Risk Ident Online Fraud Forum: Managing Risk
Risk Ident hosted its first Online Fraud Forum in Hamburg towards the end of last year, attended by industry professionals from 60 different companies. In the third and final event of our mini-series, we analyzed how attendees responded to a survey on managing their fraud issues and how much they are spending on fraud prevention in preparation for the future.
Over 85% of attendees indicated that they currently use in-house solutions for their fraud prevention. Nonetheless, some of these combine in-house solutions with external anti-fraud systems. Over half of the respondents make use of anti-fraud tools from their service provider, while less than half (around 45%) use third-party fraud prevention software.
The majority of companies are attempting in-house management of fraud, but how effective is it? Across all respondents, almost a third (29%) suffer, with a huge 5% of all transactions being fraudulent. Meanwhile, almost 40% of organizations have a fraud problem of between 3-5%. Fraud figures this high can cost companies millions of pounds, and suggest a worryingly high level of fraud. Especially taking into consideration that numbers this high can be prevented!
Anyhow, such high numbers can also indicate another costly factor in fraud prevention: false positives. These occur when fraud systems are not intelligent enough to combine multiple data sources and analyze them in combination in order to make a firm decision on whether a transaction is legitimate or fraudulent.
Fraud systems need to be overseen by knowledgeable fraud managers, supported by machine-learning technology that helps learn potentially fraudulent patterns, minimizing cases where genuine transactions are wrongfully identified as fraud and payment is declined. This leads to declining customer numbers and damages the reputation of the selling business.
With such a fraud problem, how are companies planning to adjust their spending on fraud prevention in the future? Almost a third (29%) plan a significant increase in spending, recognizing the return on investment in the long term, reducing fraud and increasing customer satisfaction for a stronger business. Half of the businesses plan a slight increase in expenditure, while around 20% either plan no extra anti-fraud funding or want to reduce spending.
Fraudsters, however, do not stand still and do not play by the rules when it comes to innovation. Standing still with anti-fraud practices hands the advantage to the criminals. It’s important to stay one step ahead of the fraudsters with the most modern artificial intelligence technology, supported by empowered fraud managers, to provide the defenses successful organizations need to grow in 2016 and beyond.