Let this number sink in. For every fraudulent charge that is blocked, five legitimate purchases are prevented. These false positives cost businesses millions in revenue every year.
But the problem goes further than this. Today, it’s increasingly important to provide a seamless payment process for your customers, so a wrongly declined credit card purchase may lead your customers to look elsewhere to spend their hard-earned cash.
How can you prevent this? PYMNTS, in collaboration with Stripe, studied 250 heads of payments in their Payments 2022 Playbook series to determine where the industry is and where it’s heading.
The Real Costs of Fraud
There’s no doubt that fraud can be costly. Online businesses therefore have a strong interest in ensuring their fraud detection systems are robust. But, it’s a careful balancing act as false positive occur far too often. In fact, they occur more often than actual fraud, and, as a result, they do more damage to businesses bottom lines.
On average, businesses spend, at a minimum, 2.2% of their annual revenue on fraud-related costs. As false positives are the chief drivers of these costs, 30.4% of respondents consider false positives their main friction points in their payment processes and 22.4% consider false positives a greater operational challenge than getting new features to market.
The Fight Against Fraud
To guard against fraud, digital platforms have been throwing everything they have at the problem. They currently employ six to 10 payments team members, have an average of 2.7 processing relationships that support six payment methods, and 80% of them have at least two vender relationships to support the payment process.
Despite all these measures, very few digital platforms believe their fraud detections systems work very well. In fact, most of the respondents believe that their fraud-related measures are only somewhat effective.
Ironically, it appears that the more resources a business allocates to payment operations, the less likely it is to consider its fraud systems as effective. This emphasizes that digital platforms should be more strategic about how they combat fraud, instead of throwing more resources at the problem.
The study suggests that platforms are not making full use of the most advanced tools available to combat fraud. Contrary to what they’re doing now, strong fraud detection tools powered by advanced machine learning, should be integral parts of their payment processing platforms.
In addition, a payment processor should:
- Rely on a large global network that has vast customer data.
- Provide rich internal fraud metrics that can not only prevent fraud, but improve conversions and loyalty.
- Act as partners in operating sophisticated fraud systems and also offer assistance in dealing with chargebacks and other fraud-related issues.
In this way, that careful balance between preventing fraud, and lowering false positives is achieved.
Fraud is and will remain a significant problem for digital platforms for some time to come. However, having a payment platform that ensures bot seamless payment processing and effective fraud detection will be key in ensuring growth.