5 Steps to a Better Fraud Prevention System
With new devices constantly entering the marketplace, and new fraud techniques continually being uncovered, it may seem like there's too much to handle when it comes to preventing fraudulent purchases. However, retailers shouldn't let fear drive them to create stringent rules which slow sales. A perfect balance between top-notch security and an emphasis on growth is the desired goal. Consider these steps to help you get there:
1. Make fraud prevention a part of your business strategy. The beginning of the year is a great time to set goals and work out how to get there; fraud prevention needs to be part of this conversation. Too often, companies sideline fraud as a single issue that can be dealt with by limiting the number of chargebacks received. Yet fraud prevention policies impact everything else in a business. For example, no retailer should spend money marketing a site to consumers in a foreign country if its fraud system is going to reject these new customers because their buying patterns don't match the ones with which the system is familiar.
Similarly, customer service needs to be prepared for the possibility that a customer may call to complain about being rejected as a fraudster. Fraud prevention isn't an isolated issue, and retailers shouldn't view it as one. The whole company should understand what's involved in fraud and fraud prevention so that all departments and individuals can take it into account when making their own plans and forecasts for the year ahead.
2. Knowledge is power, so don't get left behind. Fraud is a constantly evolving area, with fraudsters coming up with new ways to steal from companies all the time. Therefore, it's crucial that companies invest in a fraud prevention solution which will be able to innovate in the same way, keeping up with the fraudsters and making sure that they never get ahead. Technology designed to combat fraud is developing constantly, and new and more effective solutions are being rolled out. Retailers should familiarize themselves with these new technologies and possibilities so that they can make an informed decision about which ones are appropriate for their particular business.
3. Take off your blindfold. Many companies assume that if they have a low chargeback rate, they don't have a significant fraud problem. However, a little research will show that this isn't the key indicator in this equation. The best way to have a chargeback rate of zero is to accept zero transactions, but this obviously wouldn't be beneficial for any business. In many cases, a low chargeback rate is an indicator that the rules used to guard against fraud are overly stringent, resulting in genuine customers being rejected along with a smaller number of fraudsters.
A desire to avoid losing money through chargebacks is costing businesses money — through the loss of business from rejected customers, the waste of resources which drew the customers to the site in the first place, and the decreased likelihood that those customers will return to the site in the future. The challenge of effective fraud prevention is to balance the competing needs of preventing fraudsters and accepting legitimate customers with complex buying stories.
4. Go deeper, see more. There's so much information available about the customers who come to a website, and all of it helps to distinguish the fraudsters from legitimate customers every business wants to encourage. Every customer has a unique buying story, and accessing the information of behavioral analytics, purchasing power analytics, device fingerprinting, cyber intelligence, demographics and so on will allow fraud professionals to turn big data into the fullest possible picture of each customer.
5. Fraudsters are flexible, but rules can be rigid. In order to steal from businesses which are trying to block them, fraudsters are willing to try many different kinds of attacks and approaches. As a result, fraud prevention systems are sometimes structured around firm, inflexible rules. This can be a mistake, allowing fraudsters gaps which they can exploit — not to mention prevent legitimate customers from completing their transactions. Retailers should reconsider their rules and policies regarding fraud, taking a look at systems which aren't rules based. Remember that fraudsters don't play by the rules and aren't subject to regulations and compliances; therefore, a more sophisticated mechanism is required in this game.
Noam Inbar is vice president of business development at Forter, a decision-as-a-service fraud prevention solution for online retailers.