• Navvir Pasricha

Fighting Fraud via Balance

2020 has been a time of upheaval and division, to say the least. Covid-19 has disrupted so much of how people live their lives that the impacts will be measured in the decades to come. One of the most common sights this year has been people protesting policies implemented for their own protection. These people aren't reckless or selfish as some have labelled them. They are, however, people who have felt the brunt of lockdowns and movement control orders. People whose jobs, businesses and livelihoods have been wrecked by the very same policies meant to keep them safe from a lethal virus. These people might be calling for an end to these policies but what they really want is a balance between public health policies and 'normal' economic activity.


Balance, much like Thanos wanted to achieve or what the Jedi wanted to bring back to the Force, is an ideal that governments, individuals and businesses should strive to. Yes, businesses too. Businesses have to find a balance be it a price point - where it is attractive to a customer yet delivers a decent profit or finding in staffing levels or even between enabling business and fighting fraud. The reality is that a business must achieve balance in order to succeed or, they will end up losing money.


Wait, why would that have anything to do with fraud?


To keep it short, it has everything to do with fraud.


Fraudsters want to make as much easy money as possible without getting caught. They can, for example, steal something from a store but that would mean they can get caught exiting the store. So they sacrifice some easiness for added security by stealing credit cards and using them to make purchases instead. This balancing act is how fraudsters are able to stay ahead of most fraud prevention teams. Similarly, when considering what to do about fraud, merchants have two choices:


  • Do nothing - Since the fraud isn’t hurting the merchant, why spend time and money trying to stop something that is doing them no harm?


  • Stop the fraud - Put in policies and procedures designed to dissuade fraudsters from trying to fraudulently purchase things from your store.


If a merchant is considering doing nothing, they should look at their overall sales numbers and compare that with how many ‘unauthorized transactions’ chargebacks they receive on a monthly basis. Should this ratio ever exceed, for example, 0.5%, the merchant should take steps to fight fraud before a credit card processor aka Visa forces them into an expensive monitoring program. What this boils down to is a merchant’s need to strike a balance between when to do nothing and when to take action.


However, if a merchant is considering stopping fraud, the balance changes as the merchant must then decide between increased security and the customer’s checkout experience.


Okay, but how does balance help fight fraud?


As mentioned above, fraudsters want to make easy money without getting caught. So any action that creates friction or makes it more difficult for them to achieve their targets will dissuade them from making ‘purchases’ from the merchant’s store. For example; In a physical store, a cashier could ask a customer for a photo ID to verify that the customer is also the registered cardholder. This act would mean that a fraudster now needs to have a photo ID that matches the name on the card they are using. This would make it more difficult for them to successfully complete the transaction and thus, dissuading them from attempting fraudulent purchases.


Sadly though, good customers will have the same reactions to these attempts at fraud prevention. Each good customer would have to show their identity card, wait for the cashier to be satisfied and then complete the transaction. This would create friction in the checkout process and so customers who don’t want to wait in lines, who have concerns about showing their identity cards or who just don’t want the extra hassle might opt to not purchase anything from the store.


Therefore, a compromise must be reached. The merchant needs to find a balance between stopping fraud and allowing good customers to complete the transaction. Without this approach, the merchant will need to face one of two inevitable situations; either they lose money to fraudsters or they lose money to competitors. The common ground? The merchant will lose money.


I see so what should I do to find this balance?


This might sound over-simplistic but the key to finding balance is introducing an element of logic to the situation. This means that a merchant should be implementing a few logical checks before deciding to ask the customer for photo ID for verification. The merchant could, for example, look at the name on the card and determine if it is reasonable that the customer matches the name on the card. For example; an Asian-looking female is unlikely to have the name, Shaquille O’Neil. Yes, maybe just maybe the O’Neil family adopted an Asian kid or that Mr O’Neil convinced his Asian wife to let him play the world’s longest-lasting practical joke on their daughter but this is so far fetched that the merchant shouldn’t really have to consider the likelihood of this happening. Yet, by applying this element of logical thinking both in-store and online transactions, a merchant could move towards finding the right balance to operate within.


In the online space, some logical checks can be put in place to sieve out potential fraudulent cases. A simple example of this would be: if the billing name and shipping name are different or if the billing address and shipping address are different. A more vigorous example would be to use data regression to find a correlation between reported fraudulent transactions and unusual email providers. All transactions can then be sorted out into two categories, confirmation or verification which will require the merchant needing to complete verification procedures before confirming the order.


While this method is both time and effort consuming, it allows merchants to find common elements of confirmed fraudulent transactions. The merchant can then look for all transactions that fit this fraudulent transaction profile and calculate how many transactions that fit this fraudulent transaction profile turn out to be fraudulent. If this number is high, say above 75%, the merchant can implement his verification procedure on all transactions that meet the fraudulent transaction profile.


Is there an easier way to find this balance?


There are two ways that this process could be simplified:


  • Using a risk engine - Merchants can use a risk engine with a visualizer that will consume all transactional data and give the merchant an easy to use interface to comb through the data and possibly conclude their data analysis.

  • Use Dicorm - With Dicorm, you don’t need to know how to extract data, how to perform any level of data regression or how to find the balance between fraudulent transactions and legitimate transactions. Dicorm will work with you to understand your needs, and to create a system that suits your business and empowers you to always be operating in perfect balance. Check out our packages now or contact us for more information.

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