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The (Not So) Obvious Advantages of SaaS Fraud Prevention

posted on: Thu Jun 30 2016

We were struck by two seemingly contradictory findings when we conducted in-depth interviews with eCommerce retailers about fraud prevention:

  • Time and again, retailers said their biggest issues were a) on-going maintenance costs, b) integration challenges, and c) solution complexity
  • At the same time, these retailers also said that it didn’t matter to them whether their fraud prevention solution was on-demand (SaaS) or on-premise  

That made us do a double take. Why?

We thought that by now the inherent advantages of on-demand or SaaS solutions compared to on-premise or DIY solutions were known to everyone. Not just for fraud prevention, but for all types of IT functions. After all, the SaaS model has been demonstrated to be more efficient for eCommerce, websites, social media, HR, office productivity, payroll, and on and on and on.

Advantages of SaaS Fraud PreventionIn fact, when it comes to fraud prevention, we were sure that it was obvious that SaaS solves what retailers say are their 3 biggest issues:

  1. On-going maintenance costs. With a SaaS solution, there are no on-going IT maintenance costs. There is no hardware, no software, no RAID farms, no server racks, no data center, no power, no cooling, no cabling that you have to pay for. All that IT infrastructure is on the provider's end. And because Kount consolidates so many transactions within a centralized network operating center, we can be incredibly more efficient compared to small, standalone IT operations. As we like to point out: apparel retailers may sell track suits, but they don’t weave their own cloth. Electronics retailers may sell computers, but they don’t solder their own circuit boards. Automotive retailers may sell radiators, but they don’t crimp their own aluminum. Food retailers may sell dark roast, but they don’t grow their own coffee beans. So why would they develop their own fraud prevention solutions?
  2. Integration challenges. On-premise or DIY fraud prevention solutions often require big, expensive, time-consuming integration projects to make them work with your systems. Why would you want to get hit with a huge invoice every time you want to update eCommerce platforms, shopping carts, payment processors, etc.? That’s never an issue with SaaS fraud prevention solutions. No worries about support for your eCommerce platform. No concerns about integration with your shopping cart. No questions about compatibility with your payments processor. Here’s an interesting factoid: it’s pretty common for new clients to have a SaaS solution like Kount up and running within just 10 days of deciding to go with us. Compare that to the lead times you currently encounter when adding new capabilities to your existing fraud prevention systems.
  3. Solution complexity. The ad hoc nature of DIY fraud prevention solutions often leads to scary levels of complexity. We actually know of one merchant who had over 200 rules in place to accommodate all the exceptions, permutations, one-offs, and custom integrations in their pieced-together anti-fraud solution. Kount customers usually get by with 5-15 custom rules. And our rules can be written by human beings with no programming knowledge. No software developers required. This makes our SaaS solution more usable, more adaptable to new types of fraud attacks, and way less expensive over the long run.

OK, so that’s how Kount addresses the BIG THREE ISSUES of fraud prevention. But there are a number of other advantages to the SaaS model:

  • ROI and financial performance. At the end of the day, CEOs and CFOs want to own a better bottom line, not a data center. SaaS solutions have proven over and over in countless industries – apparel, automotive, digital goods, electronics, food and beverage, high-end luxury goods, travel, and many more – to boost sales with fewer false positives, reduce fraud losses by lowering chargeback fees, and slash fraud prevention OPEX with fewer manual reviews.
  • Big data. Kount processes billions of transactions in our network operating center. That huge pool of data allows us to see and dissect more types of fraud attacks in one day than most eCommerce retailers will see in a decade. This enables us to do a better job of developing the techniques and algorithms to thwart them.
  • Big science. Applying artificial intelligence (AI) and machine learning to fraud prevention. Finding and recruiting the extraordinary minds that possess the one-of-a-kind skills required to implement AI is difficult and expensive for even the largest retailers, let alone for mid-size or smaller operations.
  • Mobile growth. About one in three retailers say that mobile commerce is growing so fast, within two years more than half their revenue will come from the mobile channel. Without getting too deep into the weeds, we’ll just say that mCommerce presents unique and novel risks that require a whole new level of vigilance and cutting-edge technology. If you’re not prepared for this coming tide, you risk exposing your bottom line to potentially devastating losses.
  • Get back to business. Retailers want to get better at their businesses, whether it’s selling athletic shoes or digital cameras or custom wheels. They don’t have time to become experts in the highly-specialized field of fraud prevention. At Kount, it’s all we do.

What’s the take away from all this? If you’re one of the many eCommerce retailers who use in-house, on-premise, or do-it-yourself fraud prevention solutions or if you’re deploying multiple fraud prevention solutions in an attempt to plug the gaps between these ad hoc technologies, take a step back and ask yourself: “Do I want to continue to bleed my bottom line with on-going IT maintenance costs and expensive integrations projects, just so I can ‘own’ a complex fraud prevention solution that requires ever-increasing expertise by my people? Or do I want the fastest, surest path to higher ROI that doesn’t require capital investment and will be easy to use for even my most inexperienced employees?” We hope you choose the latter.

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