2 MINUTES ON FRAUD: EPISODE 18
False Positives Are a Pain in the Profits
Melayna Gabiou: The key is to find reasons to approve an order not find reasons to decline an order. Right now one of the biggest challenges for merchants are false positives. Call them sales insults, false declines, false positives. It's when you decline an order due to suspicion of fraud, when in fact it turns out to be a legitimate order. They can very negatively impact your business. One, you have immediate revenue loss. Two, you can lose that customer lifetime value. Three, you lose the acquisition cost it took to gain that customer. And four, your brand image suffers.
So how do you protect your business from this hit to your bottom line? Make sure that you are using a fraud management solution that allows customization and the ability to add chargeback information into your order history. So looking, back at your orders, looking back at any chargebacks that may have come through, will allow you to see where those chargebacks are coming from, and why they may have occurred. Using a fraud management solution that employs machine learning can also help reduce false positives. It allows that tool to find what looks like a good order versus a bad order. Finding reasons to approve an order versus finding reasons to decline it.
An example of this customization use case would be for a direct selling company. So direct selling companies have members or brand ambassadors that help sell their product. So often times they will host meetings and they'll allow consumers to test the product. They'll allow them to see if it's something they want to buy, and it often times will result in a large purchase. And to an average e-commerce company, that single device with multiple payments at high velocity can often be an indication of fraud. Where in this use case, a direct selling company, that's their best consumer.
So it's important that your fraud management solution allows that customization, so they're not subject to a high false positive rate. Take the time to measure your false positives, find out the cost or impact to your business, and then how you can reduce them.
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