Everyone who starts an online retail business hopes for growth and strong sales, and most new business owners take many steps to that end, such as digital marketing campaigns, working with influencers, and choosing the best shopping cart, payment processing, and shipping resources. One factor, however, is often overlooked.
Fraud protection is not only ecommerce's best safeguard against card-not-present fraud (which often targets new businesses), it's also an important part of preparing for sales growth. That's because if your company's fraud-screening process is designed for low order volume, it won't keep up when your shop catches on and your order volume rises.
Why overly simple fraud tools can lead to problems
Here's an example of how a company's fraud protection practices can get in the way of sales growth and even imperil customer relationships. Let's say a handbag company is selling premium bags online. The brand is young, and the handbag niche is crowded, so at first they're getting less than half a dozen orders a day. Because they're on a new-company budget, and because their order volume is so low, they're relying on the free fraud-screening tools offered by their payment processor and/or their ecommerce platform, plus manual review of flagged orders by an employee who's spending an hour or two per day on order verification.
This scenario can work at first, but it's not the ideal option for a small company selling premium goods. That's because when a company sells high-priced items like $300 handbags, even one fraudulent transaction can impact its cash flow, thanks to the cost of the lost merchandise, cross-border shipping costs, and chargeback fees. What's more, not all off-the-shelf fraud prevention filters are set up to handle high-value transactions; in some cases, they may flag every transaction, which can lead to a manual screening and order approval backlog. But even without CNP fraud in the startup phase, our handbag company has still placed its sales growth at risk because its fraud-screening process is not scalable, comprehensive, or continuously updated to reflect trends in fraud attack patterns.
Let's say our handbag maker gets featured in a celebrity's viral Instagram post, and orders for one design start pouring in. This is a great opportunity to earn more revenue now and to earn repeat customers by delivering great service along with each purchase. The bags are high quality and stylish. The checkout and shipping are fast. The customer service team is staffed with friendly professionals. The company thinks it's prepared.
Instead, order approval slows to a crawl. Then it grinds to a halt. As orders come in from more locations, some are blocked by free fraud-screening tools. If the fraud tools include auto-decline capabilities, valid orders may never even reach the manual screening stage to be verified. That's income lost and customers alienated. Other orders approvals can be delayed for hours or days because there's only one person handling manual screenings - and now she's doing that full time instead of a few times a day, which has pulled her off the customer service team entirely.
Suddenly, instead of a golden opportunity, the rise in orders may damage the young company's reputation, exhaust employees, and alienate potential customers-customers who may complain on social media. In addition, the increased exposure means fraudsters are more likely to target the shop, and they can usually work around all but the most sophisticated digital tools and up-to-date human expertise. Simple free tools and even the most dedicated customer service rep are no match for professional criminals.
How scalable, fully-outsourced fraud protection supports sales growth
To unblock the order bottleneck and save the company's moment in the sales spotlight, they decide to outsource their fraud protection to a company that focuses on nothing else. This service can scale up or down to screen orders quickly, even at high volumes, and uses its own team of trained fraud experts to validate all flagged orders by reaching out to customers in a timely and professional way. The results are that orders are screened and approved more quickly, and no orders are rejected without a manual review. The net result is more approved orders without a rise in fraud or chargeback costs.
That's because the new outsourced ecommerce fraud prevention tools include a combination of always-improving machine learning and human intelligence to keep pace with the latest methods that fraudsters use to attack online retailers. And if a fraudulent transaction does get through, the fraud-protection service, not the handbag company, is responsible for the chargeback fee.
Outsourced, professional fraud protection is a must for online retailers, and there's no reason to wait until sales volume spikes to seek it out. By choosing professional fraud screening early in the life of your business, you can protect and grow your revenue stream, maintain your brand's reputation, and let your employees focus on the tasks they do best, no matter how many orders are coming in.
About the Author
Rafael Lourenco is the VP of US Operations at ClearSale, a Card-Not-Present fraud prevention operation that protects ecommerce merchants against chargebacks. The company's flagship product, Total Guaranteed Protection, is an end-to-end outsourced fraud detection solution for online retailers. Follow on twitter at @ClearSaleUS or visit https://clear.sale/.