Half of retailers find BOPIS adds fraud concerns

Holiday retail shopping
Retailers fear that BOPIS is a security risk. (iStock/imtmphoto)

Many large retailers believe that offering customers a buy online, pickup in store (BOPIS) option comes with increased fraud concerns, according to a new study by e-commerce protection firm Signifyd. In fact, 40% of retailers that make more than $100 million in annual revenue see BOPIS as a strategic initiative, but are looking to deal with added fraud concerns. 

The same study found that almost 30% of fraud cost retailers 3% or greater of BOPIS revenue, with half of those reporting as much as 5% in BOPIS revenue. 

But retailers are not giving up on this key shopping platform, as 44% believe it is necessary for competition, and 12% said it's directly needed to be competitive with Amazon. Another 38% of respondents said their No. 1 reason for BOPIS was to get customers into physical stores, and 16% cited that BOPIS was key to catering to millennials. 

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And the concerns are legitimate, as BOPIS has become a huge revenue driver for many large retailers. Of those studied, 29% reported BOPIS makes up between 21% and 30% of all online revenue; and 28% cited that BOPIS was responsible for 11% to 20% of all online revenue. Almost half of retailers said their average basket size for a BOPIS purchase ranged between $51 and $250. 

Still, BOPIS comes with its challenges. After fraud and security concerns—a primary hurdle for one out of every six retailers—almost half of retailers cited inventory tracking as the greatest challenge. 

RELATED: BOPIS up 44%

So why exactly does BOPIS increase a need for security?

Stefan Nandzik, Signifyd's VP of marketing, says that there are two main things that make BOPIS riskier in terms of fraud: the need for speed and the fact that the orders, naturally, lack a delivery address. 

"The approximately 40% of retailers in our study who said BOPIS comes with additional fraud concerns recognize that the key value of BOPIS to consumers is the ability to get their orders quickly," Nandzik told FierceRetail. "Many retailers promise orders in an hour or two, which means fraud decisions need to be made quickly, leaving little or no time for a manual review of the order. Fraudsters, of course, know this and so they exploit the weakness."

Nandzik adds that a delivery address is actually a key piece of information in fraud prevention, particularly for legacy systems that rely heavily on matching the billing and shipping address. 

RELATED: 60% of shoppers have never tired BOPIS

"A match indicates the order is going to the home of the person who owns the credit card being used. A delivery address can also be used by more sophisticated systems with a number of other data points, such as the IP address of the device being used, to give a much deeper context to the order," he said. 

In addition, Nandzik says there are other fraudulent acts associated with BOPIS, such as hiring a mule to pick up fraudulent goods from the store using a stolen identity. 

So the question remains, what can retailers do to reduct BOPIS fraud? 

Nandzik says it requires marrying the best of human intelligence with the best of the technology such as machine learning. So while store associates need to be trained to spot troubling signs with an order and the person picking it up, and big data and machine learning can do a lot of the leg work before a customer even arrives at the store. 

Another step to reducing fraud associated with BOPIS includes requiring a government-issued photo ID, which is helpful, though certainly not foolproof.

"Some of the most cautious retailers require both a photo ID and the credit card used for the purchase, while at the same time prohibiting anyone but the customer who placed the order from picking up the order. However, while all sensible precautions, taken together, it can introduce more friction and is likely to frustrate some customers," he said. 

No matter what the measure, no security measure is done in a vacuum, so retailers need to keep in mind that the transaction process must still run as smoothly as possible.

"But, in the end, it’s balance, which is why adding machine components to the transaction decision allows store associates to focus more on customer service while also feeling good about securing BOPIS and the convenience it adds," he said.