As online retail grows, so do security threats to ecommerce businesses.
With data breaches seemingly becoming a daily event and with fraudsters becoming more sophisticated by the hour, fraud protection should be a business imperative. An ecommerce storefront without reliable fraud protection leaves the business vulnerable to devastating losses.
The costs go beyond losing money to chargebacks. In fact, damaging the customer experience you provide could be more costly than the fraud itself. You risk losing customers, revenue and trust in your business when you rely on manual order reviews and static, rules-based fraud solutions. Manual review opens up retailers to human errors and slows down fulfillment in an era of two-day or next-day delivery.
Forward-thinking retailers have turned to a dynamic model of fraud protection, one provided by expert vendors who combine big data, machine learning and domain expertise to decide on the validity of orders in milliseconds. The model, known as guaranteed fraud protection, comes with a guarantee, which promises to make a merchant whole for any approved order that later turns out to be fraudulent.
An investment in a fraud protection service is not just throwing money at a problem. Efficient fraud protection and chargeback management helps merchants improve margins by simultaneously increasing revenue and reducing costs. The key benefits of the new way of managing fraud risk come down to:
More quickly and accurately identifying fraudulent orders
Reducing the number of orders mistakenly declined for fear of fraud
Lowering operational costs
Increasing customer lifetime value by improving customer experience
Quickly and accurately identifying fraud
Guaranteed fraud protection helps reduce costs and make them more predictable. The model quickly sniffs out fraudulent orders to stop them before they happen. That saves you the expense of chargebacks and related fraud costs. Knowing that you’ll pay a fee only on approved orders and that approved orders are guaranteed also means you know exactly what fraud management will cost you.
Reducing false declines
Ecommerce fraud is complex. A reliable fraud protection service successfully identifies legitimate orders that may have been mistakenly declined by outdated systems or during manual review. Manual review and static systems are messy because each case is a moving target, with decisions based on data sets or rules that can’t account for every scenario and don’t change with fraudsters’ changing tactics. Good orders from actual customers can get lost in the shuffle, especially for retailers weary from fighting fraud on their own. Customer satisfaction goes down when retailer shields go up without effective and efficient fraud protection looking out for the best interests of both parties.
Reducing operational costs
Guaranteed fraud protection reduces operational costs by providing an automated fraud review and order management system. This means you don’t need to rely on a large fraud department to process manual orders or staff up to meet fraud-review demands for order spikes. You can save precious headcount and systems dollars for roles and tools you need most.
Increasing customer lifetime value
On the surface, it may be hard to connect the dots on how fraud protection tools improve customer experience. Shoppers have a lot of choices in ecommerce — one bad experience is enough to put you on their blacklist for life.
A bad experience like a falsely declined order shakes buyer confidence in your business. According to a survey Signifyd conducted with Survata, 15 percent of customers said they have zero tolerance for a bad shopping experience and would not shop with a retailer again after a poor experience, and 65 percent said they would never shop with a retailer again if their order was falsely declined for any reason.
You can use a reliable fraud protection tool as a pillar for great customer experience. Let an automated review process do the heavy lifting when it comes to screening for fraud and free up your employees to serve your customers during those times when the customer experience breaks down.
Your bottom line: what really matters
If the above reasons haven’t convinced you that fraud protection is a key to better business, it helps to think about it in terms everyone can understand: how much online fraud impacts the bottom line.
In a report produced with Forrester, one Signifyd client reported that it avoided $2.7 million in chargeback costs and reduced operational costs by an additional $479,305 over a three-year period after deploying Signifyd. It also increased its acceptance rate to 93.5 percent from 88.9 percent, meaning $3.2 million in additional revenue. In all, Signifyd’s Guaranteed Fraud Protection yielded a 380 percent return on investment for the customer, a major omnichannel retailer.
Signifyd’s Vice President of Corporate Communications Stefan Nandzik sat down with EYStudios Meagan Bryson for a deep dive on the true cost of online fraud and some of the innovative ways retailers, with the help of companies like Signifyd, are embracing new methods to change the math on fraud losses.
“Really, the biggest impact, when it comes to the cost of fraud, is, as the fraud process matures out, merchants start to get more and more restrictive in the orders they accept, due to the fear of fraud,” Nandzik said during the EY Access podcast.
Erring on the side of caution accounts for more than half of the cost of fraud. Nandzik points out that online fraud costs retailers 5.4 percent of revenue, with 2.9 percent of that representing legitimate orders not shipped for fear of fraud. Apply that formula to the $461 billion in annual ecommerce spending in the United States to get the total cost of false declines for retailers — $13.3 billion a year.
Get the full story about fraud, your bottom line and what ecommerce businesses can do to protect themselves in this additional article here.
Author: Chris Martinez, Signifyd's Content Strategist and Lead Blogger