Here is part one: The Fraud Prevention Space’s Complex Optimization Problem

Before going through the complex process of choosing a new fraud prevention vendor to partner with, you should ask yourself what you want to achieve from the partnership. In this blog post, we will focus on the potential benefits you can gain by partnering with a new fraud prevention vendor. The list below is not exhaustive. But it includes the central benefits that a fraud solution should provide. 

Increasing sales and revenue – As mentioned in the first blog of the series, you invest so many resources in getting your potential customers to actually place an order through your website/app. When they finally do, you are closer to driving more sales that will grow your bottom line. If currently you are taking a risk-averse approach, or if the fraud prevention tool you are using is not accurate enough, you’re probably declining good customers. As part of the optimization problem we discussed in The Fraud Prevention Space’s Complex Optimization Problem, there’s a fine line between declining some good customers, and letting fraud into your shop. The question we will answer later is how to choose a fraud prevention solution that is incentivized to keep the right balance between approving as many good customers as possible while keeping your cost of fraud low enough and at the optimal point. 

Decreasing the cost of fraud – If you are on the Visa & Mastercard fraud monitoring programs — chargebacks rate that exceeds 1% in the past and 0.9% now — or if you have been on it in the past, you probably want to make sure your chargeback rate is in a stable, safe place. Perhaps your chargeback rate is nowhere near those thresholds, but you believe your fraud cost is too high and can be significantly lower. The last thing you want is to lower your chargeback rate at the expense of a significantly lower approval rate. The only way to reduce chargeback rates responsibly, without compromising sales, is by choosing a solution with incentives that are aligned with yours, and with cutting edge technological capabilities to ensure continuous accuracy. 

Improving customer experience – You might be asking yourself how choosing a fraud prevention solution has anything to do with customer experience. (It does.) Here are a few reasons why: 

  • Declining good customers – Nothing can be more frustrating for a customer than to be falsely declined. According to research, a significant percentage (33%-40%) of customers report that they will not purchase again from a merchant who wrongfully declined them. 
  • Instant order confirmation – Amazon has forever changed customer expectations in terms of speed. In a world of same-day deliveries, ‘instant’ is the new king, and customers are not willing to wait for anything. If you have a manual review team that is reviewing the risky orders before approving them, your customers may end up waiting for hours until they receive their confirmation email, and they definitely won’t be happy about it. If you’re approving the orders and then manually reviewing them, and then sending a notification that the order is not approved, the frustration might be even greater. 

So, the ideal fraud prevention solution must have the ability to provide final decisions both quickly and accurately.  

Certainty & predictability – All businesses aspire to have as much predictability and certainty as possible. What can be better than knowing what your minimum approval rate is going to be and how much you are going to spend on fraud? If predictability is important for you, there are solutions out there that can provide you with the predictability you aspire to have, while at the same time optimizing your fraud performance. 

Operational efficiency – The world is marching to a new reality where automation replaces human work in all places where technology is more cost-effective. This is also the case in fraud prevention. In the past, merchants had large teams to manually review risky transactions and decide whether to approve or decline them. Above we discussed the negative impact this may have on the customer experience, but it doesn’t end there. It also affects your ability to grow and to operate efficiently. Here are two examples to demonstrate this:

  1. The holiday season is the peak time of the year, with a huge increase in transaction volumes. If you operate a manual review team, it means you’ll have to hire temporary employees that will assist with the overload, train them and when the holiday season is over, lay them off, all of which involve the following inefficiencies: 
  • Time & Resources: You need to interview people, hire them, train them in order to use them only for a few weeks. This process happens every year and requires a lot of resources. 
  • Accuracy: Temporary employees hired to help with the load are often not experienced and so there is a good chance they will make more mistakes than trained employees. Ultimately, this means they will decline more good customers or allow fraudsters to conclude their illicit transactions. 
  • Scalability: If you are a fast-growing business and you use manual review teams, it means you’ll constantly need to expand this team to handle growth in volume. But this process is not really scalable and perhaps you want to consider focusing on what you do best — growing your business and focus less on hiring and training people who will try to prevent fraud from affecting your business. 
  1. Another aspect of operational efficiency lies in the process of disputing chargebacks. We don’t want to go too deep into it now, but the same logic used above can apply for disputing chargebacks.
  • If you have a team of people who are responsible for disputing chargebacks, maybe you want to consider outsourcing it and focus on growing your business. There are fraud prevention solutions who are providing this service and some of them even do it as a complementary product to their main product at no additional cost. 

Global expansion and product expansion –  Fraud behaves very differently across geographies and products. If you plan on expanding to new markets or to grow your product offering you want to make sure your fraud prevention solution has the expertise and capabilities to support it. Since this is a critical point, we will use a few examples to make it a bit clearer.

Product offering expansion

Example #1: If you are a fashion merchant and you’re adding digital gift cards to your offerings, you are entering a very different segment from a risk perspective. Some fraud prevention vendors have great expertise when it comes to physical products but not as much when it comes to digital goods. In the digital space, the data points are more limited. For example, in digital orders there is no shipping address, a key data point merchants often use to assess the client’s fraud risk level.

Example #2: If you are an OTA (Online Travel Agency) that offers only flights and you plan on introducing accommodations into your offerings, you are entering a very different segment from a fraud perspective. Also, in this case, some fraud prevention solutions can provide great performance for flights but lack the expertise or databases to provide similar performance for a new accommodation. 

Global expansion 

If you are already selling in a few markets this point may already be clear. As you view your performance across markets, you’ll see different approval and chargeback rates. Some markets are much riskier than others and require specific expertise to perform well. The fact that you might be happy with the performance of your fraud solution in your existing markets, doesn’t necessarily mean that this will remain the case when you expand to new places. 


After reviewing the potential outcomes and benefits of partnering with a new fraud prevention vendor, you can prioritize which factors are the most relevant and important to you. In the next blog post, we will cover the different solutions types out there and list the pros and cons of each.