Published December 13th, 2016 by

The Big Question: In-House or Outsourced Fraud Prevention?

Leveraging available resources to optimize your fraud prevention efforts is an essential step in scaling your organization. But what is the “optimal” approach? Is it better to build an in-house fraud prevention team, or will you see better long-term results by outsourcing?

“Building” Versus “Buying” Your Solution

First, let’s point out that there is not one absolute answer to this question—there are “pros” and “cons” to each approach.

Those who favor in-house fraud management, for example, suggest it is more cost-effective and allows merchants to tailor their approach to the needs of their own business. Not only that, but in-house teams have a more intimate understanding of the dynamics and particularities of the business, giving them greater insight into how the organization operates.

With outsourced solutions, however, costs are more transparent, allowing merchants direct insight and providing a clearer picture of their situation and where processes can still be made more efficient. Plus, because in-house teams scale alongside their business, they will inevitably be caught off-guard by sudden, unanticipated spikes in fraud instances.

Does It Have to Be an “All or Nothing” Answer?

I should also mention that achieving true efficiency and optimization in-house can be an expensive endeavor. This is an area in which outsourcing to third-party expertise can pay-off, even if you don’t rely on outsourced solutions exclusively. That’s why, rather than focusing on whether to outsource risk management or conduct everything in-house, it would be best to segment your efforts between the two approaches.

There are some matters which are best-addressed by an in-house team, while others demand an outside perspective. These approaches aren’t incompatible; on the contrary, in-house and outsourced risk prevention strategies work best when they complement one another. For example, let’s consider chargeback prevention in the eCommerce sphere.

Chargebacks are a complex matter for merchants, because in most cases, chargebacks are actually cases of friendly fraud. As Monica Cardone explained in a recent interview regarding chargebacks, “The liability is completely on the retailer, and they have no recourse…Upward of 70 percent (of chargebacks) are related to friendly fraud, or family fraud.”

Friendly fraud chargebacks should not meet the necessary criteria to overturn a transaction. However, in-house teams don’t have the insight, resources or skillset to prove that friendly fraud is responsible, and merchants lose out as a result.

To contend with friendly fraud and the countless other threat sources facing eCommerce merchants, it would be beneficial for merchants to have at least an on-demand solution provider. That way, merchants can take advantage of the services they need only when the need arises. Or, merchants may decide to go with a totally-outsourced, turnkey solution for one threat source, then address another threat source completely in-house. This allows merchants to focus their attention where it would be more effectively leveraged, maximizing their efforts.

Jen Fogarty of CareerBuilder said, “If you can’t get those resources in house that you need to fight the fraud that you see, it may be time to look for an external resource.”

What Questions to Ask When Choosing a Solution?

So, how do you decide which services to keep in-house and which to outsource, and which solution providers will best address your needs? To help decide, try asking these questions:

  • What guarantees can a solution provider make?
  • Is pricing based on transaction volume? Will it be cost-effective per future projections?
  • Which solution offers the best ROI and efficiency as your business continues growing?
  • Do you feel that you need to build a long-term, temporary or on-demand solution?
  • Is your organization agile? Would you be responsive enough to address developing threats?

Some merchants feel that, even if they might benefit from incorporating new or additional outsourced solutions into their strategy, they will have effectively wasted any groundwork laid up until that point. However, earlier data and infrastructure will not necessarily be invalidated by supplementary technologies and services, nor will merchants lose oversight into their own processes. On the contrary—combining collected data with third-party services may put that data to better use by subjecting it to multiple expert perspectives.

Find the Right Answer for You

Remember that no two businesses will face identical threats; therefore, no one-size-fits-all solution will ever effectively address every merchant’s risk sources.

Examine all of the information at your disposal, including client testimonials, analysts’ interpretations and published data. Ultimately though, consider your own opinion, and ask yourself, “what is the best strategy to help this business succeed?”

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