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Taking the time to consider the options for performing manual review is a good way to protect the two most important assets a merchant has: their customer and their brand.

This article from The Fraud Practice focuses on considerations for merchants related to performing manual reviews. The primary purpose of manual reviews is for merchants to be able to avoid losses and convert more sales, but merchants have several options in terms of how to implement and perform manual reviews. Considerations discussed in this article include:

Does a merchant walk away or plant their feet? Consider the option to review a percentage of high risk transactions in lieu of canceling the orders on the front end system.

Weighing the cost of fraud and deciding when to walk or hand the risk off to another party. Establish a baseline understanding of current transaction costs, then consider how this cost changes with manual review. This should be kept in the context of what could be gained by reviewing and ultimately converting the order, which of course depends on the dollar value of the transaction in question.

Outsourcing manual review shouldn't be viewed as a binary, all-or-nothing decision. Often a hybrid solution of in-house and outsourced resources makes the most sense.

The merchant maintains control. When it comes to managing their risk tolerance the merchant is in the driver's seat and makes the final decisions on the level of risk and whether or not to review and transaction, or send it to a third party to review.

 



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ecommerce fraud agent training certification

Training new or existing staff to more effectively perform manual reviews? The eCommerce Fraud Agent Certification from The Fraud Practice educates and trains individuals on the fundamentals of eCommerce payments and fraud as well as techniques for performing identity authentication, verification and manual reviews.

 

 

About The Fraud Practice

The Fraud Practice is a privately held US LLC based in Sarasota, Florida. The Fraud Practice provides consulting services on eCommerce payments, fraud prevention and credit granting as well as prepared research and online training for payment and fraud professionals. Businesses throughout the world rely on The Fraud Practice to help them build and manage their payment, fraud and risk prevention strategies.

Contact:

The Fraud Practice LLC
1800 2nd Street Suite 740
Sarasota, FL 34236
Direct: 941.244.5361
www.fraudpractice.com
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Press Release: The Impact of Manual Review on Your Customers and Brand

Sarasota, FL, November 6, 2014 / By: David Montague, The Fraud Practice LLC

eCommerce merchants face the risk of fraudulent transactions all the time. They also face the challenge of knowing what their risk tolerance should be and often use fraud prevention tools to help identify high risk transactions. Even with fraud tools in place the decision to either accept or reject isn’t always clear and may require human interaction; or what is termed a “manual review”. Not all merchants are able to support manual reviews as well as not all merchants have the expertise to conduct effective reviews. Making use of manual reviews is about saving sales just as much as it is about catching fraud, so it is critical to have effective controls and people conducting manual review. Merchants have many options in the market to perform manual reviews in house or to outsource them, but at the end of the day merchants make use of manual reviews to avoid losses.

A lot of merchants attach a negative stigma to the “manual review” technique and lose sight of the purpose they serve. Consider the question: “How much fraud should the merchant expect and how should the merchant handle fears of accepting high-risk transactions?” Some merchants set their risk tolerance low and are fine walking away from higher risk transactions, and can avoid manual review programs all together. This lower tolerance for fraud means these merchants inevitably walk away from some good orders and most likely are losing some new potential long term good customers. If the implementation of manual review could allow for only a partial conversion on these good new customers, a merchant could see considerable increases in profitability, especially as they look at the total value of a customer over their lifetime shopping from the company. For this reason merchants should continuously evaluate the opportunity and potential return from putting in place a manual review program.

Walk Away or Plant Your Feet

 

The eCommerce merchant may have options to better handle good customers often caught within the snares of a fraud prevention solution. The actual cost of establishing a manual review program does not mean the merchant must do this all on their own. For example, there are transaction guarantee service providers that can enable merchants to send only a fraction of transactions, such as a merchant’s high risk transactions, for final handling and disposition knowing they will be backed by a guarantee. In this case the merchant can remove not only their requirement to perform a manual review they can also remove their fraud risk from accepting a transaction.

Merchants not reviewing transactions should also consider the option to review small percentages of high risk transactions in lieu of canceling the orders on the front end system. The expanding payment systems and growing boundaries of ordinary eCommerce consumers are making fraud detection more difficult to catch; as well to verify on front end fraud tools. High risk orders may turn into good customers who are falling into grey areas filled with hard to validate credentials. For instance, consider the business or seasonal leisure travelers living in temporary locations outside of their home billing address. Fraud systems wired to cancel mismatched billing and shipping addresses could fall victim to automatic order cancellation. The offsetting cost to staff the manual review program will likely generate more in saved sales along with improved fraud detection.

Cost of Fraud and When to Walk or Handover the Risk


Merchants can weigh the option of instituting a manual review program by establishing a base understanding of current transaction costs. Some of these costs include the expenses to attract the customer to the site; along with the overhead to mitigate the transaction through the existing fraud solution. To properly assess the cost of fraud review, be sure to account for costs of any fraud tools/systems, operations, and ongoing technology teams to maintain the fraud management solution. The resulting cost on a transaction basis now introduces viable considerations of added costs to manually review some transactions.

Below are some of the items to consider when factoring the cost of fraud:

  • Transaction volume (count and value)
  • Cost of current fraud tools used
  • Chargeback costs
  • Fully burdened headcount costs for supporting operations
  • Metrics of existing review rates (if applicable)
  • Chargeback losses and fees
  • Known insults (good customers canceled for risk/fraud purposes)
  • Cost to acquire each customer (SEO, marketing costs)
  • Estimates to hand off partial and/or all risk to guaranteed service provider

quote-openThere is a cost associated with conducting manual reviews whether a merchant decides to perform them in-house or outsource them to a third party, but this doesn’t mean that there’s not a positive ROI. For many merchants these costs can easily be justified by the profits gained from risky orders that would’ve otherwise been declined.quote-close Michael Dembinsky, CEO, eFraud Security 

Not an All-or-Nothing Decision

A hybrid solution may serve as a more attractive option for established eCommerce merchants, including those who already manage a manual review program. The merchant’s fraud team can balance risk tolerance by utilizing an outsourced guarantee service for high risk and difficult to verify transactions. This case by case option allows the merchant to send questionable high risk transactions to the guaranteed service provider, as well reduce the handling to mitigate on-the-fence transactions that consume valuable fraud analyst review time. The economics of this approach gels when the cost of analyst time is factored against the cost to send the individual transaction. Cost of analyst review time (10 minutes) + time cannibalized to stop other fraud vs. the cost to kill the transaction vs. cost to send the transaction to a guaranteed service provider. Not reviewing the transaction in-house or through a third party should be carefully considered.  In fact, many service providers will have simplified per transaction costs for a small percentage of the transaction value.

Merchant is Driving

The eCommerce merchant is in the driver’s seat when it comes to managing their risk tolerance. The merchants not conducting any sort of manual review of high risk orders are losing more than just the sale of the good customer. Consider the cost the merchant spends to attract the consumer to the website and product. Plus the collateral impact the brand endures when a good customer is refused the service or product. These costs are less tangible at the micro level and difficult for merchants to measure the actual cost of customer insults at that level. Taking these elements in stride, the value of having some sort of manual review, either in-house or externally, can carry a high value proposition that benefits both the merchant and their customer. Either way, taking the time to consider the option of manual review is a good way to protect the two most important merchant assets, their customer and their brand.

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Additionalresources

  • Introduction to Manual Review Tools.

    Provides methods for how to authenticate and verify a consumer’s name, address, phone and email online. It also provides demonstrations and examples of how to perform manual reviews using free and low cost online sites.

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