on the industry and merchant.

That’s why many take a conservative approach to transaction reviews, declining potentially risky orders even when it means turning away good customers. Or adding so much friction to the process that they may lose that customer forever anyway

A lose-lose scenario

Consider a consumer who orders a pair of swim trunks and sandals with overnight shipping to a hotel in Florida. The billing address on the card is from the state of Michigan, meaning there’s an enormous distance between billing and shipping. In addition, overnight shipping is a favorite of fraudsters, who don’t care about the extra costs and want to get their items before the card is discovered to be stolen. Is this an order genuine? Or is it a fraudster shipping to a hotel with a fake name, with the intent to reship it later to a different address?

It’s no easier to decide even if the merchant calls the customer to validate the transaction. If the fraudster picks up, they will lie and claim the order is legitimate. If it is a valid customer, they likely have just insulted that individual by accusing them of being a fraudster, and may have lost any repeat business. It’s also expensive to call a customer, who may take repeat dials before they decide to answer the phone.

In an age of seamless e-commerce, merchants don’t have the luxury of time. Customers expect their goods to ship quickly, and for that shipping email confirmation to hit their inbox not long after they make a purchase. If a merchant takes a few hours, or up to a day, to make a decision, it will delay shipment, cause confusion with the customer and negatively impact the brand.

It doesn’t help that many merchants don’t have the kind of insight they need to make those decisions quickly and accurately. Many try their best. They might use data verification services like Lexis Nexus, or simply Google customer names or search for homes on Zillow to verify addresses. But these are all time-consuming, and error- and bias-prone, steps.

What you have then is a lose–lose for merchants.

Chargeback protection from PayPal

So what’s the solution? Declining every risky transaction that comes in will reduce fraud losses and chargeback rates, but also severely impact the customer experience and hit profits. Hiring a team of in-house risk prevention agents to manually verify all suspicious transactions would add significant operational costs and suffer from scalability problems during busy shopping periods.

Fortunately for merchants, there is an alternative: services such as Chargeback Protection¹, which is offered by PayPal and Braintree. Chargeback Protection utilizes PayPal’s risk models and global merchant and customer transaction data to approve or decline eligible transactions on a merchant’s behalf in real time. This reduces the need for a merchant to manage an in-house risk team or review any transactions. If a eligible transaction that PayPal or Braintree approves later results in a dispute—ie it’s fraudulent, unauthorized or the item was not received—PayPal will assume the liability against merchant’s eligible loss.

Most importantly, it means that, rather than getting bogged down in online detective work, they can focus on growing their business. If you’re ready to learn more about the many ways in which PayPal chargeback solutions can benefit your business, visit our Risk Management page.