E-commerce merchants might think they are too small, too niche or too well-known to fall prey to fraud. Today, fraudsters target businesses of all sizes and all verticals. They are becoming more sophisticated in the way that they launch and design their attacks. The first step to being proactive in e-commerce is fraud prevention.

It’s not always easy to tell the difference between legitimate and fraudulent transactions, regardless of whether fraudsters use phishing or pharming to obtain sensitive personal information. A robust fraud prevention program is the solution. This is a natural assumption. Fraud solutions can be as simple as address verification services or complex, multilayered managed services partners. It is important to choose the best fraud solution before you make any investment.

These are the fraud prevention options available to merchants. Learn how they work and what risks they pose to your e-commerce business.

1. Individual Fraud Prevention and Protection

Fraud prevention and protection tools, also known as “fraud filters”, are simple tools that can be used to automate the identification of fraudulent transactions. These tools are often integrated into an ecommerce platform.

There are dozens of options for these tools, including:

• Velocity filters are used to limit the number of transactions that can be submitted over a specified time period to a merchant’s websites.

• AVS (Address Verification Services) allows merchants to decline orders or request review for orders that don’t match the numerical parts of the shipping and billing addresses.

• Card verification value (CVV), which checks for mismatches between the CVV number of a credit card and the one entered at checkout.

• Merchants can use purchase amount filters to review transactions that exceed a predetermined limit.

Are Fraud Filters Effective?

Fraud filters are often very affordable. These tools do not provide a complete solution. Merchants often need to combine different tools to create a more comprehensive approach. These tools can quickly become obsolete and may need to be updated regularly. This may require some IT knowledge.

2. Case Management without a Decision

This approach allows merchants to create and layer multiple fraud filters and view consolidated information about every transaction. These tools can only assess the risk of each transaction, and provide information to assist with further analysis. They don’t make decisions about orders.

Instead, the layered fraudulent filters provide data to the manual reviewing team. The reviewer then has to confirm the legitimacy of the transaction before deciding whether to accept, decline or challenge the order.

Does case management work without a decision?

This approach is more informative than the tools-only one, but it still requires significant involvement with a human being.

This may not be an issue if a business has a team of experienced reviewers who are well-trained and have the necessary experience. This can be a problem for small businesses, companies that are growing quickly, and companies in high-risk sectors. It may also strain resources and cause employees to lose focus of their core functions. These fraud tools need constant data input to be effective. The tools can learn to recognize similar transactions if an in-house team is unable to accurately tag fraudulent or legitimate orders. This can lead to more fraudulent charges being incurred and legitimate orders being declined. This could prove to be just as harmful for a merchant than not having a solution.

3. Case Management with Decision

This advanced fraud prevention platform is more than just a way to consolidate and classify transactions. It also decides whether to approve or deny a transaction.

The case management tool can also be used to challenge an order using predetermined rules. This routed the challenged order to an in-house review team or an external team for verification.

Does case management with decision making work?

This approach has the same flaws and a new one. A case management tool that automatically declines high-risk orders can lead to many false positives, since the majority of them are legitimate. Incorrectly declining orders can cause damage to customer relationships and result in merchants losing revenue. It can also return bad data back to the system, which can further reduce performance.

Human analysts won’t be able to review and approve orders if they don’t have access to product knowledge specific for the company and industry. This can lead to higher charges and penalties, poorer customer service, and lower revenue.

4. Fully Outsourced Solution (Automatic decisions only)

This approach manages the entire fraud review process by using an outsourced solution that makes automated decisions. A fully outsourced case management tool makes all approve/decline decisions, while an internal fraud manager handles the day-to-today operations with third-party service providers.

Are fully-outsourced solutions with automated decisions efficient?

The biggest risk with this outsourced case management tool is that it will automatically decline significant numbers of legitimate transactions. This can lead to merchants losing sales and affecting customer relationships. This can also mean that bad data is being fed back into the system which could impact the quality of future orders.

Merchants could lose money if they don’t pay attention to and correct the way outsourced systems make decisions. This could lead to lost sales or fraudulent chargebacks.

5. Fully Outsourced Solution (Automatic & Manual Decisions).

An fraud managed service provider delivers services to clients and manages the results. The system automatically approves all orders that are received when they first arrive. Orders that are not black or white, i.e. orders where it isn’t immediately obvious whether an order is legitimate or fraudulent, are sent to a manual team for review.

This approach allows for quick decisions when possible (thanks in part to the smart use technology) and accurate decisions in all situations (thanks in part to the smart use manual reviewers).

Merchants can reduce the chance of losing sales and customer relationships by declining orders manually.

Are fully-outsourced solutions with manual and automatic decision making possible?

Merchants can now delegate the management of fraud protection solutions, including all the complexities and risks, to an experienced third party. Merchants benefit from a multilayered, comprehensive approach that is more effective and less likely to be declined. A managed service solution can quickly identify suspicious transactions and fraudulent patterns before they are processed. The fraud analysis is handled by fraud experts so merchants and employees can focus on the key elements of their business.

Merchants can use managed services to manage their main KPIs, and remove liability for fraud updates.

It is not easy to find the right fraud prevention service provider for your e-commerce company. However, the benefits are significant. The merchants experience reduced fraud, no chargebacks for fraud-related charges; fewer false deductions; and customers, investors, and employees are assured that the business is committed to protecting itself against fraud.