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The Cost of Convenience: Why Merchants Bear the Brunt of Loss in Newer Retail Delivery Models

Convenience is the name of the game in the modern world, and no one knows this better than peer-to-peer delivery companies. These organizations rely on contracted couriers to transport goods from brick-and-mortar stores to the customers who ordered them online. Postmates, one of the most prosperous institutions in the industry, proved the success of this business model by recently surpassing 1 million deliveries per month, according to Tech Insider’s Alex Heath.

Many believe these companies to be part of the sharing economy, which Investopedia defines as the business model built around the sharing of an asset that is needed but is too expensive for the customer to outright buy. However, Giana M. Eckhard and Fleura Bardhi of Harvard Business Review think many of these organizations are actually part of what they call the “access economy.” Certain people don’t have the bikes and cars necessary to transport the items they need, and Postmates gives them access to these resources.

That said, this access comes at a cost. The peer-to-peer delivery business model enables fraudulent customers to hide behind the veil of anonymity to a large degree, as they don’t need any form of identification to purchase an item as long as they have a credit card number. Legitimate customers on the other hand choose to trust a complete stranger who isn’t technically a full-time employee. For companies who offer services similar to a peer-to-peer delivery model and need to rely on a customer base with no face to face interaction, prevention clearly needs to be of the highest priority. Here are some potentially risky scenarios that such companies need to watch out for.

Customers don’t always play fair

Customers of peer-to-peer delivery services don’t need to actually show a card to have food delivered or get a ride, which means all someone needs is stolen information or a misplaced phone to participate in identity theft. In fact, this issue is so important that Postmates felt the need to warn users against such fraudulent activities in its terms of service agreement.

The potential loss exposure for companies is the reselling of expensive items. A criminal gains access to someone’s credit card information and then uses a peer-to-peer delivery company to purchase something like a tablet or smartphone. They’ll generally give a bogus delivery address, often calling the delivery person to reroute them to another location such as outside a building’s lobby rather than in an actual apartment. Once they’ve received the package, they’ll sell it for a profit.

This allows the fraudster to keep a step away from the original vendor, as the brick-and-mortar stores the couriers will be visiting to purchase the item generally have security cameras that could help later identify the criminal if they were to go in-person. These business models favor fraudsters as defrauding an online vendor such as Amazon is more difficult since these companies don’t reroute deliveries to meet customer’s demands like a peer-to-peer organization can.

What about the couriers?

Although couriers who work for peer to peer delivery companies are the backbone of such innovative models, it’s important to remember that courier fraud prevention is an important part of steering clear of a bad reputation.

As it stands, there are two major courier fraud techniques that business owners need to be aware of. The first has to do with charging a customer for something they didn’t originally want. Most peer-to-peer delivery companies have an option that allows the courier to change a food order if a restaurant is out of stock. A policy like this could very easily allow the courier to simply add items on that he personally wants to eat, hoping that the customer simply won’t notice the fluctuation in price.

The other issue here is the theft of the items being delivered. Although these organizations often have extensive background checks, certain criminally-minded individuals simply slip through the cracks. In fact, Postmates itself had to deal with a courier stealing a phone from an office he or she visited. If a nefarious worker were to infiltrate a company’s ranks, they could easily ruin reputation by simply walking away with an expensive item that a customer wanted delivered.

Granular segments of one

The proliferation and success of delivery 2.0 companies like Instacart, which was recently valued at 2 billion, is blurring the line between brick and mortar and online stores and making delivery a key differentiator. As these companies scale and grow their transaction volume, validating the authenticity of the transaction need to be automated and computed in real time. Understanding normal behavior of legitimate customers and differentiating them from fraudsters requires better utilization of data to recognize patterns that characterize good behavior from bad. This requires analysis of large amounts of information at a very granular level and breaking them into segments at points of compromise.Data needs to be made into meaningful baselines for each relevant data point – whether it’s customer, payment token, merchant, IP, POS device, location etc. Making interpretations of big data requires identifying features that are better indicators of fraud and tracking them over large transactional volume to establish baseline and comparing them against day to day transactions to detect anomalies.

Feedzai processes over $2 billion in transaction volume every single day. With large data volume to power the engine, Feedzai’s Segment of One profiles establish baseline behavior across hundreds of data points. Incoming transactions are constantly updated in real-time and evaluated against baseline profiles to detect fraud before it happens. To learn more about Feedzai and how machine learning can help in fraud prevention, download the e-book Machine Learning for Fraud Prevention.