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About the Author
P.J. Rohall is a Fraud Subject Matter Expert with Featurespace. He has 15 years of professional experience, over half dedicated to mitigating fraud in various industries. He cut his teeth in the high-risk card-not-present environment, helping merchants drive down fraud rates while establishing a frictionless customer experience. P.J. also co-founded about-fraud.com, a website dedicated to educating a global community of fraud prevention professionals. His industry experience and knowledge helps inform Featurespace's suite of fraud products, ensuring alignment and innovation across a wide range of fraud use cases.

Online Fraud Management: What You Need to Know

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Managing online fraud is one of the most challenging tasks for any business owner. You have to prevent and respond to potential threats while maintaining the quality of your customer experience. In this article, I’ll break down the most common online threats business owners face. I’ll also share some essential best practices to help business owners stay calm in the face of these threats.

 

Multiple factors make online fraud management challenging


Online fraud management is complex and challenging. Every channel or online platform your business operates in provides a potential avenue for fraudsters. Fraudsters are provided the anonymity and global scale they desire. The growth of mobile devices creates a glut of access points for fraudsters to take advantage of end users.

 

At the same time, as a business owner, you're constantly driving toward a faster, more convenient experience for your customers. The need for security and authentication can add friction to the user experience.

 

All of these factors create a very challenging environment to stop fraud.

 

Fraud comes in many flavors


Where do you start to create a robust system to prevent and manage online fraud? At a high level, it's helpful to distinguish between transaction fraud and more complex account-based fraud attacks.

 

Transaction fraud is one of the most common types. This is when a fraudster gets a hold of payment information, such as a credit card number, and uses it to perform an unauthorized transaction for monetary gain. This type of fraud often results in chargeback disputes.

 

For the business owner, such fraudulent transactions create a liability risk. Where this liability falls – for instance, on the retailer or the bank – can be complex. All business owners must therefore understand how to prevent transaction fraud and who’s liable when fraud occurs.

 

Transaction fraud is a big issue, but attacks can be more painful and complex as you move upstream from the transaction and into account-based fraud. This is where fraudsters leverage compromised identity data to take over an existing account or create a new one. These accounts can include credit cards, mortgages, and other types of loans.

 

Recent, well-publicized data breaches have provided plenty of ammunition for fraud attacks. In addition to data breaches, social engineering is a popular method for fraudsters to get their hands on sensitive information. These attacks, such as phishing and call center fraud, have led to a rise in account-based fraud.

 

In social engineering attacks, fraudsters try to influence an end user to perform a desired action, such as divulging personal information or executing a financial transaction that benefits the fraudster.

 

Understanding these fraud categories is a good start, but it's important for businesses to dive deeper into all the fraud types, especially as they relate to their specific industry and line of business. This is a great opportunity for business owners to do their research and connect with others who fight fraud in their industry. That way, they can understand the most common and dangerous fraud use cases for their business. And crucially, they can then take steps to mitigate their fraud risk.

 

Feeling overwhelmed by fraud? Here’s what to do


If you haven’t taken steps to manage your business’s online fraud risk, it may feel daunting. And even if you have a fraud management system in place, you can’t sit still. Technology is evolving rapidly, fraudsters are becoming savvier, and new forms of fraud may be on the horizon.

 

Fraud prevention is a cat-and-mouse game, so how do you put a solid system in place and stay on top of it over time? Here are a few best practices.

 

  • Make sure you have basic systems, policies, and procedures in place to monitor and mitigate fraud. Whether combatting transaction fraud or more complex use cases, you need to build out a baseline fraud prevention strategy.
  • Learn. Learn. Seek out content about fraud use cases and solutions in your industry. This can come in form of white papers, blogs, podcasts, publications, webinars, and conferences. Folks learn differently and have varying access to these resources, but there is something out there for everybody.
  • Speak to peer companies to share knowledge and best practices. Even in a competitive environment, fraud prevention can bring businesses together because everyone’s fighting the same fight.
  • Understand your options for fraud solution providers. There are many fraud solution providers out there, all with different functionality and focus. You can find a list of potential providers at About-fraud.com.
  • Once you've done your research and vetted your options, set up a plan for where you want your fraud management system to be in the future. Then set clear milestones and KPI's against that plan. Oh, and if in your research you didn't learn about the KPI's –for sure go back to the research stage!
  • Don’t become complacent with your learning or your fraud management solution and strategy. Fraud attacks are evolving rapidly, and it's essential to stay informed about new trends and mitigation options.
  • Balance fraud management with customer experience. The more friction you add to your users’ experience – whether it's declining an unauthorized transaction or introducing cumbersome verification methods – the less patient they’ll be.

Finally, be mindful in your pursuit of a fraud-free business. The fast-changing mix of threats, technologies, solutions, and buzzwords is more than any one person or business can easily grasp.

 

Remember, you’re not alone. Connect with others in your industry and ask for help. You can stay curious and informed about the best ways to tackle fraud in your business without being perfect.

 

Unleash your curiosity and be tenacious. In the end, planning and action wins out over paralysis from analysis. Here’s a mantra I love to tell clients, “A little of something is better than a lot of nothing.”

 

Keep learning. Keep doing. And stay vigilant!