The Unexpected Upsides of Outsourcing Your Fraud Protection

Date posted: June 21, 2017

fraud prevention

By Rafael Lourenco

Every business that sells online has to be concerned with fraud prevention, because worldwide incidents of online fraud rose by 30% from 2015 to 2016. Just as online and mobile shopping are increasingly popular with consumers, these channels are gaining ground among fraudsters, too. In part, that’s because point-of-sale fraud is getting harder to commit as US retailers switch to chip-and-PIN card readers in stores. It’s also because criminals have found ways to use botnets and vast caches of stolen consumer data to test stolen card numbers, hijack or create customer accounts, and make multiple purchases quickly from large numbers of retailers.

Ignoring the problem isn’t an option, because fraud can quickly put a company out of business due to lost revenue and goods, chargeback fees, and merchant account closure. Many companies try to manage fraud prevention in-house, but that has some potential drawbacks, too. One is cost. Javelin Strategy and Research recently found that companies can spend up to 23% of their operational budgets fighting fraud.

Another drawback is that in-house screening can have serious logistical limitations. It may work for a small company with a low volume of orders but break down when order volume rises. Companies that sell across borders must be able to verify orders in a way that takes into account multiple time zones, languages, and consumer habits. Sellers that err on the side of caution by rejecting lots of orders can lose more money to falsely declined orders than to fraud itself. Add in the fact that fraud tactics are always changing, and you have a blueprint for an expensive, overtaxed, and underperforming in-house fraud prevention program.

Turning fraud screening over to an outside provider may seem like a dramatic step, but the benefits often go beyond a drop in fraud. Here are some of the outcomes businesses have documented after moving from in-house to fully outsourced fraud screening.

Fewer false declines

Mistakenly rejected orders cost merchants more than 5 times as much as actual fraud, according to the latest industry research. Many of those rejected customers will take their business elsewhere, meaning lost future sales, too. By hiring experts to use precision screening techniques rather than the blunt instrument of automatic denials, sellers can approve more sales and retain more customers over the long term.

Higher revenues

With less completed fraud and fewer mistakenly reject orders, companies often see an increase in revenue after outsourcing their fraud prevention—especially if the new service also helps them sell into more markets.

More cross-border sales

Many sellers reject all cross-border orders, either because they fear fraud or because they don’t have the in-house resources to verify orders properly. A good outsourced fraud protection service will provide accurate screening tools for international sales and customer service experts who speak your customers’ languages to verify orders. The result can be more sales in more markets.

Elimination of fraud-related chargeback costs

By choosing a fraud screening provider with a chargeback guarantee, businesses can avoid paying  chargeback fees to their processors. If the fraud prevention service approves a fraudulent transaction, it covers the cost of the chargeback to spare the merchant a loss.

Reduced chargeback ratio

For businesses that have a fraud problem, reducing the ratio of charged-back orders to total transactions is a must. If the ratio climbs too high, account cancellation can quickly follow. Even if the problem never gets quite that bad, a high chargeback ratio means the seller will pay higher transaction processing fees. A lower chargeback ratio not only keeps the business running, it reduces costs over the long run.

Faster order responses

Customers expect instant results. While an in-house fraud team may not always be able to decision an order in real time, dedicated fraud protection services can usually do so. That allows sellers to confirm and fulfill those orders faster for better customer satisfaction.

More time to grow the business

When a big chunk of in-house resources and attention are dedicated to fraud management, product development can slow or stop. By relieving its people of the responsibility to prevent transaction fraud, businesses can focus on their core goals of innovation, quality and growth.

Customized, cutting-edge fraud prevention strategies

A good fraud-protection provider will work with each business to tailor a prevention program to the company’s industry, location, customer base, and other factors. And because the service screens all of the client company’s orders, rather than just those the company flags, it builds a comprehensive set of evolving data on that particular company’s fraud-attack patterns and valid customer behavior. That makes screening more accurate and faster over time.

Finally, outsourcing fraud prevention gives a company access to the latest technology and human intelligence in the fraud field. That means that when new types of fraud arise, or there’s a spike in fraud attempts, or consumer behaviors change, the company is still fully protected. That peace of mind is yet another benefit to outsourcing fraud prevention. 

Rafael Lourenco is the VP US Operations, ClearSale, a Card-Not-Present fraud prevention operation that protects e-commerce merchants against chargebacks. The company’s flagship product, Total Guaranteed Protection, is an end-to-end outsourced fraud detection solution for online retailers. Follow on twitter at @ClearSaleUS.

 

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