How Fraudsters Are Wasting Your eCommerce Advertising Budget

How Fraudsters Are Wasting Your eCommerce Advertising Budget

Customer acquisition is tough work. Whether your online store does a few thousand or many million of dollars in monthly revenue, driving traffic to your site and converting visitors into loyal customers is no easy task. Many eCommerce merchants spend significant funds and resources on marketing to ensure the right people find their store and buy their merchandise. But did you know that many of those businesses are actually losing a meaningful percentage of their advertising budgets to eCommerce fraud?

You might think, ‘well, how does eCommerce fraud affect marketing budgets?’. Let’s look more closely at eCommerce fraud. According to the latest estimates, US-based eCommerce merchants lost over $3.4 billion in revenues due to fraud last year. That figure is set to double by 2018. While there are many eCommerce fraud prevention solutions available today, most still require human oversight and manual review of orders.

In general, manually reviewing orders for fraud is a time consuming and error-prone process, often resulting in false positive declines (when orders placed by legitimate customers are wrongly rejected). Riskified’s data shows that approximately 70% of orders typically rejected by online businesses are actually legitimate and should have been approved. The most common reason for good orders being declined is that merchants choose not to assume the liability for orders that seem suspicious and quickly reject them without taking the time to dig deeper and distinguish the truly fraudulent transactions from the legitimate ones. In other cases, although time is spent trying to figure out the details of the order, the conclusion is mistaken.

Now you can begin to see how the fraud review process can affect advertising budgets. False positive declines accumulate over time and have a cascading effect on the conversion funnel, artificially lowering user value.

Doing the Math:

Let’s consider an example eCommerce merchant who spends about $5,000 to bring in 100 orders at an average cost of $50 per order. Of those orders, let’s assume 10 are flagged for manual review due to fear of fraud, and subsequently 5 transactions are declined. When we take into account the fact that 70% of orders typically declined are in fact false positives, that means at least 3 of the orders rejected by the merchant were actually legitimate. Thats $150 of advertising budget that was mistakenly wasted (not including the revenue lost from those orders).

Perhaps 3% of your ad budget seems like a small amount, and you might have already factored this loss into your cost-benefit analysis. But it doesn’t have to be this way. What if you could take that lost budget and add it to your bottom line?!

Turning a “No” into a “Yes”:

We built Riskified to take on the challenge of false positive declines head on. Our complete eCommerce prevention solution is able to differentiate between actual fraudulent orders and borderline, legitimate orders. Our fraud detecting machine learning and behavioral analysis algorithms determine, in real-time, whether or not an order is fraudulent, taking the guesswork and pain out of the fraud review process. We understand all the reasons why order declines occur, most notably the fear of getting hit with the cost of a chargeback. That’s why every order approved by Riskified is 100% covered by our chargeback guarantee in the event of fraud.

Instead of writing off a portion of customer acquisition spend, merchants can now improve their overall margins and use their advertising budgets more effectively. Most importantly, using Riskified gives online retailers the peace-of-mind of doing business without being negatively affected by eCommerce fraud. We’d love to see how we can work together to stop eCommerce fraud and grow your business.