In order to effectively implement your online ordering process and make it as simple as possible for customers, the right risk management approach plays an important role. Optimising risk management not only reduces the number of successful fraud attempts, but also increases conversions. Experience as well as constant analysis and adaptation are required here.
Important KPIs for risk management
Good risk management is primarily characterised by its analysis and optimisation of important KPIs. The two main KPIs for successful risk management are low chargeback rates and few false positives. High chargeback rates can quickly cause problems for a business if payment providers no longer want to bear risk and customers of the company assess particularly strict rules and refuse payments. In most cases, a chargeback means that both money and the goods sent are lost.
False positives are also important. In these instances, genuine customers are mistaken for fraudsters and they are unable to make a purchase as a result. A large number of false positive results not only threatens business activity but also creates dissatisfaction for the (potential) customer.
That is why these two KPIs must always be taken into consideration if you want to optimise risk management during the online ordering process.
Why fine-tuning is often particularly important
Good risk management is not rigid. It is designed to be flexible and reflects the online ordering process in its entirety if possible. This is important as the methods of online fraud attempts, among other things, can vary significantly over time. Those anchored to rigid, fixed models who do not educate themselves further on this topic, are soon affected by an enormous increase in fraud attempts and successful fraud activity.
As a shop owner or manager, you need to take the two main KPIs and transaction data into consideration, and regularly adapt and optimise your risk management accordingly. This is a real challenge for shop owners who lack sufficient resources and/or know-how.
Security versus user experience
You can naturally optimise your online ordering process to make risk management so rigid that fraudsters have no chance at all. However, this not only increases the risk of false positives, i.e. normal customers, who are unable to make a purchase due to being wrongly classified, but it can also significantly reduce customer acceptance. Such risk management is always associated with complications during the online ordering process, thus reducing the usability of the purchase process and your shop.
If customers have different providers they can choose from, they will usually opt for the best user experience. This means that while rigorous risk management might reduce the number of frauds to virtually nothing, the complicated online ordering process will visibly cause the number of customers to fall.
It is therefore important to find the right balance and combine the various different risk management options.
Recognise patterns and adapt risk policy accordingly
In order to respond flexibly to changing risk and new patterns of fraud, businesses must continuously monitor their transaction data. This creates an effective reporting process of the main KPIs based on real time data.
Shops need to be able to proactively react to forthcoming situations.
This means that future probabilities must be calculated based on past data. The Christmas trading period is a good example of this. In the lead up to Christmas, the average number of fraud attempts increases as most online shops are subjected to higher demand at this time and fraudsters take advantage of easier resale.
By recognising such patterns, you can optimally protect yourself against this risk. Risk management can therefore be enhanced and adapted to the event.