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Fraud-as-a-Service: How to Wrestle It to the Ground

The Paypers | Steve Hoofring, TSG Senior Associate

For context, let’s assume John is ordering a high-performance exhaust, delivered to his neighbor, using a stolen card. He can sell it for USD 800 and has the order. His neighbour wants USD 100 for the address, which is a good win for him and his customers. Suzy also has a great business selling stolen children’s clothes from a top-five retailer. Using stolen checking accounts, she orders online and sells both locally and online, once she receives the goods.

Winning the battle of fraud is critical for your business. To do so it’s important to know your fraudsters. How many are there? Where do they live? Understanding their habits will help you win the battle. And, with Fraud-as-a-Service (FaaS) continuing to increase, especially in card not present transactions, it’s critical for your team to get close. Today’s fraudsters have become more professional and sophisticated. Using FaaS resources on the Dark Web and fraud-related blogs gives them access to more customer data, even comprehensive data like a social media profile, and they can impersonate more customers, more quickly to steal. And they will, as it is their job. Each day they get up and go to work, some in teams, just like you. So, study your losses closely. Learn their patterns and introduce that data into your fraud systems.

Work the data

There are always trends and recurrences. To help find and stop the fraudster, it is important to view the battlefield, not just the incident. Extract data, span timelines, and isolate by location or geography. Getting down to the details is important to avoid punishing good customers and catching the bad ones. Avoid being constrained by just the tools you have. Get the data, then use it to engage other resources to stop the behavior and build new tools. If you can change the economics for the fraudsters, they will be less likely to stay and will, eventually, move on.

A fraudulent transaction will cost your company up to 2.5 times more than the actual cost of goods and services. So, stopping fraud provides value to your organization that is not always immediately recognized. When you stop fraud in your organization, celebrate the victory. Globally, half the online businesses have experienced some fraud, so we are all in this together. Consider joining an organization like the Merchant Risk Council (MRC), where working together and sharing benefits all. Moreover, sharing your learnings helps other businesses win as well. It may be tough work, but it could also prove rewarding, especially since you will help building a stronger anti-fraud system that, ultimately, will benefit both end-customers and merchants.

Squeeze the middle

Eric’s Risk tool allows him to look at risky orders before they ship. His company ships his product quickly, but his fraud tools set some transactions to ’maybe’. It’s a ‘yes’ to the customer but ’maybe‘ orders are on hold until he releases them. If your tools put transactions into three categories – yes, maybe, and no – you should work hard and focus on the ’maybes.’ Not just confirming and releasing orders but determining why it was a ’maybe’ and how can you judge between it was right or wrong. More importantly, is finding why it is wrong. False positives can lead to serious impacts to your customers. Once, we declined a Prime Minister’s spouse at the airport. That call was not easy, but the experience taught us to really focus on the False Positives and ‘Squeezing the Middle’. What your company can do is dig into that data and see if you can use it to improve your tools. That’s what ‘squeezing the middle’ means – working around the transactions flagged as ‘maybe’ and determining whether they are legitimate or not. By doing so, merchants not only enhance their customer’s satisfaction rate but can also drive sale and become a most trustworthy merchants for customers.

It’s a journey

Today, there are great companies providing equally great services to detect and stop fraud. These companies have both the knowledge and data to help merchants fight it.

TSG has worked in both real-time and batch fraud tools to help businesses fight fraud. If businesses have a problem and lack the resources to stop theft, they should find the right vendors that can
help. When finding the right fraud prevention tool, it is important to take action as soon as possible since fraudsters count on merchants’ slow response rate and, once they find that gap, they will move as quickly as they can. Merchants should be nimble, efficient, and know their fraudsters.