9 Key Benefits of Fraud Detection and Prevention

You may be wondering what the benefits of fraud prevention are. After all, fraud is just a part of business, right? And it may not be a big problem for you right now, so why would you need to start looking for a solution today?

Well, you may be missing out on some key benefits that go beyond simply stopping fraud and preventing future attacks. And a lot of those benefits boil down to one thing: driving revenue forward.


Generate more sales with good customers.

The main purpose of fraud detection technology is to detect bad customers. What’s less obvious is how you can use the technology to do more sales with the good customers once you know who they are.

You can use the data collected through the fraud detection process to understand your customers better – find out what their average cart value is, how often they shop with you, and the kinds of items they buy. So you can sell more often and with higher-dollar transactions to good customers.

For example, if your customer usually spends $100 with you, try sending a promo to get them to spend $150. That way, you gradually increase customer lifetime value (CLV). Or if the customer recently bought a couch, send a promo for an armchair or end table. Know what they need when they need it.

And the best part? With a fraud detection solution, you can make those decisions accurately with a lower risk of having good orders flagged as fraud.


Increase authorization rates.

An authorization rate, also known as an approval ratio or auth rate, is the percent of transactions that are approved through the authorization process.

When you submit a transaction for authorization, the cardholder’s issuing bank reviews the transaction and either approves or denies the request.

If you process a lot of unauthorized transactions, issuing banks will start to take note. They’ll label you as a high-risk merchant — and decline your authorization requests when they come in.

You want your customers to complete their transactions on the first attempt. Declining their transactions can lead to friction and cart abandonment. Plus, declining good orders means you are missing out on all that revenue.

But if you have fraud under control and proper risk management in place, you can improve authorization rates. As a result, you can approve more orders, decrease customer friction, and earn more revenue.


Reduce reserve account requirements.

A merchant account reserve is money your acquiring bank or processor sets aside in case of emergencies. It’s similar to a security deposit for an apartment rental or collateral for a loan.

If you have a merchant account reserve, it’s probably because your payment processor thinks you’re risky.

But if you keep fraud risks down and reduce chargebacks, you can prove to the payment processor that you aren’t as risky as they assumed. And they might ease up on reserve requirements — thus, more revenue in your pocket.


Increase processing volume limits.

Processors reduce fraud risks by putting limits on merchant accounts.

For example, every transaction processed could potentially become a chargeback. The more transactions processed, the greater the risk of chargebacks. So processors will often set limits for maximum monthly transaction volume on merchant accounts to try to limit risk exposure.

Likewise, processors may also set limits for maximum monthly sales volume since high sales amounts mean high chargeback amounts.

These limits are good for processors — they reduce liability if something goes wrong with your business. But restrictions aren’t good for you — they can stifle your growth.

If you can minimize fraudulent transactions, processors may increase your volume limits. Which means more sales and more money in your pocket.


Improve customer satisfaction.

Your customers want you to care about them, especially when they build trust in your brand by opening accounts, collecting loyalty points, and purchasing your products regularly. But fraud can quickly damage that relationship and cause customers to mistrust you.

For example, if a fraudster breaks into customer accounts and steals all the loyalty points, those customers may put the blame on you for not adequately protecting their account. They may even stop buying from you.

But the benefits of fraud detection and prevention are that you can stop fraudsters from stealing your customers’ personal information or loyalty points attached to their accounts. Thus, you provide a better customer experience.


Protect your business’s reputation.

Fraud can do some serious damage to your brand reputation. Think about how the public responded when a popular social media platform allowed users to falsely claim the identities of big businesses. This event damaged the reputation of the platform and plummeted the price of many businesses’ stocks.

All it takes is one fraudster breaching hundreds of customer accounts or a few unhappy customers leaving terrible reviews because their payment card numbers were stolen to disrupt the reputation you have spent years crafting.

The worst thing for your business is letting a fraud problem go viral. But a fraud prevention platform reduces the risks of you ever seeing your company’s name publicly spoiled because of fraud.


Prevent chargebacks.

Fraud can result in unauthorized transactions. Unauthorized transactions can result in chargebacks. And chargebacks can be costly.

Chargebacks can cause you to sacrifice revenue, lose merchandise, face fees, experience lowered bank authorization rates, risk enrollment in a monitoring program, and encounter a host of other hidden costs.

But preventing fraud means you prevent the resulting chargebacks. And preventing chargebacks means you retain more revenue, avoid damage to your brand and reputation, avoid threshold breaches, and reduce administrative hassle.


Avoid monitoring programs.

Too many fraudulent transactions and high chargeback rates can land you in a monitoring program, of which there are two types:


These programs are designed to incentivize you to reduce fraud and chargebacks, but they come with a lot of drawbacks — increase in fees, added fines, and loss of payment processing capabilities — to name a few. And if you don’t prevent fraud, you could end up in one or both monitoring programs.

Avoiding these programs will ultimately save you a lot of money and could prevent business closure.


Retain payment processing capabilities.

Card brands and payment processors carefully monitor various risk metrics, such as fraud ratio, chargeback ratio, and more. Because your risky business practices could increase risk for them.

If your risk levels increase too much, they could decide to stop doing business with you. And they would close your merchant accounts so you couldn’t process transactions.

But merchant accounts are valuable business assets. They are difficult to obtain, involve a lengthy underwriting process, and many applications get denied. You can’t afford to lose an account once you’ve worked so hard to obtain it.

In short, you want to protect your merchant account at all costs. And keeping fraud risks in check is vital towards maintaining a good partnership with a merchant account provider.


The Importance of Fraud Prevention and Detection

The benefits of fraud detection and prevention all boil down to one important thing: more revenue. If you don’t do anything to detect and prevent fraud, you will lose a lot of money. But if you prioritize fraud detection and prevention, you’ll increase revenue and grow your business. Ultimately, the investment has substantial ROI.

Create a Fraud Detection Strategy and Start Benefiting Today

There’s no time to waste. The longer you wait to implement a fraud detection and prevention strategy, the more money you lose and more reputational damage your business experiences. Wait too long and you might not recover.

If fraud management is a new topic for your business, our partner Kount® can help.

Kount’s fraud detection and prevention technology platform helps businesses manage a variety of risks. Whatever you’re dealing with — identity verification, payment fraud, compliance issues — Kount can help. And they make sure you get the most out of your fraud platform, going beyond fraud detection and prevention to help you generate more sales and increase revenue.

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