Fulfillment has become a top priority for customers. According to Shopify, 67% of U.S. consumers expect either same-, next-, or two-day delivery. Click-and-collect commerce is also on the rise and is forecast to top $64 billion in 2021. Around the world, businesses are prioritizing fulfillment to meet this demand – evident in the arms race in delivery speed between Amazon and other big retailers. Last year, Walmart launched Express, offering two-hour delivery services at close to 3,000 stores.
One way that merchants have improved their fulfillment capabilities to gain a competitive edge is with micro-fulfillment. These are smaller fulfillment facilities that are closer to customers – thus shortening last-mile delivery times significantly.
Micro-fulfillment centers or MFCs automate the tedious process of grabbing and packing orders, but at a localized and smaller scale than traditional warehouse fulfillment. Some merchants, like Walmart, have even decided to build them at their stores, so they can work directly into existing delivery routes and store management operations. “This is a trend that is not going to go away,” Randy Mercer, global product manager at 1WorldSync, told Forbes. But are merchant’s fraud operations ramped up to meet this new standard? Merchants need a fraud management system that can keep up or they risk incurring fraud costs that can jeopardize their place in the race against Amazon.
Can your fraud system ensure long-term success?
The idea for MFCs is to make last-mile delivery cheaper and quicker. Micro-fulfillment is estimated to reduce costs associated with an order by 75% when compared with manual picking of the order. But MFCs are an investment. A single MFC that can handle 5,000 orders per week can cost between $8 million and $10 million. Due to the large investment required to roll out MFCs, merchants may seek ways to protect against fraud-related losses. One avenue they take is a cautious approach to order review.
The end result may be lower fraud rates – but this could lead to a false sense of security, when in reality, there’s a mounting false declines problem. Legitimate customers who are turned away due to overly aggressive measures will likely take their business elsewhere. According to a Riskified survey, 27.9% of declined customers abandoned their purchase, while another 13.9% took their business to a competitor. So the problem of false declines is not only an immediate impact on cash flows, but it’s an issue of lost potential – jeopardizing future profitability. So how can merchants fine-tune fraud review without hitting high decline rates? Merchants need an adaptable platform that can identify new shopping trends, and account for the hundreds of variables involved in accurately vetting each order.
For example, the pandemic accelerated mobile commerce. On Cyber Monday alone, mobile accounted for 37% of sales, Adobe said. Given that the digital shift this year is expected to have a lasting impact on mobile usage, it’s increasingly important for merchants to adjust their review so that the customer experience doesn’t turn away good shoppers on mobile. Indicators that may be valuable in traditional eCommerce fraud review can be less revealing in mCommerce fraud review. Take IP addresses. In mCommerce orders, cellular IP addresses are not unique identifiers. Users are constantly on the go when on their mobile devices, so variances in IP addresses throughout a consumer’s purchase history should not be such a strong red flag or even a red flag at all.
What are the constraints of manual review?
For traditional solutions that rely on manual review, order approval can take anywhere from hours to days. While this is less than ideal, when customers opt for standard shipping, merchants buy some time. But by shortening the supply chain with MFCs, retailers are under greater pressure to approve transactions quickly. Instead of slow manual review mechanisms, the focus of fraud prevention should be shifted to digital measures that can deliver instant approve/decline decisions.
A big-box retailer was manually reviewing 15% of orders, employing a team of 150-400 people. Order approval was slow, especially during holiday sales. The retailer was also having trouble effectively managing fraud in BOPIS and digital gift card purchases. Why in these segments specifically? BOPIS orders are treated like digital gift cards delivered via email. These orders are unsurprisingly, highly attractive to fraudsters – they are fulfilled instantly and don’t require a uniquely identifiable, physical shipping address. So the manual review problem for this merchant was twofold: delivering short response times, while effectively keeping out fraud. After going live with Riskified, the retailer enjoyed reduced processing times, a boost to their overall approval rate, and a significant reduction in overhead costs.
Gift cards are traditionally considered a riskier product than selling physical goods, but same-day or next-day shipping and click-and-collect can pose similar challenges for manual fraud review teams. A strong technological solution can help merchants bank on this demand, without sacrificing seamless and accurate order review.
It is crucial that merchants ensure fraud costs don’t get in the way of a profitable fulfillment strategy. With the right fraud prevention solution, merchants don’t have to spend money and time on fraud, but instead, can dedicate resources to revenue-generating fulfillment infrastructure that will help them secure long-term growth.