When thinking about fraud, businesses are often focused on the money aspect. This makes sense. Businesses are in the business of making money.
It’s important, though, to step away from decisions driven by an immediate payoff and look at the big picture of every component that feeds into a business, from the customer to investors.
Fraud is a major problem that is constantly evolving. As time passes, more customers are migrating payments to mobile devices. This, coupled with the implementation of EMV chip cards in the U.S., is expected to potentiate card-not-present (CNP) fraud. While the way people shop is changing, the way fraudsters wreak havoc also changes.
To avoid losses, businesses have to be proactive when thinking about fraud. Approaching fraud prevention involves some thinking about how fraud can affect a businesses.
This thinking help businesses know what to expect, which can help them develop a plan of action after fraud occurs. It also shows just how much is at stake if they skimp on fraud protection or use outdated strategies.
The Obvious Consequence: Loss of Revenue
Here’s something you probably already know: fraud costs businesses. Depending on the business, this cost can be a lot.
When fraud is detected, the customer’s credit card issues a chargeback to the merchant. This means you have to pay back the customer, while a fraudster gets away with the goods. Not only are you left short on product, you are short on money. In this situation, merchants are the real victims.
Businesses can also incur penalties by their bank or payment processing platform. If your business experiences a high amount of fraud, this could mean higher processing fees.
Fraud costs vary based on the channel. Mobile fraud costs businesses more than online or brick and mortar fraud. Specifically, fraud costs per dollar are $0.72 more for mobile channels compared to online.
The mobile platform is extremely important for reaching today’s customer and increasing sales conversions. Since eliminating this channel is not a feasible option for modern businesses, they are left with the decision about how to react to fraud.
For some, that means accepting fraud as a cost of mobile business. As we’ve seen with technology like behavioral biometrics, it doesn’t have to be this way.
The Less Obvious Consequences
Fraud doesn’t only affect the daily bottom line. The immediate effect of fraud (chargebacks resulting in losses) is supplemented with lingering effects that can lessen your businesses’ success over time.
Here are some effects of fraud you might not think about:
Dealing with fraud can take a lot of time. There is the time it takes to research an incident, contact banks, refund customers, and deal with cash flow instability. This can be a nightmare for businesses and result in having to employee people to deal with the fallout. What’s more, for the company trying to fight fraud, preventing fraud manually can be time-consuming for employees. This involves manually screening transactions to decide if anything appears fishy. If the fraud was prevented, time spent dealing with fraud could be used to grow your business. The right fraud prevention strategy is cost-effective and saves time.
- Investor Confidence
Investors are important for any business, but particularly those just starting out who need the capital investors bring. When your business’ image is tainted by fraud, particularly high amounts of fraud, investors are more likely to decrease confidence in your business. This can result in decreased stock performance.
- Employee Morale
Another consequence of fraud has to do with how employees react to fraud. A high amount of fraud can be a blow to a company’s ego, affecting all who work at the company. Employees may feel worried about the strength of the company or embarrassed by negative public perception. This hit to morale can make employees less engaged in their work. It can also result in employees leaving if they feel the loss was big enough. Employees that stay at the company may worry about their future at the company.
- Customer Trust
Customer trust and news/social media go together. In the case of huge fraud scams in major companies, you can be sure customers everywhere will know. These events are highly publicized. This means that even people who haven’t purchased from your business will associate your business with fraud. Association is a powerful thing. Even if you have a good business with a product people love, negativity associated with the word “fraud” can creep into people’s minds and stay there. This makes people more leery of purchasing from your company.
This effect can be especially detrimental for mobile businesses, as many customers already perceive mobile payments as less secure and abstain from them for this reason. In order for most customers to make a mobile transaction, they have to trust that a company is protecting their purchase. Customer trust is huge in this age of brand loyalty, specifically when it comes to millennials, who are the biggest users of mobile devices. While this age group tends to be more brand-loyal, they are also fairly picky about how brands earn loyalty.
What affects brand loyalty among millennials? A study from Adroit Digital shows 32% of millennials think “bad business practices” are cause to switch brands. It some cases, an inability to prevent fraud can fall into this category. Millennials are also more likely to be influenced by word of mouth than older populations. This means if your business gains a bad reputation due to fraud, it may be difficult to overcome.
What can businesses do?
As you’ve seen, there are many consequences to fraud that affect the health of businesses. Obviously, businesses want to avoid a loss of profit, customer trust, and employee morale while decreasing the time spent fighting fraud.
How can businesses do this? They can invest in fraud prevention and detection solutions that work. These save both time and money, while maintaining the reputation of a company.
Advanced fraud prevention strategies, including behavioral biometrics, can save your business from potential disastrous consequences and keep your name off the bad business list.