A new era of eCommerce brings new challenges
Online apparel retailers understand well the pandemic’s impact on eCommerce. Throughout last year, eCommerce growth moved forward by five years to exceed 4.3 trillion dollars, a volume initially forecast for 2025. Not surprisingly, that growth multiplied the surface area for fraud and abuse as well.
As such, apparel retailers are now faced with new realities when transacting business online. Consumers now expect to do business in new channels like Buy Online Pickup In-Store (BOPIS), which increased 208% in 2020 as a means of limiting contact. Likewise, there was a 55% increase in attempted account takeover attacks, in which fraudsters use stolen usernames and passwords to make purchases and drain loyalty points.
However, one of the most significant changes is that new users are declined 5-7x more frequently than returning customers due to a lack of data or history on new users. This becomes especially salient when considering that 40% of new users on the receiving end of a false decline say they’ll never shop at that business again.
The impact of these inaccurate decisions is so significant that Forter has created a new term to describe it: New User Missed Opportunity (NUMO). To better understand the impact of NUMO, it helps to examine three trends:
- Omni-channel exposes more surface area: Consumer expectations are evolving and include new interactions: BOPIS, BORIS, one-click purchase, same-day delivery, and more. As businesses respond by introducing these options, fraudsters are shifting, too. Bad actors understand that new offerings are less mature and potentially less protected. Companies can best serve their customers when they have a complete picture of their business personas across these touchpoints.
- New users introduce more surface area: The global pandemic brought new users online – many of whom are from older generations that use weaker passwords and fewer protections, making them more prone to account takeover attacks. Since their accounts have limited histories, they are easier to breach, making it imperative to identify these fraudsters from their operations in the broadest network possible.
- More industries selling online equals more abuse: Early in the pandemic, many businesses made more allowances with flexible policies. As a result, losses from policy abuse rose to $65 billion in 2020. Promotions abuse, returns abuse, and item not received (INR) abuse have become real challenges for apparel retailers, mainly because they are often perpetrated by known customers instead of fraudsters concealing their identity. Addressing this abuse requires different tactics, technologies, and thoughtful assessment of how to redraw policy lines to achieve the proper outcomes.
Calculating the impact of NUMO for apparel retailers
To further drive home the impact of NUMO, consider this simple calculation, specific to apparel eCommerce:
According to our data, the value of transactions from new users represents 4% of gross merchandise value. Apply Forter’s database of more than 1 billion identities, used to establish a history of customer trustworthiness, and you get an average approval rating of 99.5%. The result is that an apparel business with $500M in annual gross merchandise value would earn $20M from new users.
Now, however, consider the data without input from Forter’s Identity Graph. The typical rejection rate for new users is 6x greater. That means your apparel eCommerce businesses would likely reject up to 3% of those new user transactions – resulting in $.5M less revenue.
But the news gets worse. Historical data suggests that new users attempt five transactions per year, and the average customer lifetime value is four years. Over a customer’s lifetime, that equates to about $2.5M in lost annual gross merchandise value or $10M in lost customer lifetime value.
Given these numbers, apparel eCommerce businesses would clearly agree on the need to avoid missing opportunities by investing in solutions that capture genuine customers and lifetime value.
Forter optimizes genuine customer experience and lifetime value by solving for the root causes of eCommerce fraud and abuse. More than 10,000 businesses benefit from our technology, representing more than $250 billion in annual gross merchandise value.
For more details, read the full Annual Ecommerce Revenue Optimization Report for the apparel and accessories industry. Or schedule a personalized tour of the Forter platform today and talk with an expert about how Forter can help you make better decisions for your business.
