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How to Select Your Fraud Solution Provider

Fraud is an extremely large challenge for eCommerce merchants. According to Juniper Research, eCommerce fraud is projected to eclipse $20 billion in 2021, an 18% increase from the prior year. The right fraud solution provider can provide vital compliance and anti-fraud protection. However, with so many options on the market, choosing the right one for your business can be difficult.

To make things easier, we’ve put together a checklist to help to review your internal setup and understand the criteria you should be considering when zeroing in on a fraud solution.

Review Your Internal Setup to Prevent Fraud

The first step in selecting a fraud solution provider is to review your own internal setup. Doing so will give you the best idea of where your potential weaknesses are, what types of fraud you most need to protect against, and what type of solution you need.

To help you out, we’ve put together a short checklist that will help you build an accurate picture of your internal setup.

What is my business setup? Where is the interest for a fraudster?

The first step in assessing your internal structure is to identify why a fraudster might choose your company as a target. Are you most vulnerable to fraudulent chargebacks, account theft, or shipping and billing fraud?

Once you understand why your business might be targeted by fraudsters, you can select a fraud solution provider that specialises in protection against those particular types of fraud.

Which fraud types exist in my business model?

Understanding the most common fraud types that exist for your business model gives you an idea of what you are looking to protect yourself against.

For instance, your largest pain point may be account takeover or friendly fraud. Perhaps it’s refund fraud which we’ve seen surge dramatically. Fraud solution providers can (and can not) address certain fraud attacks, so it’s important to know what your types are.

How is my organization structured? What structure is needed?

Internal control of systems and organization is a vital part of protecting a company and its assets from fraud.

Assessing your internal structure and analysing its effectiveness highlights the areas which outsourcing to a fraud solution provider could improve.

How much knowledge and resources are available?

Related to analysing your internal structure is understanding the level of knowledge and resources you have at your disposal to combat fraud. Once you know this, you can better assess how a fraud solution provider can compliment those internal resources.

Which tools are already in place? Replacement or additional tools needed?

Since your company almost certainly has fraud prevention tools in place, you will need to assess the effectiveness of those tools and whether they need to be replaced or reinforced by additional tools.

What is my existing data set?

The effectiveness of a fraud solution provider is only as good as the data you can provide. Before outsourcing to a fraud solution provider, it pays to assess your existing data set to see if it is as exhaustive as it needs to be.

What are my existing policies vs. risk appetite?

Your businesses’ appetite for risk will define what level of fraud prevention you need. The greater the appetite for risk, the lower the protections you’ll need in place.

What is my budget to cover these topics?

Budget is always a key consideration in any plan to outsource business processes and having a clear idea of your budget can help define which fraud solution provider will work best for you.

Identifying the Right Provider

Once you have a clearer idea of the strengths, weaknesses, and needs of your business, you can use those factors, coupled with the relevant questions listed below, to narrow down your providers.

Does the provider cover my use case?

Once you’ve assessed your organization structure, what knowledge and resources you have available, what your risk appetite is and what your budget is, you’ll have defined your businesses’ use case.

You’ll then be able to match that use case to the services provided by prospective fraud solution providers.

How much experience do they have in my industry/business model/region?

Selecting a fraud solution provider with extensive experience that matches up with your particular business is the best way to ensure that the services they provide marry up seamlessly with your specific use case.

For example, fraud solution providers with experience in your industry will be better able to adapt their fraud rules to suit your rollout of new products, new payment methods, or support your expansion into a new market.

Do they have regional/local support?

Depending on the level of involvement you choose to have with your fraud prevention activities, you may need to approve or decline an order.

Having dedicated regional or local support from your fraud solution provider means you don’t have to struggle with time zones and communication dead zones when attempting to verify orders.

Even if you don’t need to approve or decline orders, having a dedicated contact or a direct line to a local fraud support team is always going to improve the quality of the service you receive.

Do they work with businesses my size?

While fraud affects businesses unilaterally, fraud solutions will tend to work with different size organizations.

Finding a vendor that specializes in supporting your specific scale of enterprise, be that a multinational corporation or a local SME, is an important part of selecting the right fraud solution provider for you.

Out of the box vs. customized approach?

Depending on your type of business, you may have the choice between a generic ‘off the peg’ solution or one customized to your business needs.

While generic solutions might be more budget friendly up front, a more specific approach may recoup some of the initial outlay through increased fraud prevention.

Rules vs. machine learning or hybrid?

Most basic fraud prevention solutions are rules-based. For example, a business might block all transactions from a certain area code or region.

Rules-based systems have certain limitations, such as a lack of flexibility, low coverage, low relative performance, and fixed thresholds.

Machine-learning-based fraud protection uses algorithms that self-learn over the passage of time. The ability of machine learning programs to analyse correlations and behaviours from large datasets makes them far more adaptable than a rules-based system.

Hybrid models use both a rule set, to set a hard floor based on risk appetite, coupled with more adaptable machine learning algorithms to reduce the number of transactions lost to false positives.

Score vs. outsourced?

Fraud scores are normally used in fraud prevention systems in which the merchant manually approves or rejects each transaction.

An outsourced system takes the approval process out of the hands of the merchant and lets the fraud solution provider make the decision on suspect transactions.

Outsourced systems are more streamlined, which may benefit businesses with high traffic, but reduce the amount of control the business owner has over how transactions are handled.

Get Professional Help & Guidance

About-Fraud acts as both a community platform and a consultancy, helping to connect business with the right fraud solution provider for them.

Contact us today for professional help and guidance on finding the best way to protect your business from the growing threat of fraud.

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Author: Ronald Praetsch

Managing director and co-founder of About-Fraud. Ronald leverages his extensive experience in payments & fraud to inform the structure and content of the site. Outside of About-Fraud, Ronald consults regularly with merchants, payment service providers and fraud solution vendors. Before About-Fraud, he spent close to a decade in various payments and fraud prevention roles at Sift Science, Fareportal, Booking.com and Pay.On in both Europe and North America.