To buy or not to buy – when it comes to fraud defenses, that is the question. While organizations once had no choice but to build their own teams, today there are plenty of options for fully outsourced fraud management and prevention solutions. It is up to each organization to weigh the pros and cons of each strategy.
To do so, however, they must first understand the true hidden costs of building their own solution. It may seem like the cheaper or better option upfront, but often has a funny way of becoming the more expensive one in the long run.
That’s what KC Fox, Radial’s VP of payments, tax and fraud, has observed, and it’s the key takeaway from the company’s recent whitepaper. Here are some of the top items Fox says in-house fraud teams often overlook.
- There’s more to fraud management than you think. It’s not enough to hire a few experts to look at things, set up a solution and go. Because fraudsters’ strategies are constantly changing, so must merchants’ defenses, and that requires constant attention and upkeep. Whose job will it be to stay on top of that? At what point is it eating up too much of their time, costing the company in labor expenses? Plus, said Fox, a one-time solution reveals nothing about trends. Hiring a separate analyst to track those trends is another expense.
- How much time will your team have to spend on manual review? Because in-house teams have only their own data to work with, they often end up reviewing as many as one in four orders simply due to a lack of historical data on customers. A third-party solution may come with a higher initial price tag, but it’s not long before the labor costs of a DIY solution surpass it. Meanwhile, third-party providers aggregate historical customer data from several sources, so fewer transactions get flagged for manual review, since the customer’s habits are known.
- What you don’t know CAN hurt you. Speaking of data, only having access to in-house data leaves organizations with a massive blind spot. Third-party solution providers watch activity across multiple segments and sites, so if fraudsters launch a cross-site attack, they’ll know about it much sooner than an individual merchant could figure it out.
- How will you handle the holiday rush? Merchant volume can easily increase by 100 percent during the holidays. That’s two months out of the year during which the company must be able to process unpredictable volume, still catch as many fraudsters as possible and keep things simple from the consumer’s point of view. Introduce too much friction, and stressed-out, impatient customers are sure to take their Christmas, Hanukkah and other holiday shopping elsewhere.
- Who is liable for fraud that slips through? When a company manages its own fraud defenses, it is responsible for all fraud losses – and don’t think it won’t happen. Radial and other third-party fraud solutions stand by their risk decisions, so if a transaction they deemed safe turns out to be fraudulent, it is the third-party solution provider – not the merchant – who pays.
From Radial’s perspective, those five factors are reason enough to hand the job over to an expert team that does 24/7 fraud monitoring, 365 days a year, with total merchant indemnification. But the most important thing, according to Fox, is knowing what you’re getting into.
Fox said, “Before you build versus buy, understand the true cost and risk of building your team.”
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