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New Trend Shows Merchants Looking to Outsource Fraud Protection Services

posted on: Sun May 22 2011

As fraud has evolved over the last couple of decades, so have merchants’ attempts to combat its ill effects. The economy has caused everyone to reexamine business models and revenue streams, and many merchants are turning to service providers to help them keep ahead of fraud.

Fraud is moving at an alarming rate, a 22% to 38% annual increase depending on which study you read. Fraudsters are more sophisticated and better networked than ever before and work at lightning speed. They are a global force that never really goes away. They just change methods, tactics and merchants until they find a weakness, then exploit it as long as they can.

Let’s see if we can illustrate how this method of fraud prevention has worked.

  1. Fraudsters find a new way to steal from merchants.
  2. Merchants, payment service providers, consultants, analysts, etc. discover the new tactic used by fraudsters.
  3. The industry responds by developing a new tool or technique that tries to offset the fraudsters tactics.
  4. Rinse and repeat.

The trouble is that the tools used to combat these frauds tactics don’t always work well together. As merchants try to bring on new fraud tools to add to their homegrown solution they become the integrator, the developer of their proprietary solution. They build, maintain, upgrade and manage the fraud system in-house. In essence, they become the Fraud Prevention Department taking precious resources from other revenue generating activities.

Most merchants didn’t go into business to become fraud experts. They wanted to sell shoes, books, games or something else they were passionate about. Fraud prevention has become a necessary evil they deal with everyday. And if they have a homegrown fraud solution built in-house, the cost in time, headcount and resources can be startling.

The trend I have seen recently is merchants that once wanted to manage everything internally are finding better, faster and less expensive ways to manage fraud and minimize losses. I see merchants getting out of the fraud business and letting the experts manage it, letting them focus on new products, new markets and new ways to grow.

Let me know what you think. Email me at don.bush@kount.com.

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