The Hidden Impact of Fraud: Going Beyond Chargeback Metrics

In the world of fraud prevention, the focus has traditionally been on chargeback rates as the primary indicator of performance. However, this narrow view fails to capture the true extent of the impact that fraud can have on businesses. Alexander Hall, the new VP of Fraud Strategy at IPQS, recently delved into this issue in a conversation with Jordan Harris of The Fraud Boxer.

While chargebacks are a visible and painful consequence of fraud, they only scratch the surface of the larger problems that can arise. The hidden impacts of fraud, which often go unnoticed in chargeback metrics, can have significant effects on revenue, operations, and brand trust. It is crucial for organizations to broaden their measurement of fraud to encompass these broader impacts.

One of the key challenges is that chargebacks only represent a small portion of the losses incurred due to fraud. By focusing solely on chargebacks, businesses may overlook larger issues that are impacting their growth, customer experience, and long-term profitability.

For example, industries like ecommerce and airlines are facing a rise in account takeovers (ATOs). While these incidents may not directly result in chargebacks, they can lead to customer churn, increased acquisition costs, and off-platform identity theft. Similarly, other sectors such as iGaming, banking, and money movement platforms are also experiencing various forms of fraud that go beyond traditional chargeback metrics.

It is essential for businesses to look beyond chargebacks and consider the broader implications of fraud on their operations. This includes understanding the impact on good customers who may be wrongly declined due to overly strict fraud prevention measures, as well as the operational challenges posed by manual reviews, support tickets, and rework.

The Risks to Brand and Customer Experience

At its core, fraud is a trust issue. When fraud occurs, whether through account takeovers or fake accounts, it erodes the trust that customers have in a business. This can lead to a loss of confidence, decreased organic growth, and negative word of mouth. In some cases, fraud can even become a brand issue, further compounding the challenges businesses face.

Looking Beyond Chargebacks: Additional Metrics to Consider

While chargebacks are an important metric for measuring fraud, they should not be the sole focus. Businesses should also track metrics such as approval rates for good customers, false positive rates, manual review rates, fraud-related refunds, abuse rates for promotions, account takeover incidents, and more. By monitoring these additional metrics alongside chargebacks, businesses can gain a more comprehensive understanding of the impact of fraud on their operations.

Enhancing Fraud Measurement with IPQS

As a fraud and risk data provider, IPQS offers solutions that go beyond simply blocking bad payments. Their scoring system takes into account various signals such as IP reputation, device intelligence, email history, and past abuse patterns to help businesses catch fraud earlier, reduce false positives, and identify patterns of abuse. By leveraging these insights, businesses can make more informed decisions and better protect their revenue, costs, and growth.

Key Questions for Organizations

For businesses looking to measure fraud impact beyond chargebacks, asking internal questions can be a helpful starting point. Questions such as identifying unrecognized losses, evaluating the impact of current fraud controls on legitimate orders, and assessing the effectiveness of marketing programs can provide valuable insights for developing a proactive fraud strategy.

Turning Insight into Action

By recognizing that chargebacks are just one piece of the fraud puzzle, businesses can redesign their fraud programs to focus on broader outcomes. The goal should be to not only prevent fraud but also protect customer experience, enable safe scaling for marketing efforts, and ensure that risk controls support long-term growth. With the right approach and tools, businesses can mitigate the impact of fraud and build a more secure and sustainable operation.

Sign up for a free trial with IPQS today and experience the difference in preventing fraud before it harms your business.

Sponsored and written by IPQS.