4 Most Important Things to Watch for in Fraud Prevention

Jun 12, 2013 11:22 AM  By

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While online merchants must be even more proactive in thwarting fraudsters’ increasingly sophisticated approaches than ever before, simply preventing as much fraud as possible may be detrimental to their bottom line and customer satisfaction. A widespread best practice in anti-fraud is the use of manual review (i.e. flagging certain orders with suspicious patterns to be checked by a human before releasing the order).

When it comes to fraud prevention, many merchants are rejecting a significant proportion of suspicious online orders during manual review, some of which may be valid. As businesses look to reach more customers and source new revenue opportunities, it’s important to find the right balance when defining risk strategies.

We all know the most obvious costs of letting fraud through: lost physical products, shipping costs, employee time spent working on charge disputes, the direct and indirect costs of lost chargebacks and possible fines that can result from chargeback rates over 1.5%. However merchants also have to take into consideration the costs for reviewing orders, decreased customer satisfaction by delaying orders in manual review (especially if customers expect instant electronic delivery) and possible cancellations due to delays in orders.

Lastly there is the previously mentioned danger – reviewing orders also entails that a certain number of valid customers will appear suspicious and be rejected. Find the right balance: profit is the objective, not necessarily the lowest chargeback rate.