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Canadian e-retailer decreases chargebacks with transaction reviews

E-commerce loss prevention starts with entry to a website — with password requirements strong enough to deter hackers but not so strong as to discourage prospective customers — and doesn’t end until payment for the transaction is cleared by the banks. The latter action can’t be taken for granted, since chargebacks are a way of life in a business dependent upon card-not-present purchases.

“Fraud is a concern for any online retailer,” says Justin Beauchamp, fraud and risk manager for Montreal-based e-retailer Ssense. “There is no face-to-face contact with customers.”

Chargebacks are of particular concern to a business like Ssense, which has a worldwide customer base purchasing fashion and luxury goods from such labels as Givenchy, Alexander Wang, Kenzo and Saint Laurent. The website receives more than 2 million visitors a month; the company also operates a bricks-and-mortar location in Montreal.

The price and quality of the designer merchandise Ssense carries are what make the company a focus for criminals, says Beauchamp. “The product we’re selling is very attractive for someone trying to make a quick buck,” he says. “There is a target on our merchandise because of its resale value. We may have certain products that may be very hot items. Some items are more coveted than others, including by fraudsters.”

For a retailer, chargebacks absorb a lot of time going back and forth with banks over the details and merits of a contested transaction. In discussing these negotiations, Beauchamp says, “That’s a lot of time spent by our resources and there’s still a chance we may not be successful.”

Ssense spent nearly a year looking for a way to avoid the fraudulent transactions that lead to chargebacks, Beauchamp notes. “We looked at about 10 companies over the course of about 10 months,” he says. “All of them did pretty much the same thing in different ways. But none of them did what Riskified did.”

“Most of them left the [final approval or denial] decision up to the merchant. Riskified makes the decision,” he says. Riskified also pays the retailer for any chargebacks on transactions it approves.

We’re submitting orders that we think, ‘no way,’ but they approve them. It’s a good feeling because we don’t want to turn away a good customer.
Justin Beauchamp, Ssense

Proactive analysis
Riskified says it minimizes false positives through a proprietary fraud review platform.

“We provide a turnkey solution that allows merchants to select what they want to do and only charge for approved transactions,” says Eido Gal, Riskified’s CEO. Merchants can choose to have Riskified review selected transactions — what Ssense chose to do — or have every transaction submitted to Riskified.

The latter option, called Shop Protection, currently costs retailers 0.7 percent per transaction — lower than the average 1 percent of total sales that merchants lose due to chargebacks, according to Riskified. Shop Protection comes with a 100 percent chargeback guarantee that shifts the liability to Riskified and eliminates chargeback fees to the retailers.

The Shop Protection service includes an offer to review, approve and guarantee the first $50,000 in sales for free. Gal notes that Shop Protection proactively analyzes all of a merchant’s orders and, on average, approves nearly 99 percent of them, including up to 74 percent of transactions that might normally be declined because of possible fraud.

Breaking down the statistics further, retailers screening all transactions have a 98.7 percent approval rate; for those not using Shop Protection, perhaps 20 percent of transactions are manually reviewed, which takes time and delays processing the order, which in turn prolongs the time customers wait for the merchandise.

Gal says his company’s global fraud network identifies fraud patterns and blocks fraudulent transactions originating anywhere in the world, and in doing so helps merchants increase conversions and recapture revenue that would otherwise be lost. In addition, he says, Riskified decreases risk and fraud, chargeback fees and other operational costs typically incurred when manually reviewing borderline transactions.

Riskified Dashboard

‘Educational bonus’
According to electronic payment processing provider CyberSource, online merchants lose more than $3.5 billion in sales annually due to the fear of fraud — about 1 percent of all transactions.

Working with Riskified has provided Ssense with insights into dealing with potentially fraudulent orders. “There is an educational bonus,” Beauchamp says. “As we see how they operate, it gives us a better idea how to improve our own procedures. We’re submitting orders that we think, ‘no way,’ but they approve them. It’s a good feeling because we don’t want to turn away a good customer.”

The current risk management model “is broken because the business incentive of the fraud services provider is not aligned with the merchant’s incentive to sell more,” says Gal. “We’ve built a complete platform capable of discerning legitimate transactions from fraudulent ones, with zero risk to the merchant, lending them more opportunities to dramatically increase sales.”

Regardless of whether a merchant submits all transactions or just selected ones to Riskified, paying only for approval allows the retailer to do more business, he adds. “That’s the essence of the business, increasing transactions.”

Riskified’s business with clients like Turntable Lab, Leica cameras and online ticket marketplace viagogo has been rooted in e-commerce.

“Having Riskified instantly view, approve and guarantee orders has really moved the needle for our business,” says Attila Dogan, head of revenue protection and payments at viagogo. “Riskified’s 100 percent chargeback guarantee gives us great peace of mind that our business is well protected.”

Many of Riskified’s newer clients are bricks-and-mortar businesses expanding online, says Gal. Unlike early generations of web-based retailers, these physical store operators “are migrating to e-commerce and we see that they don’t want to do everything themselves. They buy services like ours for the components that they don’t want to build or even have the capability of building in-house.”

As for the types of goods that are targeted by online fraudsters, Gal echoes Beauchamp by saying that anything that is popular and in high demand can be re-sold quickly. “Bigger ticket items,” he says, “almost all of this is for resale. It’s not for personal use. iPhones, which can bring more than their cost in some places, high-end items, luxury brands, brands that are widely known.”

Quantifying the increase in sales as a result of a higher approval rate resulting from Riskified’s intervention is difficult, allows Beauchamp, but it is real nonetheless. “It’s been win-win all around,” he says.