Why the Internet of Things Will Spark More Unauthorized Purchases — And How Merchants and Issuers Can Be Ready
by Steve Durney
As people connect more of their personal devices and appliances to the Internet, it’s only a matter of time before we see a huge increase in unauthorized purchases being made via these technologies.
In a single home today, it’s not uncommon to find more than a dozen devices connected to the Internet. This includes laptops, TVs, thermostats, music players, smart speakers, washers and dryers, and refrigerators. One well-known voice-controlled speaker brand recently announced it was adding voice control to a variety of different devices, including microwaves and wall clocks, and rolling out a voice-powered home security system. Even autos have data connectivity, with Gartner predicting that 61 million connected cars will be produced worldwide by 2020.
The Internet of Things (IoT) is revolutionizing how we engage with brands and make purchases, as well. And as people become more familiar and comfortable with the technology, the current trickle of associated problems could become a downpour.
Shopping Without Permission
As IoT radically changes how we shop, it will lead to a large spike in unauthorized purchases and, in turn, consumer disputes. Already, there have been news reports of accidental purchases made over voice-controlled speakers. Since those devices are often automatically connected to accounts with payment card information on file, you simply tell the smart speaker to buy something and confirm the purchase by responding “yes” to a prompt.
But while accidental purchases are a concern, an even bigger problem associated with IoT is likely to be “friendly fraud” — sometimes caused when household members make purchases that the primary cardholder is unaware of. Perhaps it’s a child watching $5.99 movies over a smart TV or a spouse signing up for a subscription radio service from the car.
These types of purchases can lead to buyer’s remorse or cause cardholders to assume they’ve become a victim of genuine fraud, when in fact someone in their household made a legitimate purchase.
As we’ve written about before, friendly fraud is an incredibly damaging — and growing — phenomenon that leads to unnecessary costs, lost revenue, poor customer experience, increased false declines and more. In fact, many merchants and issuers have flagged it as one of the biggest threats they’re currently facing. (Read: Friendly Fraud Hurts Merchants, Issuers and Cardholders: Here’s How)
Getting Ahead of the Problem
Merchants and issuers can get ahead of this upcoming wave of unauthorized purchases and disputes in a couple of ways.
First, they should err on the side of transparency. Merchants that offer IoT technologies should remind customers to review their account information and make it easy for them to determine whether they have a credit card or another payment method attached to their account. They should also provide customers with greater clarity on which devices can buy things and store their payment information and make purchases unattended or with minimal confirmations. Furthermore, they should make it easy for customers to set up security controls — such as requiring a four-digit passcode be entered any time someone makes a purchase using the device. One leading smart speaker brand already provides this option for voice shopping, though a customer must elect to set it up.
Likewise, issuers should investigate how to best educate consumers on payment security related to IoT. Even if that means simply putting a message on cardholders’ statements reminding them to review their device accounts and set up controls.
Transparency is a smart move in today’s connected world, because one bad experience with an unauthorized purchase over a device could turn away a customer for good and lead to ‘back of wallet’ for a once-preferred card.
Second, merchants and issuers should provide consumers with more detailed and immediate purchase information. One simple measure, for example, would be telling consumers over which type of device or location a purchase was made—whether smart speaker, laptop or in store. Thankfully, this can be achieved with a variety of next-generation collaborative technologies.
Ethoca Eliminator, for example, is a solution that allows merchants and issuers to work together to significantly reduce payment disputes and friendly fraud. By giving consumers real-time payment details such as the purchase device’s IP address, geographic location, and exact time of purchase, it can leave no question that someone in a consumer’s household indeed made a particular purchase—and greatly reduces the odds they’ll dispute it.