Published March 9, 2018

Order fraud is typically seen as common online theft, where fraudsters attempt to end up with free goods or services (often via a stolen credit card). Unfortunately for merchants, it is also incredibly expensive to deal with.

In most cases, the loss of revenue might be the first thing that merchants see, but this only represents a portion of the overall problem. Once companies factor in their wasted time, possible shipping costs, and potential fees involved in the chargeback process, it’s clear that the true cost of fraud far outstrips the simple loss of goods or services.

In fact, in the worst-case scenarios, companies could face much longer-term consequences for high fraud rates, including potential harm to their reputation and the possibility of being deemed “higher risk” from their payment provider. That’s why according to some estimates, on average, for every $1 in fraud, businesses spend $2.67 in dealing with the problem (and in some cases, that number can be as high as $3.05). 1

These higher costs can also be commonly associated with larger companies, as they have a greater exposure to different threats and more associated brand awareness. But no matter what the size of the business, any company with a larger digital focus is more likely to encounter transaction fraud than companies that have most of their orders placed in brick-and-mortar establishments.

Ultimately, this is because transaction fraud is much easier to attempt with multiple stolen credit cards online, increasing the likelihood that at least one order will go through. As a result, Card-Not-Present (CNP) transactions have a higher risk factor and require stronger fraud prevention tools to detect all the different warning signs for a potentially fraudulent order.

However, as there are so many different stages in the transaction process and a variety of different risk monitors to watch for, a layered fraud prevention solution that can provide overlapping layers of security is essential to effectively reduce transaction fraud.

That is why, according to those same estimates:

“Those who layer... transaction solutions have lower fraud costs ($2.18 for every $1 of fraud) than others (up to $2.80 per $1 of fraud)” 2

- LexisNexis "2017 True Cost of Fraud℠ Study"

In order to effectively reduce the costs of fraud, businesses should find a solution that can effectively combine a number of different prevention measures to identify any suspect users.

Products such as NS8 Protect can help businesses verify a user’s identity, request SMS verification, and quarantine any fraudulent orders, which helps merchants to both protect their storefront and their bottom line.

References

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