Fraud Detection Needs to Be Part of Your Business Strategy

Fraud detection comes bundled with your CMS, doesn't it? After all, why would you have a web platform that can easily be infiltrated, scammed, and generally defrauded?

For most businesses, there are many software investments you need to take care of before selling a single item online: Payment processing, accounts software, analytical tools, and CMS platforms are all par for the course.

But how often does the average business person factor in fraud protection?

According to a 2020 report by financial services firm PwC, half of the businesses lack a mature fraud prevention program, and around 21% have no fraud monitoring or prevention at all.

Putting this into context, internet fraud is a billion-dollar industry.

In 2020, payment fraud alone, most often referring to credit card fraud, cost over $32 billion. And this is just one aspect of digital fraud that businesses are exposed to.

As a business owner, fraud detection is often low down on the list of essential services, and perhaps understandably. It’s not always a tangible and verifiable activity. And much like investing in something like energy-efficient light bulbs, it's not an issue until you see how much you’re losing and how much you could save.

So, does fraud detection actually need to be part of our business strategy?

The rise (and rise) of internet fraud

During the Covid-19 pandemic, more money than ever has flowed online. As of 2020, buyers worldwide spent $4.9 trillion on the internet - effectively $1 for every $5 spent globally.

Running concurrent with that, the volume of various forms of digital fraud also hit new highs.

Credit card fraud, ad fraud, and identity theft all hit record levels during 2020, with ad fraud even exceeding expectations.

And, for the first time, the cost of ad fraud exceeded payment fraud. Marketers lost an estimated $35 billion to ad fraud, compared to $32 billion on payment fraud.

Although these headline fraud rates are alarming, they fit within the bigger picture of a growing trend. Put simply, digital fraud has been growing year on year since the advent of the internet - and it isn’t slowing down.

The truth is, there is too much opportunity for fraudsters. Something as simple as ad fraud can net an organized network of developers millions in a relatively short space of time. And they don’t even need to steal any credit cards or spend too much time infiltrating databases.

So how can your business avoid falling victim to these common (and some less common) forms of internet fraud?

Putting up a fight against fraud

Bigger firms do tend to price in digital fraud detection. According to PwC, the average SME firm uses four different fraud prevention solutions, with firms over 10,000 employees using more.

And six out of ten businesses have policies and procedures in place to minimize the impact of fraud in the workplace and educate staff.

This second point is perhaps the most important. Understanding how data breaches can occur and having processes in place to manage fraud incidents can be critical. Prepare for the worst and all that.

But automating your fraud prevention is also important.

There are a number of different types of internet fraud that the average business needs to watch out for.

• Payment Fraud
• Marketing based fraud such as click fraud/ad fraud and affiliate fraud
• Site infiltration such as account takeover, ransomware, and CEO fraud

The choice of paid fraud prevention will depend on the business model, how the business processes payments, the marketing platforms used, or how many employees or sales it makes.

For example, businesses processing thousands of payments per day should invest in OFD (online fraud detection) software to monitor activity on their site.

Click fraud, and ad fraud prevention is an essential addition for any business running paid search or social ads. And these days, that’s pretty much everyone. These can also incorporate factors such as user acquisition fraud or affiliate marketing fraud too.

Scams such as CEO fraud often fall under the general title of phishing scams or data breaches. Even the dreaded ransomware attack can be mitigated with a good fraud prevention package, together with good internal planning and education.

Building fraud detection into your business strategy

From a startup to an established brand, minimizing exposure to internet-based fraud needs to be part of the picture.

The first step is understanding how internet fraud affects your business and how you could be compromised.

1. Payment fraud

Credit cards or other forms of payment fraud are obvious problems for any ecommerce business. If you’re taking payments for shopping baskets full of goods daily, you will need to use some form of payment protection. Although Shopify and other ecommerce platforms do offer their own payment fraud prevention, a second layer can make a big difference.

2. PPC fraud

Click fraud and ad fraud cost digital marketers on average 15% of their ad budget. So if you spend money on Google, Facebook, or any other digital ads platform, blocking bots and fake clicks is imperative. Click fraud prevention tools are an essential and affordable add-on for anyone running PPC ads.

3. Account takeovers and data theft

Protecting your users is, of course, the highest priority. But your exposure to risk depends on how your site handles sign-ups and how data is used. For example, a dating website or app will be more at risk from account takeover and data infiltration than a custom t-shirt printing firm.

Preventing account takeovers and data theft should be a major fraud prevention consideration for anyone handling data on this scale.

4. Ransomware & DDoS

Although denial of service and ransomware are not so much fraud as cybercrimes, they are concerns for many business owners.

Both ransomware and denial of service attacks can affect businesses of any size in any industry. However, if your business is particularly dependent on its online presence or handles large amounts of data or daily transactions, preventing these kinds of attacks should be top of your list.

Fraud detection as a service

There are, of course, many fraud detection products available, and choosing them is a task in itself.

Most of them specialize in protecting against a specific sector of fraud. For example, products like Signifyd, Sift, Kount, and Seon cover payment and account verification.

Brands like ClickCease, Cheq, and Human (formerly WhiteOps) cover click fraud/ad fraud and protection from fake users in the marketing funnel.

Fraud protection goes beyond simply saving money or optimizing performance in one area. The cost of fraud can have an impact on everything from company turnover and budget allocation to brand perception and trust.

If you’ve not had a conversation with your team about fraud detection and prevention, now is as good a time as any.