August 19, 2013
“Building a fraud solution in-house is not for the faint of heart, it requires a lot of time, resources, money and experience in fraud management.”
There has been a lot of change in CNP fraud management over the past 15 years but today, just as with the early pioneers in e-commerce, whether to buy or build a fraud management solution is still a question we are asked to consider by some of our clients. While the types and volume of fraud attacks have grown over the years, so have the number of fraud solution providers and techniques for combating fraud. Today merchants have a plethora of choices–end-to–end solutions as well as strong niche fraud tools–so why would anyone still want to consider building their own fraud solution?
To be clear, when I talk about building a fraud solution I am not simply referring to hard coding some rules into the back end of an e-commerce system. I am talking about building out the infrastructure for a fraud mitigation program, which, for starters, means being able to write rules dynamically, manage rules, maintain lists, run velocities, scorecards, perform manual reviews, manage data, perform reconciliation and connect to third-party data sources. Building a fraud solution in house is not for the faint of heart. It requires a lot of time, resources, money and experience in fraud management. It is very rare when the business environment, business case and available resources to accomplish the task are aligned to make this a viable option. The fact is, I have seen some very large and technologically sophisticated organizations struggle, and in some cases abandon, their efforts to build in house.
While building your own fraud solution versus buying is an exception to the norm, there are viable cases where it does make sense. The overarching conditions that must be present are: commitment to the process, extremely talented people and a sustainable competitive business advantage from building such a system.
For this case study we will be focusing on the buy-versus-build decision process one of our clients, ATMCASH.COM , went through. ATMCASH.COM understood that many companies have tried to improve on traditional money transfer services by allowing customers to send money online, but many businesses that entered this market failed. “Many organizations tried to get into the industry and decided to solve their fraud exposure after launching their service,” Jonathon Cooper, CEO of ATMCASH.COM, explains. “You don’t have the luxury to do so,” he went on to say. “The crooks will steal from you from inception and continually until you stop them. This is how many businesses in the money movement industry failed”.
Sending money online, especially internationally, is a common way for fraudsters to move and launder funds they obtained illegally or to drain from usurped financial accounts. Many online money movement startups had to close up shop because they couldn’t figure out how to control fraud losses or maintain a profitable margin within their business model.
ATMCASH.COM ’s core service allows customers to send money from their credit card, debit card or bank account to recipients in more than 150 different countries, which requires a diverse anti-fraud strategy to be effective. ATMCASH.COM had a clear goal in mind–to keep fraud losses near zero. After determining the tools, techniques and strategy needed to achieve this, ATMCASH.COM faced the common dilemma many online businesses have: buy versus build.
Possibly the single greatest barrier to entry in the online money remittance industry is the cost of abating fraud. There are many vendors with different point solutions that can be used, but buying and integrating these tools into an effective overall strategy is costly and doesn’t provide a complete and organic solution.
After detailed analysis of solutions that were available in the market at that time, it became clear that building the fraud solution in house would yield a strategy that was more adaptable to the continuously changing challenges in the marketplace as well as a lower cost for performing fraud prevention. Building a fraud solution in-house meant ATMCASH.COM could have a clear competitive advantage in terms of what they would be able to charge consumers for the service and in per transaction profitability compared to the competition. That, ultimately, was sufficient to decide on building versus buying.
As discussed earlier, building a solution in-house requires a serious commitment from a merchant in terms of time and resources.  While ATMCASH.COM can proudly tout the fact that their in-house solution has enabled them to meet their stated objective of essentially no fraud losses, it required a great deal of time, effort, planning and preparation to make it to this point.
“It took a few years of serious and focused efforts just in the development and deployment stages,” Cooper says. “It was a very focused effort by very talented people over the course of a few years.” Cooper also describes how ATMCASH.COM “had to integrate with various vendors, work with various world class consultants and hire world class software experts.”
The decision to build in house also means a merchant is going to have to take on the responsibility for maintaining and keeping the fraud solution up to date. Cooper modestly comments how “the system is working quite well,” as ATMCASH.COM has remitted millions of dollars and been able to stop tens of thousands of fraud attempts. But even after stopping the fraudsters tens of thousands of times, they’re still trying.
“They never give up,” he says. “And, as a business fighting fraud, you must stay vigilant.”
For ATMCASH.COM that means they are constantly reevaluating their fraud solution to ensure they maintain these incredibly low fraud rates.
Vigilance is important because the fraud landscape is always changing. If you are going to be building a solution in house, you need to have a good understanding of how fraud and the methods for fraud prevention are changing to keep your solution up to date. Regardless of your decision to build or buy, you have to perform ongoing analysis of your own data and fraud trends to ensure your fraud strategy is doing what it should be doing.
“It is valuable to have good industry contacts,” Cooper says. “There may be something going on in another part of the world that you should be aware of and need to prepare for. You also need to continue to look at the newest technology.”
Fraudsters continue to find new ways to scam while the fraud prevention industry continues to innovate, and staying up-to-date with fraud-fighting technology is paramount.
“You have to continually monitor your transaction flow to identify new illicit techniques  that are being hatched,” Cooper adds. He also warns merchants that thinking your system is fraud proof will only get you into trouble. ATMCASH.COM’s decision to build in-house has proved profitable for them, but an effective zero fraud strategy has known downsides and wouldn’t be appropriate for all businesses. One of the negatives of any strict fraud strategy is false positives–rejecting transactions that would otherwise have been good.
“This is one of the risks,” Cooper says, “[that] you might have to reject transactions because certain information can’t be verified.”
In money remittance, where a single fraud loss can be very expensive and margins are relatively low, it is best to err on the conservative side.  However one of the benefits of building the fraud solution in-house is the ability to continue a transactional flow to attempt other means to convert the sale that may have been cost prohibitive using a third party solution.
“We are always focused on improving the customer experience,” Cooper says.
While most business are looking for ways to decrease fraud without decreasing the customer experience ATMCASH strives to increase the customer experience while not allowing fraud levels to increase.
Founded in 2005, ATMCASH.COM is a money remittance business that specializes in serving the unbanked abroad. Enabling customers to send money online or over the phone while allowing recipients to pick up funds at any one of the 1.6 million ATMs worldwide, ATMCASH.COM represents the 21st century solution to sending money, not requiring either party to step inside an office or branch. Leveraging the established ATM networks worldwide ATMCASH.COM offers discrete pickup locations for recipients while making it convenient for senders to remit money from home.
About The Fraud Practice LLC:
The Fraud Practice is a privately held US LLC based in Sarasota, Florida. The Fraud Practice provides consulting services on eCommerce payments, fraud prevention and credit granting. Businesses throughout the world rely on The Fraud Practice to help them build and manage their fraud and risk prevention strategies.