Fraudulent purchases with cloned credit cards do not scare your e-commerce: the chargebacks of your online store is under control, well below the limit recommended. Congratulations! In fact, fraud is not a problem for you. But… do you know how many goods sales you are failing to complete? Or how much money you are not earning in order to keep these risk analysis indicators?
The answers to these questions are in your false-positives: orders that were denied on suspicion of fraud, but were actually made by good customers. It is very difficult to measure such data, although it is critical to know if risk analysis is helping or cracking your business.
Many e-commerce professionals believe that the function of an antifraud solution is to stop as many suspicious transactions as possible, but this view is incomplete. The scope of the tool must go beyond: a risk system has an obligation to optimize the conversion of a merchant, denying suspicious purchases but not in any way affect legitimate purchases.
Currently, the rate of attempted fraud in Brazilian e-commerce is 3.58%. In other words, a store that has an excess of orders denied higher than this is probably so afraid of suffering a loss with chargebacks that it is failing to make money from sales. But to better understand this issue, let’s look at two virtual (fictitious) stores in the same segment, which receive 10K orders a month and have an average ticket of $200.
Forrest Online x Bubba Blue Store
Our first case is Forrest Online, which loves boasting that it has a monthly 0.0% chargeback rate. Exactly: the e-commerce does not need to face any fraud complaint, since it has contracted an antifraud solution that guarantees the risk of the business in exchange of 2% of the value of each approved transaction. However, out of 10,000 requests, only 9,500 are approved – the other 500 are considered too suspicious. So Forrest Online has a monthly income of $1.9 million, of which $38K are paid to the antifraud.
Bubba Blue Store also has fraud rates checked, thanks to a solution that charges $1.50 per analysis of each approved application. However, the business has a monthly chargeback rate of 0.5%; that is, of the 10 thousand purchases made in the store, on average 50 end up being challenged. On the other hand, Bubba Blue Store refuses only 1.5% (150) of orders on suspicion. The other 9,850 are approved, including 50 fraudulent ones. In total, the company invoices about $1.97 million and spends with fraud a total of $24,775 ($14,775 to pay for the solution and $10K on chargebacks).
The difference between the two businesses is evident: Bubba Blue Store bills more orders and has gross revenue of $70K higher than Forrest Online – in addition to having a “cost of fraud” (tool + chargebacks) of $13,225 lower than the competitor. All in all, Bubba Blue Store takes an $83,225 lead over Forrest Online at the end of each month – or $998,700 a year.
Exactly: almost $1 million!
The figures made it easier to see that Forrest Online, despite having “zero fraud”, does not have a financial result as good as Bubba Blue Store at the end of the day – even though it receives some monthly chargebacks, but within the acceptable range according to the card companies.
The main difference between this e-commerces is in the false-positive index: Forrest not only paid more for the risk tool, but also had a false-positive rate of 5%. Bubba Blue Store has assimilated better the risk of selling online, and even though it has suffered some chargebacks, they have made more money and had fewer “fraud costs” than the competitor.
Fraud should not scare merchants
The exercise we did comparing two virtual stores exemplifies a problem that many e-commerces still experience. The main cause for this difference is misinformation about how to fight online fraud. Of course, stopping suspicious transactions is a crucial activity for any risk analysis tool, but Konduto insists: an antifraud cannot hurt a merchant’s (legitimate) sales.
Konduto’s risk system is proven to be capable of stopping only suspicious purchases, without interfering with orders made by legitimate customers. A proof of this is our case with the Marcyn Group and Casa das Cuecas: in a few weeks of operation, we managed to reduce our customer’s false-positive rate by 77%, and the merchant celebrated a 6% increase in sales only by switching to our antifraud solution.
What about you? How are the false-positives in your virtual store? Can Konduto help you?
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 firstname.lastname@example.org!