How can fraud departments increase revenue?
Merchants’ fraud departments are the protectors of revenue—preventing financial losses from all sorts of fraudulent activities, as well as reining in the soaring costs of chargebacks. But what if, in addition to that important role, they could also protect and generate more types of revenue?
While stopping fraud and preventing chargebacks are critical missions, fraud teams can expand on that role and ultimately not just protect revenue but also increase it. In fact, it’s not unfathomable that fraud teams could drive a 1% increase to the top line.
Here are three ways a merchant’s fraud department can help protect more revenue while propelling topline revenue growth and delivering a better customer experience:
1. Strengthen its fraud data
Merchants use data models to predict and detect fraud—allowing them to determine when to approve and deny transactions. It’s important to stop fraud but not sales from legitimate transactions.
A dispute-prevention tool such as Ethoca Alerts—which alerts merchants in real-time when a transaction is disputed with the card issuer—can help merchants improve those data models by giving them clear insight into which approved transactions ended up being fraudulent. Moreover, when fraudulent transactions are identified, link analysis can help flag other fraudulent accounts, stopping bad actors before chargebacks occur and reducing the overall impact of fraud on the business.
2. Improve authorization rates
By improving data models and having dispute-prevention tools in place, businesses can also increase their transaction authorization rates driving bottom line growth.
This reduces false declines that causes merchants to miss out on generating revenue from legitimate customers. A study by Datos Insights found that $11.1 billion in transaction value was falsely declined by merchants in 2021—suggesting it’s a major, costly concern.
And not only do merchants lose out on the potential revenue from the declined transaction, but research shows that consumers whose transactions are wrongly declined won’t come back after an experience that’s seemingly friction-filled. Recent data shows that 40% of customers won’t buy from a merchant after their first false decline.
First-party fraud, also known as friendly fraud, has fueled a sharp rise in false declines. A real-time alerts tool like Ethoca Alerts can help prevent chargebacks due to first-party fraud that, in turn, may lead to lower authorization rates. In the instance when a good transaction is approved and later disputed by the cardholder, the tool gives the merchant time to refund the disputed transaction before it becomes a costly chargeback—reducing the risk that the customer’s future transactions will be declined.
Improving authorization rates, even by 1%, can have a huge impact on a merchant’s revenue. Therefore, reducing issues that can lead to lower authorization rates—such as bad data causing friction at checkout with false declines—can have a significantly positive effect.
3. Reduce cart abandonment—promote repeat sales
Payment declines can be a hassle and lead shoppers to abandon their purchases altogether, with the merchant losing out on potential good sales. By refining data models and improving authorization rates, merchants can reduce cart abandonment and increase the probability of consumers completing their purchases.
When online shoppers have their transactions approved, it also contributes to a positive customer experience and eliminates any friction in the checkout process. Shoppers are more likely to come back again and again—increasing future sales.
In other words, preventing false declines promotes a good shopping experience that can help fuel repeat customers and loyalty.
Why collaborative tools make a difference
Merchants’ fraud departments have a growing opportunity through the use of collaborative tools to help drive revenue and engage customers—enhancing their experience. The right partners and tools, like those from Ethoca, make it easy.
