Fraud detection software companies and how to find the best solution
Since 2020, businesses have been in an “adapt to survive” mindset, adopting new e-commerce channels to meet consumer demand for online shopping. And bad actors haven’t been far behind. In fact, a Juniper Research study expected e-commerce fraud losses to top $20 billion in 2021 — an 18% increase from the previous year.
“The research found that fraudsters have targeted consumers as they have increased their eCommerce use, exposing insecure fraud mitigation processes from merchants who are unfamiliar and unprepared for the continuing fraud challenges in this market,” according to the company’s press release.
Unfortunately, businesses that don’t adapt stand to see fraud losses rise even higher. But that’s where fraud detection software companies come in. The best way to prevent fraud and fraud losses is to partner with a fraud detection company to establish risk and trust across the customer journey.
What is a fraud detection software company?
Fraud detection software companies provide a range of solutions that establish identity trust and protect companies from several types of digital fraud. In addition, these companies offer tools and resources to help companies across industries detect and prevent digital fraud. But that doesn’t mean fraud detection and fraud prevention are the same.
Fraud detection encompasses tools and techniques that fraud detection software companies use to detect acts of fraud and malicious activity. And it can happen at any point along the customer journey — i.e., account creation, login, payment, and dispute. Plus, companies can use these tools and techniques for data analysis, data mining, and rule-based detection.
Fraud detection software companies may employ machine learning fraud detection — supervised and unsupervised machine learning — to provide the best fraud detection solutions.
Meanwhile, fraud prevention requires companies to be proactive about fraud and malicious activity. Fraud prevention software companies help businesses build processes and maintain best practices for fraud prevention. Fraud prevention includes communication and awareness across departments, robust authentication tools, and other business process controls.
Fraud detection software companies can best help companies that do business or sell products and services online: e-commerce merchants, financial organizations, insurers, etc.
Overall, the best fraud detection companies deliver the following key benefits:
- They prevent losses from criminal and friendly fraud.
- They improve customer experiences.
- They reduce brand damage as the result of fraud.
- They protect critical business infrastructure.
- They accept more good orders and increase revenue by reducing false declines.
The leading fraud detection software offerings work in real time to deliver these benefits. Rather than reactively identifying fraudulent transactions, accounts, or attacks, they can assess risk continuously. And they can prevent different types of fraud that target vulnerabilities across the customer journey.
Types of fraud detection and prevention software
E-commerce businesses face many fraud types along the customer journey. And each attempts to identify and exploit weaknesses in business policies and operations. Overall, fraud detection and prevention companies may provide software that prevents fraud in three areas.
Account takeover fraud detection software
In an account takeover (ATO) attack, a bad actor attempts to access customer accounts and transfer or steal stored value. Account takeover losses are up year-over-year, so it’s essential to know how account takeover affects your business.
Most commonly, bad actors program malicious bots to test user credentials on targeted websites. In these credential stuffing attacks, bad actors can test thousands of known credentials. So it’s important to remember that ATO attacks can happen en masse and not just against a single customer account.
Fraud detections software companies may offer account takeover fraud protection that detects malicious and suspicious activity. Once it detects that activity, it can block the activity or block users with multi-factor authentication.
The benefits of account takeover fraud detection software include:
- Reducing friction for good customers.
- Stopping account takeover attacks.
- Detecting high-risk login behavior.
- Protecting customer data and stored value.
- Analyzing login trends to improve business policies.
Payments and CNP credit card fraud detection software
In e-commerce, “payments fraud” is also known as “card-not-present (CNP) credit card fraud.” In this type of digital fraud, bad actors steal credit card information and use it to buy products or services.
These fraudulent transactions often result in disputes, chargebacks, product losses, and chargeback monitoring programs. And, in some cases, it puts businesses at risk of losing the ability to accept certain payment types.
While credit card fraud is limited to payments made with a credit card, payments fraud can include other fraud schemes. For example, bad actors may practice promo abuse fraud and e-gift card fraud at checkout.
Fraud detection software companies may offer a digital fraud prevention solution to combat credit card fraud. These solutions use a combination of advanced AI, machine learning, and global network data to establish the level of risk or trust behind every interaction on an e-commerce website.
The benefits of credit card fraud detection software include:
- Automating decisions to reduce false declines.
- Assessing risk or trust accurately and in real time.
- Accepting more good orders and stopping fraud losses.
Friendly fraud detection and chargeback protection software
Credit card fraud software prevents fraud before a business authorizes a transaction. And friendly fraud detection software and chargeback protection software deflect disputes and chargebacks after a business authorizes a transaction.
Friendly fraud can be accidental or intentional. Unfortunately, both types of fraud are common, and both lead to chargebacks. In some cases, customers dispute charges they don’t recognize. But, in other cases, bad actors dispute legitimate purchases to obtain goods for free.
