Merchant Services Security Solutions: Outsource or In-House?

It’s one of the great conundrums of the technology age. Thanks to the ever-increasing threat of cyber attacks, fraud is – has to be – everybody’s business.

On the other hand, fraud isn’t your business – selling goods or services is.

The common ground between these two positions is a merchant services security solution. Every merchant needs one. But is it better to manage such a solution in house, or to outsource this crucial function to a dedicated third-party partner?

Let’s look at the benefits and drawbacks of each approach.

The Benefits of Keeping Merchant Security Solutions In House

Like any other major business function, there are several good arguments for maintaining your merchant services security solution in house. Consider:

• Cost containment: Keeping your fraud protection in house lets you control and predict the salary and training costs required to maintain your own team of fraud experts.
• Process control: With any fraud protection system, false declines (i.e., legitimate orders that are declined due to suspected fraud) are always a risk. Maintaining processes in house lets you determine how orders are flagged for review and which are automatically declined.
• Vendor issues: Entrusting such a critical component of the sales process to an outside vendor can be a risky proposition, and invites concern over the vendor’s reliability and expertise.

 While each of these benefits has merit, look closely at each one:

 Take the cost issue, for example. There are several elements to weigh, including:   

• You’ll incur salary/benefits and training costs for the specialized staff you’ll need to hire, plus recruiting expenses if you don’t already have this talent in house.
• Variability or seasonality in your sales volumes may make it difficult to accurately staff a fraud protection team. This may mean bringing on temporary staff or even outsourcing to cover busy seasons, such as Black Friday/Cyber Monday sales. This combination approach isn’t easy to execute, and you may struggle with quality.
• You’ll need to acquire fraud protection tools or technology, as well as the IT costs associated with integrating the technology into your existing systems. Moreover, new technologies are always emerging, and purchasing a specific application or software might possibly lock you into a solution that eventually becomes outdated.
• If fraudulent transactions still manage to get through, you’ll have the added expense of lost merchandise and chargebacks.
• Indirect/soft costs tied to false declines might include damage to your reputation and the opportunity cost of lost sales.

 Clearly, there’s a lot on the line. Be sure you’re accurately measuring everything that might impact your decision.

The Benefits of Outsourcing Your Merchant Services Security Solution

An outsourced merchant services security solution will be an expense for your business. But considering the potential costs involved with a cyber attack or significant fraud incident, the outlay may very well pay for itself several times over. 

• More comprehensive approach for better protection: An experienced partner will likely have access to superior data and field-tested insights. As a result, the partner may be better able to spot fraudulent patterns and identify suspicious transactions before they are processed.
• Smoother and safer sales experience for customers: Because of their access to data and expertise, a good partner will be able to make decisions quickly and seamlessly, speeding up the ordering process for your customers.
• Fewer false declines: Look for a partner that leverages a multi-faceted approach to fraud detection, incorporating both artificial intelligence and manual review. This provides the best opportunity for all legitimate orders to be approved, so you can reap the maximum profits.
• Free up internal resources: A reliable partner can take fraud protection off your plate and free up your time and attention for tasks that are more integral to your actual business.
• Predictable costs: Particularly if your partner offers guaranteed protection, you’ll have the peace of mind of knowing exactly how much you will spend on fraud management relative to your sales volume.
• Transparency and control: A reliable partner will typically provide dashboards that allow you to keep track of all fraudulent orders tracked, which can improve your own efficiency and ensure any necessary actions can be taken quickly. 

In short, outsourcing can be the difference between a simple fraud defense system and a strategic overall cybersecurity plan.

Of course, it’s not a decision to make lightly. You need to ensure that all of your needs are being met at a reasonable price. When reviewing your options, consider the following questions:  

• How easily will the vendor’s solution integrate with your existing e-commerce platform?
• How comprehensive is the solution you’re considering? Is it enough? Is it too much?
• What type of guarantee can you expect for the vendor’s performance and what remedies are available should fraudulent transactions slip through?
• How much control will you have over the solution and how will you be updated on its performance?
• Culture questions: How does the vendor measure customer success? How do they handle difficult situations? How open and honest are they with customers and prospects?
• Do the vendor’s other customers stick with them?
• How long has the vendor been in the market? How experienced is the vendor?

There are pros and cons to consider with both in-house and outsourced merchant services security solutions, and no single answer will work for every company.