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Should My Fraud
Management Solution Screen Every Online Transaction?

If your fraud system doesn’t see the big picture, it will struggle to tell the difference between good orders and fraud. This puts your whole business at risk.

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Preventing fraud requires
finding the right balance

Should you only flag transactions that appear to be fraudulent, or should you … screen every transaction that passes through your e-commerce portal?

Cyber criminals are smart – and they’re relentless. They’re always testing your fraud prevention system. But not every transaction that looks fraudulent really is. You need a solution that can stop the fraud AND approve more good orders.

Many companies rely on artificial intelligence (AI) strategies for their fraud management.

These tools can be beneficial. But they're not foolproof.

Relying solely on AI to “cherry pick” the transactions to be reviewed is a risky business move. You might not catch every fraudulent order, and you might turn down perfectly good orders. This means you could be hurting your revenue and your customer relationships.

Let’s look at the pros and cons when you only screen some, but not all, transactions with your fraud program.

The Risks of Selectively
Screening Transactions

Screening only a few transactions  misses the big picture.

AI-based strategies are not always able to detect emerging fraud patterns.

For example, the purchase of one PC delivered to Cherry Lane seems legitimate. But if you’re not screening every transaction, you might not realize that 10 PCs were delivered to 10 different addresses on Cherry Lane on the same day – which probably indicates fraud.

To identify bigger fraud patterns, AI-based fraud systems need to receive lots of data.

The Advantages of
Screening Every Transaction

Screening more transactions helps you  see the bigger picture.

As you screen more transactions, you increase the amount of stored transaction data you can draw on, so more accurate decisions can be made across the board.

Consider our example with the PCs shipped to Cherry Lane. Each individual sale may look innocent, but the true fraud pattern emerges when the transactions are viewed together in a broader context.

Legitimate orders can get caught  in fraud filters.

Sometimes perfectly good orders can have indicators of fraud – such as when a customer purchases a last-minute gift for rush delivery to an address other than the cardholder’s address.

If you aren’t screening every order, these “gray-area” transactions will be declined – and you will lose the sale and potentially the customer relationship, too.

A low fraud rate may actually reflect a high turndown rate that can negatively affect your revenue and reputation.

Screening questionable transactions helps  you approve more legitimate orders.

Many transactions fall into a “gray area,” where it’s hard to tell if they’re fraudulent or not. Fraud management systems that rely solely on AI will typically automatically decline these transactions.

When you have a fraud management system that can research and analyze these questionable transactions, you’ll find many of these “gray-area” sales are legitimate and should be approved.

Fraud filters are often set up incorrectly.

Merchants often set up multiple rules in their fraud filter to try to flag as many fraudulent transactions as possible.

But counterintuitively, this can increase risk exposure. If the fraud filter rules are applied in the incorrect order, some rules may cancel out other rules – and this can leave you less protected than before.

A more comprehensive approach to fraud management delivers better protection.

A multilayered fraud management system still uses fraud rules to identify questionable transactions – but it doesn’t stop there.

Instead, a more comprehensive solution will be capable of screening every transaction to ensure you can accurately identify every instance of fraud and accurately approve every good order.

Fraudsters will play the system.

Fraudsters are sophisticated, and they know how to fly under your radar. For example, they’ll often test your fraud system by making low-value purchases just to see if a stolen credit card number works. If your system approves that small fraudulent order, you’ve just opened the door to a bigger fraud attack.

Professional fraudsters often work together to coordinate large-scale attacks on a company in a very short time.

And rest assured, if one trick doesn’t work, they’ll try a new trick to figure out how to get past your filters. Fraudsters can evolve their tactics extremely quickly, and AI rules have a hard time keeping up with such rapid changes.

You can prevent large-scale attacks  because you’re watching for them.

Screening every transaction enables you to spot fraudsters testing your waters with small transactions they’re hoping you’ll ignore. Screening every transaction also positions you to spot whatever new trick the fraudsters try next.

This approach is like pouring cold water on a fire. Fraud attacks can be quickly identified, stopped and prevented.

Once fraudsters recognize that you’re watching for them, they’ll pack up and move on to another business that isn’t as prepared.

Conclusion

Risk:

When your fraud system only screens for risky transactions and does not incorporate a more comprehensive approach, you will inadvertently decline legitimate orders and you will struggle to prevent large-scale attacks.

Advantage:

When you screen every transaction, you can approve more orders while also stopping fraudsters in their tracks – which means you’ll be able to protect your merchandise, your reputation, and your hard-earned profits.

Every day, cyber criminals are trying new tactics to get past your fraud filters.

If you’re only screening transactions that get caught in your fraud filter, you’re going to miss what’s really going on with your business. This short-sighted strategy puts your business, your revenue, and your customer relationships at risk.

Screening every transaction enables you to look at the big picture across all incoming orders, so you can quickly spot what cyber criminals are trying to do – and stop them in their tracks.

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