With the ever-evolving fraudster looming and the increasing use of mobile devices, merchants are realizing the importance of preventing fraud. Are their efforts worth the cost, though?
Merchants are worried about the effectiveness of their strategies. Most merchants are using the same strategies they’ve always used, even though the fraud landscape is changing in many ways. Many of these strategies simply don’t work anymore or result in high false positives or user friction.
Many merchants have the mentality that simply implementing a fraud prevention method is enough. They tend to implement a fraud prevention measure and don’t check to make sure it is relevant, even years later. This can be a recipe for disaster, as fraud is becoming increasingly complex and requires prevention strategies that can adapt.
When looking at Lexis Nexis “True Cost of Fraud 2014” study, many merchants are aware of long-established prevention methods like CVV, address, or PIN verification. A much lower percentage are aware of innovative solutions like automated transaction scoring, where a transaction is given a score correlating to fraud risk.
Furthermore, according to the same study, 20% of merchants believe it costs too much to control fraud. This attitude is a result of past solutions that were ineffective and costly. It’s important for merchants to realize fraud prevention doesn’t have to be this way.
When thinking about a fraud prevention strategy, merchants should consider how much value they get from a service. Businesses should also look into newer, affordable fraud prevention methods like behavioral biometrics.
How much does fraud prevention cost?
If you’re new to fraud prevention, you might have no idea how much it costs. According to an article by Practical Ecommerce, fraud prevention services are usually priced one of two ways:
- Fixed price cost per month
- A percentage of transaction value
Some fraud prevention companies also offer different plans for different types of businesses. This can make a service affordable for both large and small merchants.
The cost of fraud prevention can be especially difficult for small businesses, as they have less money available to fight fraud.
This illustrates how important it is to find a fraud prevention strategy that fits your particular business. Advanced fraud prevention services like behavioral biometrics can be affordable, even for small businesses.
Calculating your Fraud Prevention Return on Investment
When deciding to implement a new strategy in your business, it’s useful to determine the return on investment (ROI). Typically, determining ROI for a possible fraud preventions strategy means balancing what you pay for a service and how much you save from thwarted fraud attacks. This is an important calculation, as paying more for a fraud prevention service than the amount of money you lose in fraud doesn’t make much sense. This calculation isn’t the whole picture, though.
There are other considerations beyond how much money you save from fraud. Here are some important considerations when trying to get the most value out of your fraud prevention strategy:
Cost of Fraud
It’s important to know how much fraud is costing your business, through every channel. If your business doesn’t lose much money to fraud, it won’t make sense to invest in an expensive fraud-fighting strategy.
It’s also important to be proactive about fraud prevention. Just because your business doesn’t lose much money to fraud now doesn’t mean it will always be that way. It may be a matter of time until the right fraudster chooses to target your business.
Industries with high-dollar items are particularly large targets for fraudsters. If your business has high-dollar items, it’s important to be especially vigilant about fraud prevention.
Time Saved Fighting Fraud
Another important consideration is how much time it is taking or would take your business to fight fraud. As the popular phrase goes, “time is money.” If you’re spending a lot of time fighting fraud on your own, you’re likely missing out on opportunities to expand your business.
With the availability of many different innovative fraud prevention methods, merchants don’t have to be fraud-fighting experts. By investing in the right solution, merchants can save time trying to grasp the complex fraud landscape and develop a solution in-house.
You also won’t have to spend time on strategies that involve employees manually reviewing suspicious orders. This means your employees can focus more on growing the business instead of worrying about fraud.
This one is pretty obvious: make sure the fraud prevention strategy you are investing in works well. Does it reduce the number of fraudulent transactions? Are chargebacks costing you less? Using different methods to measure the effectiveness of your fraud prevention strategy can give important information.
Is the fraud prevention strategy effective for a certain channel (online, mobile, in-person)? If one solution isn’t effective enough for one channel, can your business afford multiple methods? For example, strategies that involve behavioral biometrics can effectively reduce fraud in the mobile channel, but a strategy that only includes password verification is not effective enough.
Reduced User Friction
While it’s important to know how a strategy will change how your business fights fraud, there are other business considerations when looking at a possible fraud solution. One is user friction.
A fraud prevention method that reduces user friction is another benefit to consider, as users who experience less friction are more likely to complete a purchase and return to your business later. This can increase your overall revenue.
Low False Positives
You also want to make sure your fraud prevention strategy encourages good customers instead of turning them away. If your fraud prevention method is extremely effective at reducing fraud, but also turns away customers who want to spend money at your store, you’re trading one bad thing for another.
Get the most value out of fraud prevention with a strategy that has a high approval rate. This means only the bad guys are prevented from making transactions, while valid users are correctly identified.
A good fraud prevention strategy boils down to one thing: peace of mind. This means being confident in the solution you’re using. It means being able to focus on business instead of tossing and turning at night thinking about fraudsters lurking.
In the world of fraud prevention, determining the value in a strategy involves asking several questions: Does the strategy my business uses stop fraudsters? Does it come with low user friction? Does it allow perfectly normal customers to spend money at my store? Does it reduce the time my employees spend fighting fraud? Is it affordable in comparison to current and possible fraud losses?
Remember, fraud prevention is not only about assessing how your business is affected by fraud at the moment, but how it could be affected in the future. Don’t wait until fraudsters cost your business to implement a good fraud prevention strategy.
You’ll get the best bang for your buck if you build a fraud prevention strategy that can innovate alongside fraudsters. This strategy should also help retain as many good customers as normal by avoiding false positives. Your best bet for mobile is a solution like behavioral biometrics, which is effective at preventing mobile fraud while reducing user friction and false positives.