Business

More CFOs Are Outsourcing Their Fraud Prevention

Serving as a CFO means wearing many different hats within an organization. However, developing and implementing the business’s antifraud strategy is increasingly taking center-stage.

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According to the Global Fraud Index, the total cost of eCommerce fraud increased 5.5% between Q2 2016 and the same timeframe the following year. Individual methods of fraud attack saw substantial increases in 2017; the number of identity spoofing victims increased by 8%, while account takeover fraud losses more than doubled, reaching $5.1 billion. Digital goods merchants suffered most, losing roughly $3.48 per dollar of fraud compared to $2.66 for retailers dealing in physical goods.

The overall costs associated with fraud averaged $15.5 million per merchant…roughly 8% of total revenue!

Part of the problem lies in increased opportunity and access to the means to commit fraud. Major risk factors here include:

  • High-profile attacks like the Equifax hack in September 2017.
  • Growth of IoT technologies in the market leading to greater data exposure.
  • The EMV liability shift, which led criminals to switch from counterfeit card fraud to card-not-present channels.
  • A general lack of understanding of eCommerce risk.

All these factors working together produce a “perfect storm” for fraud. In response, eCommerce CFOs are finally acknowledging that existing approaches to fraud prevention are not adequate. More than half of CFOs surveyed in 2017 say they’re likely to overhaul their antifraud strategy within two years’ time…and that increasingly means outsourcing it.

Why CFOs See Outsourcing as the Solution

Looking at CFOs in both brick-and-mortar and eCommerce environments, roughly 3 out of 4 say they have plans to outsource at least some of their fraud prevention efforts. 43% overall say they are “very likely” to do so…but that figure rises to 69% among eCommerce executives.

What’s driving this shift? Well, remember that the CFO’s primary responsibility to a business is to minimize loss and maximize revenue. With in-house fraud prevention, CFOs depend on a patchwork of departments during a transaction, and a breakdown at any point in that chain can lead to disaster. Though businesses traditionally tried to keep processes in-house whenever possible, it’s clear that in-house teams lack the expertise, bandwidth, and range of tools to address fraud effectively.

Fraud tactics and identifiers change fast in the eCommerce environment. That means in-house teams require constant training and ongoing education, and thus investing in new systems and software with each developing threat source. More and more CFOs find that outsourcing is both easier and more cost-effective. CFOs can get much more “bang for their buck” with service providers who specialize in fraud prevention, allowing them to redirect resources where they can be leveraged more effectively.

What to Look for in a Fraud Solution

Some decision-makers are still skeptical of outsourcing as a matter of transparency. They have trouble trusting third-parties with sensitive data. Plus, internal teams are more familiar with the specific processes and practices of the organization. CFOs don’t need to worry, though, if they perform due diligence in selecting a provider:

  • Expertise: Is the business recognized for expertise in the industry? Establishing thought leadership will weed-out “fly-by-night” businesses that overpromise and underdeliver.
  • Ask about PCI compliance: Is the service provider PCI Level 1 compliant (the highest level of certification)?
  • Agnostic: Technologies that are compatible with existing systems and tools can fast-track the integration process and prevent dangerous lapses in coverage.
  • Guaranteed Performance: Service providers should be able to offer a projection of how much they can produce in terms of revenue recovery.
  • Coherent Reporting: Without clear, targeted reporting, businesses have no oversight and no way to verify that the solution is working.
  • Ask About Broader Benefits: Can the solution in question produce added value? Can it provide better industry relations? Can it make other processes more efficient?

These are a few of the key points; however, each decision maker will probably have more specific indicators based on the nature of the industry and product category. They simply need to adapt their search parameters to fit their needs.

Article by Monica Eaton-Cardone

Monica Eaton-Cardone is an entrepreneur and business leader with expertise in technology, e-Commerce, risk relativity and payment-processing solutions. She is COO of Chargebacks911 and CIO of its parent company Global Risk Technologies.