5 Questions To Ask Before Investing In a Fraud Prevention Tool

Choosing fraud prevention software for your business is a very important process that requires precision and accuracy, as any mistake can cause financial losses and a bad image for your business. Fraudsters are regularly developing new strategies to illegally access customer data and perform transactions without their consent. To keep up with these ever-evolving trends, fraud prevention tools are regularly updated with new features and fraud detection solutions. Therefore, businesses need to ask the right questions to avoid investing in the wrong tools.

In this article, 5 important questions to ask before investing in fraud detection software have been compiled to assist e-commerce businesses in making the right choice.

Question 1: What Types of Fraud Can Your Tool Detect?

The best fraud detection tools for businesses can detect multiple types of fraud. Tools that focus on just one are not effective, as fraudsters can take advantage of this. Some types of fraud are;

Card Fraud

Card fraud occurs when fraudsters collect the card details of an individual and use them to perform transactions. The techniques commonly used are;

1. Card Skimming: This involves the use of malicious devices to collect the card information of users during legitimate payment transactions. This information is later used by the fraudsters for transactions..
2. Phishing: Fraudsters use emails and text messages to deceive individuals into sending their personal details.
3. Data Breaches: Illegally gaining access to the database of financial institutions to collect the credit card information of customers.

Account Takeover

Account takeover (ATO) occurs when fraudsters illegally gain access to a customer's account. The techniques commonly applied are;

1. Credential Stuffing: Here, the login details of customers are stolen and used to log in and perform illegal transactions.

2. Phishing: Individuals are convinced to send their personal information through fake text messages and emails.

3. Password cracking: Weak passwords are guessed or cracked by fraudsters and used to perform transactions without the knowledge of the customers.

Chargeback Fraud

Chargeback fraud occurs when a customer makes a purchase with their card and disputes the transaction later, and requests a refund. It may be in the form of friendly fraud, where customers dispute legitimate transactions, or criminal fraud, where fraudsters perform transactions and dispute them.

Synthetic Identities

These are fake identities created by fraudsters using real and fictitious information to commit financial fraud, such as account opening, loans, or unauthorised transactions.

Affiliate Fraud

Affiliate fraud occurs when individuals or organisations take advantage of the affiliate marketing programs to generate income illegally. This can include generating fake referrals, adding affiliate cookies to users' computers without their knowledge, or convincing customers to sign up for illegal services.

Question 2: How Accurate Is Your Detection System?

A fraud detection system should be accurate at all times and not give false positive or false negative results. False positives occur when the system identifies a legitimate transaction as fraudulent, leading to wasted efforts, investigations, and time. False negatives result when the system is unable to detect a fraudulent transaction, resulting in undetected fraudulent activities.

Other questions to ask before investing in fraud detection solutions are;

Detection Rates

A good fraud prevention tool should have a high rate of true positives and negatives and less of false positives and false negatives. A fraud prevention tool with a high detection rate is more effective and should be selected.

Machine Learning Models

Advanced machine learning algorithms can analyse complex patterns in datasets and adjust to new techniques of fraudsters.

By choosing fraud prevention tools with these features, businesses can reduce the risks of false results.

Question 3: How Easy Is Integration With Our Current Systems?

Integration is key for excellent risk or fraud management tools. A good fraud risk management tool should be compatible with the e-commerce business, easy to implement, and maintain.

API-first tools

The best fraud prevention tools for businesses are API-first tools as they are easy to integrate, connect with the systems and customize to ensure they suit the needs of the business.

Compatibility

When choosing fraud prevention software for your business, it should be compatible with payment processors like Stripe, or PayPal, CRM systems like Salesforce or HubSpot, to manage customer data and e-commerce platforms.

Generally, when choosing fraud prevention software, ensure you select API-first tools with short setup time and less dependence on information technology for processing and managing information, as this makes it more complex and difficult to maintain.

Question 4: What Level of Transparency and Reporting Do You Provide?

The transparency of a fraud detection tool is also an important question to ask before investing in fraud detection solutions. Some important factors to consider are;

Real-time Dashboards vs. Black Box Results

Real-time Dashboards allow businesses to monitor the transaction process in real-time and take adequate measures immediately if a fraudulent transaction is detected, while Black Box does not allow businesses to monitor the transaction process, making it difficult for them to take the right steps in tackling the flagged transactions. To effectively prevent fraud, businesses need to know why each transaction was flagged so they don't take the wrong actions.

Reporting Granularity

Some fraud detection tools provide businesses with all the information relating to the transaction activity, including information related to flagged transactions and reasons for flagging. Alternatively, they allow businesses to select the information that they want to be provided with.

Fraud Scoring

Fraud risk management tools assign a particular score to each flagged transaction based on the tendency to be fraudulent. When attaching risk scores, the fraud detection tools either inform the businesses of the reasons behind each score or just assign a score without providing reasons, making it difficult for businesses to make decisions. Ensure you look out for tools that inform you of the reasons behind each action.

Audit Trails

Fraud prevention software maintains records of all the transactions flagged and declined, as well as the decisions taken and the reasons for such decisions. This information is provided to businesses to ensure accountability.

Question 5: How Does Pricing Work, and What's the ROI?

Businesses also have to make enquiries about the pricing plans and choose the plan that fits their budget and the size of their data.

Pricing Models for Fraud Prevention

1. Per API Call: The price of some fraud detection software is based on the rate at which API calls are made, and this varies with the size of the business.

2. Per Transaction: Some fraud prevention tools charge according to the number of transactions made, so small businesses don't have to pay a fixed amount even when the transaction volume is low.

3. Flat Fee: Some fraud prevention tools charge based on the specific period, which may be per annum or per month, and regardless of the number of transactions processed, businesses have to pay the same amount.

Aside from the pricing plans, some other charges are not stated clearly, and you need to ask when choosing fraud detection solutions. This includes;

• Support Costs: Some fraud prevention tools charge extra whenever they offer additional services like troubleshooting or maintenance.
• Scaling Costs: As you expand your business, some fraud prevention tools may require additional payment.
• Add-ons: Whenever additional features are implemented or services are added, some fraud prevention tools request extra payment.

The best fraud prevention tool for your business is one which effectively balances the cost of services with the budget of the business and provides accurate security.

Optional: How Often Do You Update Your Fraud Rules & Databases?

This is a very important question to ask when choosing a fraud prevention software for your business, as fraudsters are regularly developing new tactics to collect customer details and steal funds.

A good fraud detection system should be updated regularly to keep up with the evolving trends. The frequency of updates is dependent on the technology employed and the volume of data. Ensure you enquire about how regularly this is done, either daily, weekly, or monthly.

Conclusion

Investing in a fraud prevention tool is a critical decision for any business looking to safeguard its assets and maintain customer trust. By asking the right questions, such as the tool's effectiveness, ease of integration, scalability, support and training options, and the overall cost versus benefits, you can make an informed choice that aligns with your organisation's needs. Providers like Greip offer comprehensive solutions that address these key considerations, providing businesses with robust fraud prevention capabilities.

With Greip, you can ensure that your investment not only protects against potential threats but also enhances your operational efficiency and peace of mind. Ultimately, taking the time to evaluate these factors will empower you to choose a fraud prevention tool that not only meets your current requirements but also grows with your business in the ever-evolving landscape of digital security.

References

Don't Let Them Win: Empowering Strategies to Prevent Account Takeover (ATO) Attacks

Chargeback Fraud: The Silent Killer of E-commerce Businesses, and Here's How to Stop it

Credit Card Fraud: Key Types and Prevention Methods for Businesses

5 Different Types of Payment Fraud and How to Prevent Them