The Unexpected Upsides of Outsourcing Your Fraud Protection

Every business that sells online has to be concerned with fraud prevention, because worldwide incidents of online fraud rose by 30% from 2015 to 2016. Just as online and mobile shopping are increasingly popular with consumers, these channels are gaining ground among fraudsters, too. In part, that’s because point-of-sale fraud is getting harder to commit as US retailers switch to chip-and-PIN card readers in stores. It’s also because criminals have found ways to use botnets and vast caches of stolen consumer data to test stolen card numbers, hijack or create customer accounts, and make multiple purchases quickly from large numbers of retailers.

Ignoring the problem isn’t an option, because fraud can quickly put a company out of business due to lost revenue and goods, chargeback fees, and merchant account closure. Many companies try to manage fraud prevention in-house, but that has some potential drawbacks, too. One is cost. Javelin Strategy and Research recently found that companies can spend up to 23% of their operational budgets fighting fraud.

Another drawback is that in-house screening can have serious logistical limitations. It may work for a small company with a low volume of orders but break down when order volume rises. Companies that sell across borders must be able to verify orders in a way that takes into account multiple time zones, languages, and consumer habits. Sellers that err on the side of caution by rejecting lots of orders can lose more money to falsely declined orders than to fraud itself. Add in the fact that fraud tactics are always changing, and you have a blueprint for an expensive, overtaxed, and underperforming in-house fraud prevention program.

Turning fraud screening over to an outside provider may seem like a dramatic step, but the benefits often go beyond a drop in fraud. Here are some of the outcomes businesses have documented after moving from in-house to fully outsourced fraud screening.

Fewer false declines

Mistakenly rejected orders cost merchants more than 5 times as much as actual fraud, according to the latest industry research. Many of those rejected customers will take their business elsewhere, meaning lost future sales, too. By hiring experts to use precision screening techniques rather than the blunt instrument of automatic denials, sellers can approve more sales and retain more customers over the long term.

Higher revenues

With less completed fraud and fewer mistakenly reject orders, companies often see an increase in revenue after outsourcing their fraud prevention—especially if the new service also helps them sell into more markets.

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