We know that online fraud can cause serious problems for a company: chargebacks, acquirer penalties, millions at a loss, complaints, bad reputation, operational inefficiency, brand damage… (and the list goes on). But we want to reinforce the title of this article: fraud should not be a nightmare for those who sell on the internet.
A good entrepreneur would wonder at this moment: “How so? Should I be more lenient, dismiss my risk team and accept all the orders that come to my online store?”
No! Never do that!
Online fraud is indeed a huge and growing threat to e-commerce worldwide. What we are going to explain is that it is not up to you, out of fear or out of ignorance, to take the problem for you and start solving it on your own in order to eradicate it.
It isn’t like this, and we’ll explain why.
Current fraud scenario
Most frauds today are committed by criminals who illegally obtain third-party credit card information and use it for purposes on e-commerce sites and mobile apps. The cloned card’s legitimate owner may even realize the scam and request the cancellation of the transaction; when this occurs, however, the store will have already delivered the order or provided the service and will bear the loss of that order.
In numbers: currently 3.6% of orders arriving at a virtual store are of fraudulent origin. With good risk management and a good antifraud system, this figure should drop to 0.5% (or less). Good market practices understand that fraud should not exceed 1% on your revenues.
Fear of fraud
Now that the “fraud scenario” has been presented, let us know if the following cases make sense:
- A company that had 40% of orders canceled on suspicion of fraud;
- A virtual store that received thousands of orders per month and manually analyzed 100% of them, for fear of fraud; and
- An entrepreneur who paid 5% of the billing to have a fraud rate equal to 0%.
All these cases are true. And they also show how fear can blur an entrepreneur’s view and significantly harm a company’s financial health.
After all:
- Why cancel 40% of orders if, historically, less than 4% of purchases are of fraudulent origin?
- Why review 100% of orders manually and not have a tool that does a good part of this function, leaving only the really suspicious purchases for human verification (less than 15%)?
- Why give up 5% of billing to fight fraud if all solutions on the market aim to keep the fraud rate below 1%?
These cases (and many others) show us that the entrepreneur, often for lack of information, cares more than she should for fraud instead of focusing on what really matters: increasing sales, reducing the cost of customers, improving brand visibility… In other words, the risk of losing money seriously compromises the goal of making money.
The best way to fight fraud
There is no zero fraud in e-commerce: risk is part of the game. Therefore, the best fight against fraud is not the one that focuses on not receiving any chargeback – after all, for that to happen, it will be necessary to cancel many good sales and give up a fat slice of the billing. In the game against fraud, the winner is the one who can optimize the risk analysis, approving as many requests as possible and suffering the least possible risk.
In short: it is not the fear of fraud that causes a store to overcome this threat. The secret is to knowingly manage risk by delegating risk analysis (all or most of it) to those who really know how to deal with the detection of criminal purchases. Isn’t it?
About Konduto
We are a startup developing an innovative technology to bar e-commerce frauds. Our intelligent anti-fraud monitors the client throughout his purchase journey in your site and evaluates the transaction in real time – our answer is given in less than 1s! We detect only the purchases that are really suspicious, approving more orders and reducing the costs with frauds. Send us an e-mail on hi@konduto.com!
