Why a Dedicated Fraud Detection Solution Can Outperform an Integrated One

This guest post was written by Rafael Lourenco, Executive Vice President of ClearSale.

With fraud on the rise, it’s important for e-commerce merchants to ensure their business is protected against sophisticated scammers and hits to their bottom line. Many think the integrated fraud protection systems built into their payment gateways is enough.

But is it?

Probably not. In fact, an integrated solution might actually cause more harm than good. It’s therefore important for e-commerce businesses to understand the pros and cons of all the fraud protection options available to them.

The Price of Convenience

While having credit card fraud solutions integrated with a payment gateway might seem convenient for time- and resource-strapped online merchants, this convenience comes with a cost. Many merchants are finding that with this combination, they’re experiencing:

  • Automatic declines of “grey area” transactions. Payment gateways frequently automatically decline transactions that fall into grey areas — and neither the merchant nor the customer will know why. But it’s often because the integrated solutions typically incorporate simplistic fraud filter algorithms. While this tactic is helpful for quickly flagging questionable transactions, it also tends to flag numerous legitimate transactions as well. Not only does this result in increased false declines (also called “false positives”) for the merchant, this loss of legitimate orders can also prevent the merchant from aggressively growing sales.
  • Lack of a dedicated fraud protection dashboard. Because integrated solutions typically don’t offer an exclusive dashboard for fraud protection, locating and monitoring fraud data becomes significantly more difficult for merchants. And when they can’t quickly identify potentially fraudulent transactions, business owners find real-time fraud prevention to be nearly impossible.
  • Conservatively set fraud filters. Many integrated solutions require the merchant to customize their fraud filters, but striking the right balance can be difficult. When filters are set too conservatively, the number of false declines can skyrocket. Merchants must then loosen the filters to minimize the number of legitimate transactions being flagged yet keep them strict enough to catch any fraudulent purchase attempts.
  • Lack of a chargeback guarantee. While there’s no lack of fraud protection solutions promising to minimize chargebacks, there are few who will offer complete chargeback insurance (not limited chargeback protection) and a 100% guarantee.

Advantages of a Standalone Fraud Prevention Solution

One of the best ways to minimize these drawbacks is for merchants to simply implement a standalone credit card fraud solution that’s separate from the payment gateway. With no risk of layered fraud protection tools to interfere with outsourced services, a standalone solution can easily be integrated into other e-commerce solutions, ensuring businesses have comprehensive coverage and support.

Another benefit: Managed services solutions never automatically decline a transaction. Instead, they offer a final decision based on a comprehensive system and human analysis of orders. This combination not only minimizes false declines and catches fraudulent transactions before they’re processed, but it can also increase sales and improve customer relationships.

By shifting the focus of fraud and chargebacks off a merchant’s plate and onto that of the fraud protection provider, the merchant can go back to concentrating on its core business and serve customers. Businesses are protected on all channels — including web, mobile and telesales — even as fraud practices evolve.

And although integrated fraud protection solutions typically don’t offer 100% chargeback guarantees, ClearSale has been proudly offering this advanced, secure protection with its standalone solution for more than 10 years.

Selecting the Right Fraud Protection Partner

One of the biggest challenges to integrated fraud protection solutions isn’t preventing fraud — it’s ensuring that good transactions aren’t declined. Although retailers pay a significant financial price as a result of false declines — losing more money to them ($118 billion) per year than that lost to credit card fraud ($9 billion) — they also risk serious reputational damage. It’s reported that 32% of customers who experience a false decline choose not to shop with that merchant again.

It’s just not a risk that e-commerce businesses can afford to take.

Smart e-commerce solutions like Zoey understand that protecting businesses begins with providing standalone fraud protection solutions that won’t reject transactions outright — and that’s why they’ve partnered with ClearSale.

To learn more about integrating ClearSale’s Fraud Protection Solution into your e-commerce environment, contact a specialist today.

Leading smart people to solve complex problems in dynamic environments is Rafael’s signature skill. As ClearSale’s EVP, Rafael combines the company’s innovation-driven culture and emphasis on communication with a deep understanding of the statistical tools that underpin excellent fraud protection. From his base in Miami, he oversees ClearSale’s US anti-fraud operation by leading its commercial, statistical intelligence and IT teams and providing technical and executive management for all the operation’s employees. During his 8 years with the company, Rafael has also planned and executed ClearSale’s international business unit, directed ClearSale’s statistical intelligence area, and helped manage the company’s growth from 25 to more than 700 employees, including more than 500 highly trained fraud analysts. Rafael has a distinguished academic background. He earned his master’s degree in economics and finance at FGV-SP (Fundação Getúlio Vargas-São Paulo), one of the world’s leading policy and economic think tanks. Rafael holds a bachelor’s degree with great distinction in statistics from UNICAMP (Universidade Estadual de Campinas), internationally recognized as one of the top universities in Brazil and in the world.

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