Fraud prevention should be a priority for your e-commerce brand. But how do you know that the fraud prevention tool you are using is performing as you expect it to?
You will need to understand the key risk indicators in fraud prevention that will protect your brand and customers. This article covers some of the top KPI’s every e-commerce brand should be tracking.
Order Approval Rates
What is the percentage of approved incoming transactions?
The order approval rates will tell you a lot about the effectiveness of your fraud management tools and help you determine false declines that are leading to lost revenue. One of the things fraud prevention tools do is to decline or flag transactions that appear to be fraudulent, which sometimes will include legitimate orders.
You should measure your order approval rates by calculating the total number of approved orders against the total number of orders (including automatic declines) coming to your business. Low approval rates could indicate a high false decline rate, which means you need to reevaluate your fraud detection mechanism.
Chargeback rates refer to the value of fraudulent chargebacks compared to the total sales of the same month. You can accurately calculate your business’s chargeback rates by comparing the fraudulent chargebacks in a given month against the sales of the same month. However, you should know that different payment processors calculate chargebacks using metrics different from yours.
Reducing chargebacks is critical to protecting your business revenue, and in some cases, maintaining your online store (too many chargebacks could lead to the termination of your merchant account as you are considered a high-risk merchant).
Manual Review Rates
How much time and resources is too much to spend on manually reviewing your orders? Tracking your manual review rates will provide the right answer. While manually tracking your orders helps in fraud detection and prevention, it should not come at the cost of your business revenue.
When you have a high manual review rate, it means you are spending too much time and resources where automation could help. On the other hand, too low manual approval rates could indicate that your automated fraud detection mechanism could be declining legitimate orders.
Automatic Decline Rate
The automatic decline rate represents the number of attempted or completed transactions that your system automatically declines. These are orders that a human does not review as the system declines them first.
If you have a high automatic decline rate, you could be losing customers and revenue from transactions with some elements of fraud and being legitimate. When you know your automatic decline rate, you can place additional authentication measures such as manual reviews to allow legitimate orders to be completed.
Average Time of Order Review Process
The time that order takes between the moment it is placed to the time it is either declined or approved tells you how long your customers have to wait to get their orders. Orders should not wait more than 48 hours to be approved unless they require a thorough review, such as contacting the cardholder.
If your orders take a lot of time to approve, you need to set up a fraud detection mechanism that will examine questionable transactions quickly.
Cost Per Analysis and ROI
Calculating the cost per analysis will tell you how much you are spending on your fraud prevention measures, while the ROI will tell you how much you are gaining from these prevention measures.
Your cost analysis should include the costs of:
- Manual and automatic transaction analysis
- Outsourcing your fraud management initiatives
- The lifetime customer value your business loses due to false declines.
Calculating the ROI will help you determine the impact of your fraud prevention and detection mechanisms on your revenue. Too low an ROI indicates that you are investing too much in a tool or service that does not benefit your business.
Striking the Balance
How do you prevent fraud without compromising your revenue? E-commerce fraud KPIs will tell you what you are doing right and help you identify revenue black holes that arise due to overly stringent fraud prevention measures. Balancing fraud prevention and revenue requires you to conduct a risk assessment to monitor customer behavior and the risk associated with their activity before approving a transaction.