By Michael Habermann
Director of Fraud Services, Radial
Retailers know that fraud comes with a high cost and they combat it with eCommerce fraud prevention strategies, tools, and solutions. In my conversations with eCommerce retailers, I’ve found that many do not have a firm grasp on the less obvious and sometimes hidden costs of fraud. Do you know what your total cost of fraud is?
Radial has been guiding retailers through choosing fraud prevention and fraud protection solutions for more than 20 years. Here’s what we’ve learned are hidden costs of fraud.
- Good customers lost to bad intel or false declines. These customers show up as declines, and you will likely never see them again. False declines create an insult rate — and the key term here is “insult” — good customers get turned away when they are attempting to place an order and due to internal controls, will have their order inadvertently canceled. While your insult rate represents the cost of lost revenue from orders not being approved, it also represents customers that will not return to your brand because they were wrongly declined. This factor becomes even more imperative when retailers sell products that are sold at competitors — for example, a major beauty brand that entrusts Radial for its combined fraud and payments processing sells products that are sold at competitor sites, so their ability to reduce false declines has even more weight, given that declined customers can simply buy the same product at the same price with just a click.
- Siloed fraud and payments solutions. It’s not uncommon for retailers to have multiple point-of-use or specialized tools that manage individual aspects of fraud detection, fraud prevention, and payments systems. This involves selecting, contracting, pricing, and maintaining separate relationships with multiple vendors. Using multiple tools requires internal IT resources, including maintenance and upkeep. Finally, there is an often hidden cost to customer experience when separate systems are not integrated properly.
- Operational cost of staffing up during peak seasons. Ecommerce retailers have to be smart about their fraud prevention approach. During peaks and valleys in business, it can be difficult to adjust headcount effectively. Taking calculated approaches with assuming more risk or tightening things down can place your business at risk. It can be very challenging to hire qualified fraud staff and taking on more risk can negatively impact customer experience by an increase in false declines, and overall potential for fraudulent transactions or identity theft.
- Lack of extensive customer data that impacts fraud decisioning. Most retailers have to pay for comprehensive customer data or simply have limited data to make fraud decisions. This lack of data and cost of acquiring it may result in higher fraud management costs.
- Headcount costs.Not only is it challenging to hire experienced data scientists, analytics, and fraud investigation teams that understand fraud prevention, it is expensive. These costs are part of running a solid fraud prevention operation, but they drive up the total cost of fraud.
- Chargebacks. Many retailers see chargebacks as a cost of doing business and add it as a line item to their budget.Chargebacks are time consuming and require experienced personnel dedicated to managing them. However, if retailers do not combat them, bad actors will continue to expose a lack of controls. Retailers that let chargebacks go can put their business at risk and be exposed to penalties from the credit card networks.
Mitigating the Hidden Costs of Fraud with Radial
Retailers can tackle each of these hidden costs on their own, often with separate initiatives and unpredictable costs. Increasingly, eCommerce merchants are finding that partnering with a solution provider that addresses all of these hidden costs with one combined fraud and payment solution, like Radial Payment Solutions, lowers the cost of fraud prevention and reduces their total cost of fraud.
Radial is one of the only retail specialized fraud and payments solution provider that offers a complete fraud and payment package solution. We leverage 20 years of industry experience working with leading retailers around the globe and have developed a robust, comprehensive network of customer data that we use for fraud and payments decisioning. We also have dedicated fraud and payment data science and analyst teams assigned to customers that develop a deep understanding of each client’s business.
Our software solution and services combine all components of fraud and payments, so retailers only need to pay for one solution and have the assurance that all aspects are covered by leading technology. Additionally, we manage manual reviews and the entire chargeback process — and are the only chargeback solution provider that provides 100% chargeback and fraud indemnification. If we process a transaction that turns out to be fraudulent, we are liable for 100% of that cost.
Ready to tackle the hidden cost of fraud and reduce your total fraud cost?
As Director of Fraud Services, Michael Habermann is responsible for Data Science & Advanced Analytics, Business Intelligence, and Fraud Operations. Prior to his current role, Michael was as a Sales Engineer, supporting new business for Radial Payment Solutions. Michael has more than 25 years leading high performing teams as a Merchant and as a Solution Provider for Fraud, Identity, and Chargeback Management. You can follow Michael on LinkedIn.
Learn how Radial Payment Solutions can work for you.