A friendly fraud solution uses post-authorization tools to help businesses intercept disputes and deflect chargebacks. Friendly fraud detection software may integrate with tools from major card brands that help businesses relay transaction details quickly. The faster businesses can relay information, the better.
The benefits of friendly fraud detection software include:
- Intercepting disputes and automatically relaying transaction details.
- Receiving chargeback alerts that give businesses up to 72 hours, in some cases, to act.
- Saving the sale and resolving the dispute.
- Giving businesses time to refund purchases pre-chargeback to improve customer experiences.
Every type of fraud can involve numerous schemes and tactics. In the face of so much variety, the best fraud detection software solutions focus on methods that don’t rely on detecting a single scheme or event. Instead, they detect underlying past behaviors and emerging fraud patterns.
5 key components in the best fraud detection software solutions
Many fraud detection software companies offer specific, advanced tools to detect risky behavior and prevent fraud in real time. A 2020 Aite Group report outlined several key considerations when selecting a fraud detection software company. Among them, Aite Group rated the following as of high importance.
1. Machine learning and AI
The best fraud detection software companies use machine learning and AI to generate a risk score for each transaction. Machine learning is a form of applied artificial intelligence, which forms the core of advanced fraud detection offerings. Using two types of machine learning is essential for the most accurate risk detection.
Supervised machine learning uses data from past transactions to recognize signs of fraud or trust in the current transaction. This type of machine learning depends on existing data, so the historical data set must be vast and varied to be effective.
Unsupervised machine learning analyzes “normal” transactions to identify emerging fraud quickly. This type of machine learning isn’t bound by historical occurrences, making it helpful in preventing previously unknown fraud attacks.
2. Global network data
To make machine learning models work, fraud detection software companies need to train them on massive amounts of data. Supervised machine learning requires a high-quality data set that includes both known good transactions and known fraudulent transactions, according to the Aite Group report.
The right fraud detection software links signal data from billions of annual interactions. Even better if that data isn’t limited by industry or geography. Fraud and trust signals across geographies, industries, payment processors, and card networks support faster, more accurate risk evaluation.
3. A customizable policy engine
When a fraud detection software company offers a customizable policy engine, they allow businesses to adapt risk and trust policies to their industry norms or unique business models.
Having customizable policies means businesses can adjust their detection and prevention criteria for situations that might incorrectly block or permit an interaction.
Policy engines are helpful because businesses can customize policies for unique scenarios. For example, a business might adjust its policies according to call center orders or orders of certain quantities and dollar amounts.
Businesses can also adjust risk thresholds and set policies that allow the software to accept, decline, or hold a transaction for review automatically.
4. Alert management and an alert engine
When a fraud detection software solution finds a case of possible fraud, it may automatically decline the interaction. If a business has set up review policies, alert management capabilities would tell the business to review the interaction. A fraud analyst can then review the machine learning score and transaction details to make the appropriate decision within the software.
Meanwhile, an alert engine is a component of an alert management system. It supports communication between the business and consumer to confirm transaction details quickly and streamline fraud detection. It’s common for fraud detection software companies to offer alert engine capabilities within their friendly fraud or dispute and chargeback solutions.
5. An orchestration hub
An orchestration hub provides advanced data and analytics with integrations to third-party services. The collected data is easily digestible, so businesses can fine-tune detection accuracy and reduce false positives.
This data commonly includes information about devices, user behavior, email addresses, locations, and more. In many cases, fraud detection software companies will include fraud analytics capabilities in their platforms.
Kount: An AI fraud detection company that protects the entire customer journey
Kount is the industry-leading fraud detection software company for e-commerce businesses across industries. Kount’s platform uses AI-driven fraud prevention techniques to help businesses prevent emerging fraud, accept more good orders, and reduce manual reviews.
For example, one large retail organization saw $13 million in benefits over three years — and a 290% ROI — after implementing Kount’s solutions, according to the latest Forrester Total Economic Impact report.
Kount’s award-winning digital identity trust and fraud detection software, Kount Command, uses advanced AI, two types of machine learning, and networked data to establish risk or trust in real time.
Kount’s AI simulates an experienced fraud analyst. It weighs the risk of fraud against the value of the customer but on a faster and more scalable basis. Kount’s risk assessment produces a highly accurate Omniscore in less than 250 milliseconds for each transaction.
Businesses can use this safety rating to customize policies around which transactions they’ll automatically approve or decline. Kount Command also allows businesses to customize their fraud policies and comes with fraud analytics software built-in.
Kount’s fraud prevention software takes a proactive approach against fraud, stopping bad actors before businesses authorize transactions. But it isn’t limited to payments fraud. Kount’s solves several fraud use cases that prevent malicious activity across the customer journey.
Kount Control prevents account takeover attacks from bots and other activities. And the Dispute and Chargeback Management solution acts as a chargeback alert engine to help businesses intercept and respond to customer disputes post-authorization. Plus, one-on-one support from customer success managers and a range of consulting and policy optimization services make Kount the best choice for fraud prevention and detection.