By Karisse Hendrick, Principal, Chargelytics Consulting
A common challenge for those fighting fraud on the “front lines” is effectively communicating the importance of their team, the technology they rely on and their overall value to the very company they work for. Often, corporate leadership thinks losses due to e-commerce fraud aren’t very significant or that stopping fraud is in direct conflict with higher sales volume. Fraud-fighting departments that are undervalued often have employees that feel unappreciated, and often underpaid. They’re unable to upgrade the fraud technology they rely on because their company is unwilling to shoulder the cost. And, they are often left out of strategic decision-making, which can lead to more opportunity for fraudsters to empty the organization’s coffers.
In order to convey the value of your department to leadership or cross-functional departments within your company, you need to know how to relay to corporate leadership the right information in a language it understands. In businesses with a CNP channel, that language is often data.
Obtaining comparative data from similar companies, however, is nearly impossible. It simply doesn’t exist in the public sphere. So, the next best thing is to utilize industry benchmarking data that demonstrates to your leadership how your company measures up. If your data is better than the average, you are in a better position to ask for a raise or to be included in higher level strategy decisions. If your metrics are lower than average, this puts you in a position to identify new layers of fraud prevention, or a core fraud prevention system that may have more real-time machine learning capabilities.
One of the surveys I use when presenting a risk assessment to executives for consulting clients is the annual LexisNexis Risk Solutions True Cost of Fraud Study. This report has been particularly instrumental in conveying the impact of fraud to a merchant’s bottom line, especially to leadership that has little understanding of payment liability rules online. The survey primarily focuses on fraud metrics in the US and Canada (combined and on their own), but those are arguably two of the biggest countries for payment fraud, even for CNP merchants based internationally.
Determine the True Cost of Fraud to Your Company
Determining the true cost of fraud to your company can be impactful in conversations with corporate leadership. But, isn’t the cost of fraud simply what you lose in chargebacks? According to LexisNexis Risk Solutions, it’s actually quite a bit more.
As an example, if a retailer received $100,000 in fraud chargebacks last month, it didn’t just lose $100,000. According to the LNRS study, depending on the size of the client, the actual value lost was between $297,000 to $338,000.
Each year, the antifraud technology provider calculates a multiplier that a company can use to determine how much they actually lost for every dollar of fraud loss.
When I explain to companies I consult for what makes up that multiplier—the cost of the goods/services lost, the full transaction value, chargeback fees and the time of an analyst reviewing the order and/or the chargeback, among other costs—I have their attention. The multiplier doesn’t just work for losses due to chargebacks. You can also use it to demonstrate the value your team has brought to your company. If the fraud department canceled $50,000 worth of orders due to fraud last month, you can present to leadership that the fraud department actually saved the company $148,500 to $169,000, depending on the categorization that best fits your company (this does not including subtracting the estimated false positives, which are more difficult to quantify).
The more that was lost or saved, the more attention your team will get. It’s important to know what to do with the attention from leadership, once you have it. If the losses are high, you should have several suggestions ready for how to reduce the impact such as adding additional authentication or verification services, adding more team members or improving a process or policy that impacts fraud losses. If the savings is significant with the multiplier, this may be something to bring up at your performance review meeting.
Overall Fraud Rates Have Increased YoY from 2019 to 2020
I have used other benchmarks within this study over the years that have also proven valuable. For example, if a merchant contacts me to say they think their online fraud has increased over the last year, I can safely tell them that they are most likely right.
The most recent version of the LNRS study found an increase in payment fraud of 11-14 percent since 2019, depending on the size of the merchant. That is an important figure to relay to your leadership. If they are expecting your team to keep losses at a similar rate year-over-year, you can use this data to demonstrate that is an unrealistic expectation—unless they are willing to invest in updating fraud-fighting capabilities. The impact will not change unless the overall strategy is updated.
Having an external consultant or internal analyst perform a risk assessment and gap analysis is one way to consider new methodology. As highlighted in the LNRS survey results, if you are attempting to fight this year’s fraud with last year’s tools and processes, there is most likely room for improvement in your risk stack and strategies.
Tracking Fraud by Mobile Channel
Another interesting statistic from this year’s survey is around fraud in the mobile channel. In U.S. retail, the breakdown is as follows: 64-67 percent of fraud from mobile orders are initiated on a mobile web browser. Twenty-five (for large retailers) to 38 (for smaller retailers) percent of mobile fraud is initiated on company branded apps. Thirteen to 18 percent of mobile fraud comes from third-party apps, such as marketplaces or affiliates. And, 2-6 percent of mobile fraud orders are attributed to bill-to-mobile payment methods.
This is insightful data to share with your leadership, but also to consider when weighing the risk of orders based on the channel. It shouldn’t be a determining factor, but when you’re looking into your own data, if you find the fraud rates in the survey are similar to your company, this could be a contributing factor to the determination of an order’s risk, based on the method of mobile order used.
This particular survey has many other useful data points including types of fraud that are on the rise and most popular per merchant segment. It also covers the types of tools merchants rely on for preventing fraud and metrics for both card-present and card-not-present transactions. I recommend proactively pulling the relevant metrics for your own company and presenting your in-house data with the survey results.
The presentation you create with this comparative analysis should tell a story, with each slide building off the next, until you feel you’ve provided enough information to demonstrate to leadership where your company is in relation to the metrics explored in this survey. With a proactive approach, your leadership will appreciate the education and clarity.
Your company may have asked for comparative industry data in the past and you never knew where to go or how to use it. This annual report provides industry data I use in the course of my business. Comparative data lets you know where you stand compared to your peers in similar-sized companies, what to focus on next, and what you can brag about to your leadership to help them understand the value that you and your team bring to your enterprise.
Important notes on using the survey:
LexisNexis defines retailers as companies that have brick-and-mortar stores, with a CNP channel (online, mobile, phone orders) that accounts for over 10 percent of their overall volume. They define e-commerce merchants as companies with more than 80 percent of their overall revenue coming from CNP channels. The survey also provides a breakdown of metrics for in-store, online and mobile channels. The more you can drill into your own data for a comparative analysis to the industry data sets that most apply to your company, the more impressed your leadership and your overall impact will be.