Since the pandemic, digitalization has dominated businesses across all industries, giving them a competitive advantage and market security. Because much of the world has been under lockdown and restriction for the past few years, digital platforms have been a boon. E-commerce websites have evolved into critical survival tools in this situation. The online marketplace is a popular place to shop for everything from necessities and medications to clothing and other supplies. According to IBEF, the Indian e-commerce market is poised to reach $111.40 billion by 2025. While many factors contribute to the industry’s growth, eCommerce fraud and delayed COD payments are two roadblocks to its expansion.
In contrast, new-age technologies such as artificial intelligence are quickly gaining traction as a solution to online fraud and are making significant progress. Further, the adoption of technology by the e-commerce industry is driving the growth of online retailers in the competitive marketplace.
According to a report by the RBI, digital fraud increased by 30% in 2021, along with digital commerce transactions. Expert research also highlighted the fact that consumers are now more concerned about falling victim to deceit due to the increase in online transactions.
Frauds have always existed and played a part in the marketplace. If we talk about e-commerce deception, it refers to an unauthorized action or transaction taking place in an online store. To complete such transactions, fraudsters on the run use spam messages as well as credit card information that has been compromised due to theft or fraud. This implies that the seller won’t receive a legitimate payment for the goods they sold. Consequently, the shop will have to resort to charging the money back to the compromised customer.
COD (cash on delivery) and prepaid orders are both vulnerable to e-commerce fraud. Today, e-commerce fraud takes many forms, as can be seen. Common e-commerce frauds include fake COD orders, fake delivery attempts, promo code misuse, and a variety of frauds such as inception, card validity testing, chargeback, and so on, just to name a few! However, as technology advances, online crimes have become increasingly common. In addition, as a result of rising demand, online retailers must manage an increasing number of orders each day. As a result, they must adopt cutting-edge technology, such as artificial intelligence (AI), which enables fraud prevention systems to break through the precarious environment’s glass ceiling.
The Solution to eCommerce Fraud
In this scenario, new-age technology such as AI and ML can be used to address all concerns because it allows organizations to validate their performance and adapt to a changing reality at the click of a button. Furthermore, it is capable of assisting in the redesign of business strategies and the prediction of attempted fraud. Artificial intelligence (AI) analyses hundreds of data points from millions of online transactions to identify patterns that could lead to fraud. While ML analyses the transaction and assigns a threat score between 0 and 1, this score is then ranked against a pre-determined threshold to determine whether the transaction is fraudulent or not. The main idea behind this data is that fraudulent transactions differ greatly from legitimate ones. These patterns can be recognized by ML algorithms to detect fake COD orders from fraudsters.
As a result, AI solutions enable businesses to reduce fraud, RTO percentage, charge book, and manual reviews. This reduction results in a better customer experience, lower operational costs, and a significant increase in revenue. Online retailers must deal with massive data sets in the e-commerce industry. As a result, ML algorithms and models are critical for them to function properly. These algorithms can instantly evaluate large numbers of transactions and are constantly assessing and processing new datasets. Because the industry relies entirely on internet connectivity and banking for online purchases, it is extremely vulnerable to fraud or deception. With large datasets, the machine learning model becomes more accurate and efficient because it can distinguish and simplify multiple behaviors.
The Advantages of Using AI in eCommerce
Real-time data processing by finding hidden threats: Traditional fraud detection systems can only detect certain types of fraud after they have already occurred. Advanced AI algorithms, on the other hand, can immediately take changes into account and prevent fraud attempts by taking action in real-time. An AI solution excels at detecting hidden connections that humans cannot see. In a nutshell, it allows the business to reduce fraud and result in a better customer experience.
Consistent outcomes of business analytics: Unlike humans, ML algorithms are always correct and never make mistakes. Machine learning algorithms track each customer’s typical behavior. This algorithm instantly evaluates large numbers of transactions and is constantly assessing and processing new datasets. As a result, they can easily detect any anomalies or suspicious behavior.
Verifications that happen quickly and accurately: Automated checkout shortens the entire purchasing process for customers and follows predetermined rules, eliminating human errors.
Delayed COD Remittance
The e-commerce market has long been dominated by cash on delivery (COD). As per an expert report, nearly 83% of shoppers in India prefer COD as their preferred method to pay for online purchases. Although many e-commerce platforms provide the COD option, a great way to expand the customer base and grow the business, it possesses some serious drawbacks, such as disrupted cash flow and working capital. Without proper cash flow, an e-commerce merchant’s profit margin and overall operations can take a severe hit. Hence, to solve this problem, businesses should tie up with a logistics partner that can balance out their COD remittance by timely releasing the COD payments. Interrupting cash flow further helps with improved working capital to maintain smooth operations.
Technology paves the way for the future
Due to the sheer dynamic of the business environment and the need for technology to prevent significant losses caused by fraud, businesses should consider investing in an AI-powered e-commerce fraud detection system. This can aid in the detection of fraudulent transactions and may even help prevent them from occurring in the future.
(The writer is Co-Founder & CEO, Post)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)