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Manual Reviews: Too Much for Too Little Impact?

posted on: Wed Mar 09 2016

manual reviewLast year saw a 45% increase in the number of merchants complaining about the high cost of fraud prevention.1 It’s true (but not surprising): nearly 1 in 3 merchants (29%) said combating fraud cost too much, up from 1 in 5 merchants in 2014.1

Why not surprising? The most expensive aspect of fraud prevention – manual reviews2 – continues in a seemingly inexorable upward trend. In 2014:

  • 81% of merchants conducted manual reviews – up from 72% of merchants in 20102
  • 5% more orders reviewed in 2014 vs. 20102 – which equals an additional 3,285 manual reviews annually for a merchant processing 300 orders a day!

And those numbers can be even worse, depending on merchant size. For example, the average merchant with less than $5 million in annual sales manually reviews 42% of orders (vs. the overall average of 27%2)!

Yet all the evidence and data indicate that the vast majority of manual reviews are unnecessary:

  • For all merchants, 75% of all manually-reviewed orders ultimately get approved2
  • For half of merchants, 90% of all manually-reviewed orders ultimately get approved2

In fact, the drawbacks of the “average” manual review process are dramatic and depressing:  

  • Wasted time/higher headcount. Manually reviewing orders that don’t need to be reviewed adds unnecessary reviewer headcount (G&A expense) and wastes time every day on unnecessary activity (OPEX expense) that could be devoted to revenue-producing tasks.
  • Slower growth. Are you avoiding new markets or new channels because you don’t have the bandwidth to handle the expected higher number of manual reviews? Or are you hesitant to hire more staff in anticipation of much higher manual reviews? This Catch 22 is not uncommon, especially for merchants who want to expand internationally, for example, or increase affiliate referrals.
  • Less flexibility. For certain types of transactions, manual reviews are simply not feasible. For example, online gaming sites simply can’t manually review in-game “buy/try” offers. The dilemma: forgo an important revenue opportunity or accept all orders and risk exposure to potentially high fraud.
  • Reduced profits. When you add up the higher costs and reduced revenue from all of the factors above, the bottom line impact is lower profitability and subpar financial performance.

But what’s a merchant supposed to do? Fraud losses as a percentage of revenue NEARLY DOUBLED in 2015, up from 0.68% to 1.32% for all merchants.3

And experts are predicting that card-not-present (CNP) fraud will soar 80% over the next 48 months4 due to a perfect storm of factors combining to drive higher CNP fraud:

  1. The implementation of the EMV/Chip-and-PIN mandate in US is pushing fraudsters out of card-present fraud – in countries where EMV has been implemented, CNP fraud has often increased by double digits5
  2. +1,500 significant data breaches have created a glut of weaponized data for fraudsters to use6
  3. The explosion of mCommerce – which is 2X more likely to involve fraud4 is putting further pressure on eCommerce merchants

In the face of all this bad news, isn’t the only option to resign yourself to more and more manual reviews? To double down and just accept this already high and ever-increasing expense as a cost of doing business?

Not necessarily! Kount customers reduce manual reviews by as much as 90%-100%...and still enjoy lower rates of fraud than before implementing Kount! How would your bottom line improve if you went from the national average of reviewing 27% of orders to just 1% or 2% of orders? Sound impossible? You can find out.

Try Kount’s WHAT’S THE “F” WORD COSTING YOU? Calculator. It will show you what manual reviews are costing you — and provide solid projections about how much lower that cost might be with Kount.

60-Second Fraud Calculator

SOURCES: 1 2015 LexisNexis® Risk Solutions True Cost of FraudSM Study, 2 ONLINE FRAUD MANAGEMENT BENCHMARKS, North America Edition 3 The Fraud Practice, Payment Trends and Security, David Montague, 4 http://aitegroup.com/report/not-your-father%E2%80%99s-3-d-secure-addressing-rising-tide-cnp-fraud, 5 http://www.smartcardalliance.org/resources/pdf/CNP-WP-012414.pdf, 6 http://www.informationisbeautiful.net/visualizations/worlds-biggest-data-breaches-hacks/