The Future of Risk Management Doesn’t Play Defense, Part 1

While herd immunity and the end of the pandemic are still months off, the time does feel right to consider how the world — including the world of e-commerce — has changed after more than a year of the COVID-19 pandemic.

No question the once-in-a-lifetime medical catastrophe acted as the Great Accelerator, advancing trends throughout society that had been underway, but at a far slower pace. Among those trends was a shift from in-store to online buying. Consumer buying behavior certainly looks little like it did in January 2020.

We've seen an enthusiastic shift to e-commerce. Some might say we were well on that path, but COVID and the associated fallout has propelled e-commerce years into the future. So how does that affect risk management and retail revenue optimization?

Consumers’ embrace of online buying is highly likely to continue even when life returns to normal as new habits are now in place. In fact, nearly 80 percent of consumers surveyed told Signifyd they would be shopping differently going forward. And let’s face it, buying online is a much more efficient way of doing things. All of which means enterprises can no longer lack a digital strategy. The truth is e-commerce now makes up a large piece of the retail pie.

Once actually considered a nice-to-have, e-commerce moved at a clip in 2020 that put it on a course to reach 33 percent of retail spend, marking a 106 percent annual increase in the portion of retail spending attributable to e-commerce. Of course the steep climb should flatten out to a degree, but the overall trend isn't going to reverse.

During the pandemic, spending has been down of course. There just isn’t the opportunity or desire to spend money. Despite these tough economic times brought on by COVID restrictions, saving rates in the U.S. are currently extremely high — up 173 percent over 2019. It stands to reason, given that much of what's being earned isn’t being spent. This presents us with an interesting situation.

When the COVID pandemic eases its grip — which it will, it’s just a matter of when and how quickly — consumers are likely to go on spending sprees. Cash in the pocket (for those not too badly hit), and a pent-up itch to be scratched could lead to a rampage for products and services longed for and missed out on over the past year-plus.

And a lot of that spending will be online, as new habits have been formed and reinforced for those already leaning that way.

How Do New Consumer Habits Affect Fraud Teams and Revenue Optimization?

That said, e-commerce success comes with a cautionary tale. Commanding a larger piece of the pie brings with it larger potential pitfalls. E-commerce was relatively shielded from economic shocks (mostly due to its affluent user base), but with its increased penetration it’s made the industry more susceptible to economic pressures.

The point is, future crises could hit e-commerce as much as brick-and-mortar has been affected up to now, so we need to be prepared.

For fraud teams, the transformation calls for a change from focusing on preventing fraud to a focus on optimizing revenue. This can be done by first understanding the customer's journey and points of revenue leakage, and then making sure legitimate orders aren’t turned away anywhere along that journey.

All this elevates fraud teams from a cost center to a team that optimizes the business and produces a positive P&L by supporting, for instance, BOPIS and curbside pickup. The idea is to enhance the customer experience, in this case with speedy order reviews, and add to the top line.

Personal Income and Decreased Spending Factors

Personal income would have collapsed by $143 billion if it wasn’t for the paycheck protection program and COVID food assistance program. The first round of $1,200 checks to most households accrued to a lot of families that didn't experience a drop in earnings. And Americans’ income from unemployment benefits was 25 times higher from March to November than in the same period in 2019 due to millions more jobless seeking benefits.

On the flip side, spend in durable categories was up $60 billion to support a work-from-home lifestyle. Non-durable spend was up, but it didn’t nearly make up for the drop in services. Non-durable spend included spending on alcohol and groceries due to services decline. Whereas restaurants, flights, sporting events and concerts led to a decrease in spending on services by $575 billion (or 8 percent).

J. Bennett is the vice president of operations and corporate development at Signifyd, where he leads a global cross-functional team to deliver on Signifyd's guaranteed value proposition and explore, design and execute new opportunities in the payments, risk and e-commerce spaces.