Questions Every Merchant Should Ask Before Using Their E-Commerce Platform's Fraud Protection

As fraudsters continue to target online retailers, more e-commerce platforms are offering fraud protection to screen their merchants’ transactions. In some cases, these programs offer to cover the cost of completed fraud and handle chargeback disputes. But is platform-based protection all that merchants need to protect their revenue and maintain customer relationships in an environment where every dollar of fraud costs merchants nearly $3?

Here are a few questions for merchants to ask before deciding whether to opt in to their e-commerce platform's fraud protection program.

How much work will it be to set up and manage the fraud prevention tools?

Shopify's Fraud Protect service and Volusion's Fraud Score are both positioned as turnkey services. Merchants opt in, and these platforms take care of the rest. The WooCommerce Anti-Fraud plugin, on the other hand, “works out of the box,” but allows merchants to adjust the automated thresholds for canceling orders, holding orders and sending notifications to administrators.

How can you monitor the service's performance?

It's important that the fraud service you choose offers transparency. To know how well the program is working for you, you need to see how each order is scored, what action is taken, and the result — a completed good order, a completed fraudulent order, a falsely declined good order, or a successfully prevented fraudulent order. If there's a chargeback, what was the cost and who paid it? Ask if there's a free trial period or a preview showing how the dashboard works before you make your decision.

Will the service prevent false declines?

Automated rules can save merchants time, but may cost them customers. That's because many of the same behaviors that can indicate a fraudster — e.g., ordering high-value items, choosing rush shipping, ordering from and shipping to locations around the world — can also indicate a high-net worth customer. Automated rules that reject high-value orders with expedited shipping from new customers can also tank your holiday season revenue.

If the service falsely declines orders from legitimate customers, there's a good chance those customers will never return. Decision errors can cost the merchant the rejected order, the lifetime value of all the purchases that customer would have made, and the cost of acquiring new customers to replace the ones who are never coming back. False declines can also lead to complaints on social media that damage the merchant's reputation with other shoppers.

Will the service contact merchants’ customers before declining flagged orders, or will declines happen automatically?

Again, false declines cost merchants even more than completed fraud. Manual screening by trained analysts can reduce the risk of false declines and retain good customers while preventing fraud. Without this human interaction, merchants risk ongoing losses from false declines.

Do manual screeners speak customers’ languages and take their time zones into account?

Verifying flagged orders with customers only works if analysts can reach customers during daytime hours and speak their language. For merchants selling into a single market, this may not be a big issue, but merchants with international customer bases may need a more expansive program than the e-commerce platform can provide on its own.

How does the service handle sales peaks?

Will you have to request additional support before peak sales times, or will the service automatically scale up support when your order volume requires it? If there's a change in support level, how much more will you pay? Will you be charged by the order or by the hour for additional support? Get the details before you sign on so there are no service or fee surprises when the holiday shopping season arrives.

What level of customer service can you expect?

Shoppers expect real-time order approval. To prevent busy shoppers from canceling open orders and going to the competition, merchants need quick access to good support for any order-related questions they have. Find out what customer support channels you can use to contact the platform's fraud protection service, what questions they can answer for you, and how quickly you can expect to get a response.

Are merchants responsible for friendly fraud costs or are they protected from all types of CNP fraud?

A single chargeback for a high-value order can seriously hurt a small merchant's cash flow. A series of chargebacks can hike up the merchant's payment processing rates and even put their banking relationships at risk. Before committing to a plan, it's important to know whether the fraud service or the merchant pays for chargebacks.

It's also important to remember that not all fraud services treat all chargebacks the same way. Some cover all fraud-related chargebacks, including so-called friendly fraud — i.e., chargebacks filed by otherwise legitimate customers who tell their card company they never received their orders. Other services leave merchants to bear the costs of this type of chargeback. Know the platform's policy before you make your choice.

There's one more question every merchant should ask: Is this the only fraud protection tool your business needs? Automated rules and chargeback reimbursement are two components of a comprehensive plan, but they're not the only ones. There also needs to be real-time scalability to handle seasonal sales peaks and fraud bot attacks, human expertise for engaging with customers on flagged orders, ongoing data analysis and updates for better artificial intelligence, and constant adjustment to new types of fraud attacks — all customized to suit the merchant's products, markets, sales channels and business goals. With all of these components in place, merchants are better protected from fraud, even as card-not-present (CNP) fraud continues to grow and change its methods.

Rafael Lourenco is executive vice president at ClearSale, a card-not-present fraud prevention operation that helps retailers increase sales and eliminate chargebacks before they happen.