How to Reduce False Positives in Fraud Detection

No one wants to turn away legitimate sales due to false positives. False declines on card not present (CNP) purchases can leave customers feeling accused and offended.

Let’s look into the causes of false positives, why they matter, and how you can minimize them while keeping interactions safeguarded against credit card fraud.

What are false positives in fraud detection?

False positives occur when a legitimate interaction is flagged as potential fraud, slowing the process and potentially eliminating sales. Left unchecked, inconsistencies in the tools you choose for protection could actively damage your company’s reputation and revenue.

How do false positives affect your business?

Any system that conducts screening processes will encounter false positives. Fraud detection and prevention tools protect purchases, logins, and other sensitive interactions, working to prevent false positives while keeping criminal activity at bay.

The costs of incorrect identification can add up quickly over time, resulting in lost revenue and dissatisfied customers.

By addressing the issue of false positives effectively, you can dedicate fewer resources to maintaining systems and instead focus on the rules and strategies that guide your business.

Proactively addressing false positives

If false positives are on your radar, it’s likely due to a spike in declined transactions. There are ways to identify where the problem lies and get ahead of the issue before it heavily impacts your customers or revenue.

Determine if you actually have false positives

The first step is to identify the source of your problem. Are you actually experiencing false positives, or is criminal fraud triggering warnings from your systems?

• Check your company’s current decline rates against historical averages. Is your decline or manual-review rate surprisingly high? If your transaction decline rates seem normal, even amidst a spike in transactions, it’s unlikely false positives are the problem.
• Consider other sources of spikes in declined transactions. Recent rule changes to accommodate seasonal sales volumes, promotions, or complaints regarding quality or logistics could be the source of the issue.
• Look for trends with declined interactions to see if they follow a pattern. If they all originate from a specific series of locations, contain similar identifiable information (such as device IDs, credit card numbers, or IP addresses), or show the same behavioral patterns across data points, it’s more likely you’ve been targeted by fraudsters.

Change the rules

Make changes and adjustments based on the feedback you receive from legitimate customers and the team handling manual reviews or chargebacks. Focus on high-risk interactions, those where preventing fraud and facilitating purchases matter most. Don’t be afraid to tweak rules settings, you can always change them back!

• Define what falls under low and high risk interaction categories for your business. This may be a specific sales volume or order subtotal, or it may rely on factors including location and activity based on the needs of your business.
• Determine where enriching or loosening rules might have the best impact and ROI. Make changes to machine learning algorithms to ensure rules aren’t too strict. Consider the acceptable level of risk associated with changing rules, and make adjustments specific to both high-value and everyday transactions.
• Work with your fraud detection and prevention service provider to further refine rules. Check transaction histories to see what rules trigger the most false positives. Continual testing over time should help hone in on areas where rules remain too stringent or too lax.
• Make sure your rules aren’t driving unnecessary manual reviews. Avoid overwhelming your team with manual review requests, which are time-consuming and prone to error. Rely on automated systems to handle low-risk, low-value transactions.

Before modifying your rules, check the existing system for any clear signs of anomalies that could influence false positive rates. Sandbox tests can reveal potential areas for improvement throughout the audit process. Run multiple tests with different credentials from different machines, and carefully monitor for triggers. Insert rule violations in tests to ensure proper safeguards remain in place.

Drive a team effort

There’s still no substitute for human judgment when working with such sensitive issues as false declines. Consider establishing a dedicated team for analyzing mid- to high-risk interactions, either as part of manual reviews or as a standalone audit group. Provide comprehensive training and access to the details of interactions so members can make informed decisions. Training should include how to:

• Recognize false positives and understand what fraud costs the company.
• Use review and monitoring tools to confirm instances of fraud or false positives.
• Report abnormalities that indicate false positives — including spikes in declines.

Update team members whenever special events might change the normal review process or you make manual rule changes. Fraud prevention is not a one-time process. Informed team members armed with the latest technology can make a powerful difference in fighting fraud while building better customer relationships.

Check your technology

Reducing false positives also depends heavily on the tools you use. The best fraud prevention system for your needs should simplify the handling challenges of fraud false positives. To help determine if you’ve got the right fraud detection system for your needs, it helps to ask:

• Does your technology make it easy to change rules? Agility is critical as you work to stay ahead of criminals and fraudsters.
• Can you customize the rules to solve YOUR problems? Customization is critical, tailoring results specifically to the needs of your business.
• Are changes made in real time? Threats of fraud constantly evolve. When you’re working to reduce your false positive rate, you need changes to take effect immediately, not on the next patch or scheduled update.

If your solutions provider doesn’t make it easy for you to do all this and more, maybe it’s time to switch.

Want to see how Kount combats false positives?

At Kount, we’ll work with you to ensure that the top thing on your customers’ minds is the excellent sales and customer experiences your company provides.

That means crafting custom-tailored solutions to combat fraud, and that’s how we provide robust protection with industry-leading results. Schedule a call with our sales team to learn more about how Kount's technology and experience can revolutionize your fraud management strategy. We’ll work through the complexity to strike the right balance for your needs.