January 26, 2018
Intel founder Andy Grove titled his autobiography “Only the Paranoid Survive”. Wise words to eCommerce merchants, businesses, and financial institutions engaged in and online operations.
After all, card-not-present (CNP) fraud increased 40% in 2016. Account takeovers jumped 45% early last year. And fraud tactics, phishing attacks, botnets, and malware just keep proliferating. For example, we documented a startling 282% percent increase in mobile app fraud attacks on Black Friday against a cross-section of Kount customers in our blog post “Comparing 2016 and 2017 Holidays: Trends in Naughty and Nice”.
During the busy holiday season, you likely didn’t have time to focus on fraud prevention maintenance. But now that the holidays are behind us, take a moment to check if you’re seeing any of the 7 signs that your fraud prevention needs a check up.
- Higher Chargebacks. Steady increases in your chargeback rate or a post-holiday spike are warning signs that fraudsters are circumventing your current processes. More drastic warning signs include increases in fees or fines from your payment processor, a processor request for escrow funds, notice about an Excessive Chargeback Program, or even warnings that your account may be terminated.
- Increasing IT Complexity. If you’re devoting more resources and people to fraud prevention, especially ad hoc fraud prevention tools, more IT integration projects, or higher support and maintenance costs, that’s a signal that you need to take a step back and evaluate your current situation.
- Growing Product Losses. Rising losses from stolen/lost merchandise, higher cost of goods sold (COGS), or a surge in shipping expenses due to increasing fraud chargebacks indicate that fraud is higher than it should be.
- More Time Spent on Manual Reviews. Are you reviewing a higher percentage of orders, spending more time per review, or increasing the number of staffers devoted to reviews? This is an indicator that your fraud prevention processes need improvement.
- Delayed Orders and Lost Sales. Slowdowns in online order processing cause shoppers to bail. Same with slow manual reviews. Is your fraud prevention system slow? Do individual reviews delay approvals? Lower conversion rates—especially in the mobile channel—are a red flag that your fraud prevention is not only stopping fraud, it’s stopping sales.
- Avoiding of New Markets or Opportunities. Are you hesitant to offer products or services that are highly targeted by fraudsters? Do you fear a surge in fraudulent commissions due to concerns over affiliate activity? Are you avoiding shipping to high-risk areas or holding back on mobile sales due to higher mCommerce fraud? This lack of confidence is a sure indicator that your fraud prevention system needs a careful evaluation.
- Escalating Training Time. Are you spending more time training staffers due to adding new ad hoc anti-fraud tools? Are staffers finding it harder to keep current with additional manual review steps and third-party training and support? Increasing training requirements is not only costly, they’re a signal that your fraud systems need help.
To quantify the cost of having less than optimal fraud prevention, consider this: a one-second delay in page response can result in a 7% reduction in conversions. So if your eCommerce site is taking in $10,000 per day, you could potentially lose $250,000 in annual sales due to sluggish anti-fraud tools and processes.
Then there is the risk of revenue loss from false declines. Research by Javelin put the cost of legitimate orders that are wrongy declined at $118 billion annually.
For a quick and easy assessment of what less-than-optimal fraud prevention could be costing your organization, try Kount’s Fraud Calculator. This free and nifty web tool will reveal dollars that could be recouped due to fraud losses, false positives, stolen products, and excessive manual reviews.
Chances are you will discover “found money” you can add to your bottom line through tuning up your fraud protection to meet the ever-growing and ever-changing threat of fraud and malicious behavior.