Is Your Fraud Protection Service Delivering?
E-commerce fraud can cost a business significant loss in both revenue and customers. A fraud protection service can drastically reduce these costs, but is it really worth the price? Before signing up for a fraud protection service or extending an existing contract, it’s a good idea to determine whether the service is delivering, by assessing its ROI, or return on investment.
E-commerce fraud might be more expensive than you think. According to the LexisNexis True Cost of Fraud report for 2019, every dollar of merchant fraud this past year actually costs businesses $3.13! Chargebacks911.com reports that friendly fraud will cost merchants more than $25 billion in 2020, or 1.47% of a merchant’s total revenue! This astronomical expense can be especially crippling now for all businesses that are struggling to remain afloat during COVID-19.
When merchants sign up for a fraud protection service, they are seeking solutions to the following problems, all of which are outgrowths of high rates of E-commerce fraud:
A competent fraud protection service will significantly bring down these costs and losses, boost revenue, and allow a business to continue on a path of projected growth and expansion.
Merchants generally need to walk a tight line between practicing aggressive caution which may decrease fraud but tends to alienate customers, and adapting a more relaxed approach which increases fraud but attracts customers. An effective fraud prevention strategy will allow a business to offer a friction-free checkout experience without increasing vulnerability for fraud.
When assessing the ROI of a fraud protection service, metrics like chargebacks and brand approval rates should be considered, along with the reversal of loss potential from factors like false declines, CLTV, and brand reputation. While these parameters can be difficult to quantify, they are crucial components of the ROI calculation.
To calculate the ROI of a fraud protection service, you will need access to the following numbers before deciding on a fraud protection service: Total online volume, approval rate, approval volume and chargeback costs. In addition, you must take into consideration additional staffing currently needed to clear any suspicious credit card payments.
For illustrative purposes if your business has $50,000,000 in total annual online volume with an approval rate of 87% that means that 13% of $50,000,000, or $6,500,000 in annual sales, are not being automatically approved, which can result in loss of those sales or additional manpower needed to approve those purchases. Thus additional payroll must also be taken into account when considering the ROI of a fraud protection service. Additionally, your chargeback costs represent an additional loss to your bottom line.
Next, recalculate these numbers as if you were to use a fraud protection service and measure the results against each other.
While the ROI of a fraud protection service will vary by merchant, it is not uncommon for businesses to see an ROI of upwards of 500%. You can calculate your ROI, using our ROI rate calculator.
FraudFix is committed to providing our clients with strong, dependable fraud protection that can strongly impact your bottom line. Your complete fraud protection is our only priority.