Guest Perspective: “Step Back” Before Choosing Fraud Tools

By Tom Donlea, Director of Risk Services, WhitePages PRO

Step Back Before Choosing Fraud Tools This summer, the sports world was dominated by news of LeBron James’ return to the Cleveland Cavaliers. It’s had me thinking of fraud prevention in basketball terms. As any avid hoop fan (like me) knows, when a player wants to make a shot, but is being blocked by a larger challenger, he or she can drive toward the opponent and then step back to create space to make a stellar jump shot.

Having monitored the fraud-prevention space for nearly a decade (and basketball for even longer), I can’t help but draw similarities. As with the step-back shot, there are some key questions merchants should step back and consider in order to make space for their next shot: the job of choosing a new fraud platform.

At some point or another, it will be time to revamp your order-verification system. Any seasoned fraud-prevention specialist will know that this maneuver happens every now and again with management. And, this isn’t a decision facing only established companies. Startups and smaller business may only be using very basic AVS and CVV checking, but are ready to upgrade.

How do you know when it’s time to add more robust fraud and chargeback defense tools? Before you recreate the wheel, or spend unnecessary time or money adding complexity to your order processing, here are some questions to “step back” and ask yourself:

How do your fraud and chargebacks rank in relationship to competitors?

Management may be reading the major annual fraud reports and realize the company is underperforming the industry standards for fraud or chargeback losses. But, before you follow their reactive stance, it’s important to gain some context by asking some questions.

Are those companies in the same vertical? Are there specific products or services that are unduly affecting your loss statistics? Do you have a specific business unit, product, service or geographic market that is adversely affecting your fraud rates? You must gain this objective perspective before mapping a path forward with existing tools or adding new ones.

What direction is your business heading?

Are you beginning to sell overseas? Have you recently acquired another brand that has a different customer demographic? Is a specific channel (e.g., mobile) going to be emphasized in the coming fiscal year?

Expansions like these are prime opportunities to look at order-verification and fraud-prevention tools. Many legacy tools are working hard to be as useful for the modern commerce scenarios as they have been in the past decade. There is a new generation of machine-learning predictive intelligence products (as opposed to rules-based engines) that might be more appropriate for your globally focused, omnichannel enterprise.

Is your management’s risk tolerance shifting?

If you’ve got a new chief marketing officer who holds greater sway with the CEO, consider that your fraud-prevention team might be strongly requested to reduce friction for new account set-up and transaction flow. If so, will you be required to compensate for reduced data elements in transactions? (i.e., no longer asking for a physical address on a digital order). Can you be just as robust in your fraud prevention efforts without increasing false positives? That’s important information to factor into your decision making.

Do you have tool overlap?

Like a basketball team entering a draft that wants to pick players that complement and enhance existing skills, a savvy fraud shop needs to, on occasion, ensure they are not implementing tools that overlap. Some fraud tools have better success in certain verticals. If you are implementing an array of tools, you have to make sure there are no gaps in coverage (say in device ID technology, IP geolocation, identity verification or other key basic tools).

Do you have the right motivations?

Finally, for an e-commerce operation, does your management have an appropriate level of risk tolerance and understanding of how the fraud-prevention efforts tie into customer satisfaction and lifting top-line revenue? Turning away good business has become an issue that several savvy merchants have identified once they analyzed their transaction flow and conducted manual review on 5-15 percent of orders, only to find that less than 4 percent of those transactions were actually fraud.

The reality is that whatever decision you make related to choosing an order verification tool or fraud prevention solution it is going to be a multi-year, expensive commitment. To account for such an overhaul, be sure to create enough space for these important decisions to be made with thorough understanding of your company’s needs cross-departmentally.

Tom Donlea is director of risk services at Whitepages. Prior to joining Whitepages, he served as the Merchant Risk Council’s managing director, Americas. Whitepages PRO is the enterprise division at Whitepages that offers businesses intelligent customer contact data for a 360 degree view of their customers to validate and verify identities in a wide variety of applications including purchasing and fraud prevention.

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