by T.R Newcomb, VP, Strategy and Corporate Development, Riskified  

2022 has been a tumultuous year, with rising interest rates, inflation running at its highest level in decades, and the lingering effects of the pandemic all combining to produce economic uncertainty and a cost-of-living crisis in the UK.

Many consumers fear that a recession is looming, and consequently have cut back their spending. A report by VoucherCodes indicated that most regions in the UK saw a decline in spending in the run-up to Christmas – traditionally a vitally important shopping period for retailers – with spending down 1.3% compared to the year before.

In this context of higher costs and lower consumer demand, 2023 could prove to be a make-or-break moment for retailers operating on slim margins. Many will rely on eCommerce to produce a growing proportion of their revenues. Given this increasing importance of eCommerce channels, what behaviours and changes should online retailers anticipate in the coming months? Here are three trends that we at Riskified predict will impact the industry:

Policy abuse set to skyrocket 

Policy abuse, which happens when a consumer exploits (intentionally or otherwise) a retailer’s terms and conditions, has gained significant traction over the past few years. Not only is it getting more common, but it’s also costing online retailers millions of pounds, and will continue to be a top priority for them to address in 2023.

Policy abuse takes many forms. For example, it occurs when customers misuse promotion codes, falsely report a mis-delivered item, or return used or worn items. These behaviours impact all areas of a retailer’s business – from legal to customer service to shipping and logistics.

As we enter 2023, the ongoing economic downturn is forcing consumers to think critically about every pound they spend and every pound they save. We can anticipate, therefore, that consumers are likely to continue finding and abusing loopholes in retailers’ policies to try and save money.

Fighting policy abuse is extremely complex without the right tools in place, and online retailers must balance the customer experience with managing financial losses. If a customer makes dozens of purchases but is suspected of committing policy abuse on only one item, some retailers may choose to overlook the instance rather than risk losing a loyal customer. Sophisticated fraud prevention solutions can analyse data from various customer interaction channels to uncover patterns of behaviour and help retailers identify when policies are being abused and which customers are abusing them.

If retailers don’t pay attention to these consumers’ behaviours and adapt accordingly to manage and prevent policy abuse, bottom lines can be severely impacted throughout 2023.

Brands must double down on personalising the customer experience

In a competitive eCommerce environment, you’ll be hard pressed to find a retailer that isn’t currently hard at work looking for ways to increase and maintain customer loyalty. Securing ongoing loyalty will be of paramount importance in 2023, especially as economic uncertainty continues to sap consumer demand. Consumers who receive an excellent shopping experience are far more likely to keep returning – which is where personalisation comes in.

Much is already written about the value of personalising the early stages of the customer experience – from retargeting adverts to providing customised content and more relevant product recommendations. But there are other areas of the eCommerce shopping experience, like checkout and post-purchase, that also afford compelling opportunities to retailers willing to explore this space.

Personalisation allows retailers to customise every touchpoint throughout the shopping experience, maximising loyalty and retention. This holistic, end-to-end approach must also encompass the customer experience post-purchase, including ongoing customer support and a seamless process for requesting returns and refunds. Retailers can take this a step further and tailor their return policy decisions to block abusers while providing greater leniency to loyal customers as a reward.

The key to winning in 2023 will be embracing creativity and moving away from a one-size-fits all approach at every stage of the purchase experience.

Retailers must navigate PSD2 issues

While the EU’s second Payment Services Directive (otherwise known as PSD2) was launched in late 2015, the deadline for full compliance only finally came into effect in March 2022 in the UK, following several delays. The regulation has meant that much has changed in the online payment space, especially around the strong authentication requirements of transactions.

Over the last year, card issuers have introduced the new 3D Secure (3DS) 2 protocol which aims to manage both risk and the customer experience during a PSD2-compliant authentication process, with the ultimate goal of improving successful approval rates.

One major change to expect in 2023 will be the advent of new authentication technologies, including delegated authentication for merchants. Retailers who qualify will be able to perform authentication through their own platforms, which has the potential to boost revenues through improved customer experience, a lower rate of cart abandonment, and an increase in transaction approval rates.

Unfortunately, it is likely that only enterprises or larger retailers will have the capacity to offer delegated authentication. Smaller and mid-sized merchants will continue to struggle with regular solutions; for them, leveraging exemptions through the usage of Transaction Risk Analysis (TRA) will still be the most effective solution. However, retailers relying on TRA will be hampered by the fact that there remains large unevenness across the EU market regarding the usage and acceptance of exemptions. Issuers in the UK are leading the way here, but issuers in southern Europe are much less aligned in accepting exemptions.

Retailers in 2023 may still be busy adapting to the rules of PSD2, resolving any 3DS-related technical issues and looking for the best ways to leverage exemptions, but they must also pay attention to the conversation around the next evolution of these regulations: PSD3.

In May 2022, the EU Commission opened consultations into revisions for PSD2, and there is a big opportunity for industry representatives to shape this debate. There is a possibility for the whole scope of the regulation to be widened to include emerging trends and new payment methods, such as embedded finance and cryptocurrencies, as well as protect against new types of fraud.

While PSD3 is likely to be years away, it is a reminder that retailers need to look through short-term economic uncertainty and focus on their long-term growth and survival. Adapting to the changing landscape is a never-ending process and is key for retailers to be agile and maintain growth.