Security & Fraud

Why Fraud Doesn’t Have To Be The 'Cost Of Doing Business'


Most retailers have been conditioned to think that fraud is simply an unavoidable cost of doing business. And their budgets reflect that. Forter Cofounder and CEO Michael Reitblat tells Karen Webster that’s simply an antiquated way to look at fraud — a perspective which doesn’t challenge fraud prevention providers to do better. What might ‘better’ look like? Like giving retailers a way to manage the amount of revenue lost to fraud year in and year out to a nice round number: zero.

Retailers have been conditioned to think that fraud is simply an unavoidable cost of doing business. And, year in and year out, they factor into their budgets whatever percentage of sales they are comfortable writing off due to not only fraud but also fraud prevention, which has traditionally been strongly risk-averse and often blocks good sales, as well as fraudulent ones.

Merchants have essentially accepted the fact that they will just keep losing money to fraudsters, no matter how they try to beat them back.

But Michael Reitblat, cofounder and CEO of Forter, thinks that’s a backwards way of looking at fraud and invests $20 million a year in technology to support an entirely different conversation. Like how to help retailers manage fraud to a nice round number — zero — which essentially (and overnight) puts back to their bottom lines the cost of sales that they once wrote off.

Essentially, we’re talking about turning fraud from being a cost to becoming a revenue lift.


Where Fraud Really Hurts

For many merchants, Reitblat said that the fear of fraud actually causes more harm than the fraud itself.

As Reitblat pointed out, retailers invest a lot of money and effort in marketing their services, building their brand, acquiring customers and optimizing the purchasing tunnel and user experience on their sites.

But in an effort to prevent fraud and safeguard their business, businesses tend to overreact or have too many defenses or frictions on their website to try to suss out the good guys from the bad ones. In the process, they turn away a lot of good business, Reitblat explained.

In order to really drive revenue, the fear of fraud has to be eliminated.

Starting with, Reitblat said, taking the fraud — and, therefore, the fear of it — off the hands of the retailers so that they no longer have a reason to fear it. It’s no different, Reitblat said, than outsourcing the many other things that any business doesn’t count as its core competency. That’s the business that Forter has built — basically, enabling a retailer to outsource fraud detection, and then transaction authorization, to it.

When that happens, merchants typically see a huge impact to their business — and fast.

Where the fear of fraud stops, the revenue gain can begin.

Forter identifies this revenue gain for merchants in two distinct ways: losing less to successful fraud, such as fraud chargebacks and related costs, as well as the loss that stems from customers who have a bad experience with the retailer, such as a false decline or a flagged transaction.

"Almost magically, from their perspective, their sales go up by 5 percent,” Reitblat said.

That number is often a big chunk of legitimate customers that are now able to proceed with transactions because they aren’t being mistakenly flagged or declined. Customers can easily be turned away from overly conservative fraud prevention policies and systems, which typically result in those negative shopping experiences.

Reitblat said that, in a recent conversation with one of the country’s top huge retailers, the company noted that its biggest apprehension in preparing for the upcoming holiday season wasn’t the cost of fraud but the angry emails it receives every year from customers telling it they’ve ruined Christmas because they weren’t able to purchase the products they needed in time. This is often the result of stepped-up authentication that is required during a busy season, which delays the time in which a purchase authorization and confirmation can be made.

The retailer said that, once a customer sends a "thanks for ruining my Christmas” message, it’s likely that they are gone for good, and even worse, they’ll likely spread the word about their bad experience with the merchant.

"Every retailer is trying to do everything in their ability to try to make as many people choose their site to make a purchase. In the case that they’ve done everything right — the marketing, the site experience, the product selection — and then they interfere with the checkout process with a good customer, that’s painful for everyone and often results in a lost customer — sometimes, for life,” Reitblat explained.


From Loss Prevention To Revenue Generation

With a more accurate fraud prevention system in place, successful fraud coming through — such as fraud chargebacks and related costs — is one less thing merchants have to worry about. Accuracy both cuts fraud and eliminates friction and delays for good customers.

Reitblat said Forter’s merchant customers see results, literally overnight, from no longer approaching fraud as if it’s just a normal part of doing business. By allowing retailers to do what retailers do best, they have the time and the resources to invest in creating the best and most optimized online experience for their customers.

But it’s not just about shifting the burden of fraud to Forter. Forter also helps to point out other ways a merchant may be hurting its chances to close a sale when it matters most. Things like not alerting customers that they don’t ship to certain locations until after they’ve attempted to check out or not accepting certain payment methods because it’s too risky.

This means that a merchant also no longer has to pass on new technologies or advanced services for fear that they might spike fraud. More importantly, it can also help merchants to stop treating its best and most loyal customers like they were the fraudsters they are trying to keep out of the virtual front doors.

"We are helping to optimize the user experience, not just on the website but at the checkout, at the very low end of the [payment] tunnel, where it's the most painful to lose customers,” he explained.



New forms of alternative credit and point-of-sale (POS) lending options like ‘buy now, pay later’ (BNPL) leverage the growing influence of payments choice on customer loyalty. Nearly 60 percent of consumers say such digital options now influence where and how they shop—especially touchless payments and robust, well-crafted ecommerce checkouts—so, merchants have a clear mandate: understand what has changed and adjust accordingly. Join PYMNTS CEO Karen Webster together with PayPal’s Greg Lisiewski, BigCommerce’s Mark Rosales, and Adore Me’s Camille Kress as they spotlight key findings from the new PYMNTS-PayPal study, “How We Shop” and map out faster, better pathways to a stronger recovery.

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