How often has the following exchange occurred?
Vendor: “My fraud system is really good!”
Prospect: “Do you guarantee I won’t have any fraud losses?”
Vendor: ...
With fraud being so dynamic in terms of the speed and sophistication of attacks, can any vendor comfortably offer a guarantee that its solution will stop all fraud all of the time? For most vendors, the answer is no. Either a client buys one or more tools available on the market and manages its own anti-fraud ecosystem or it outsources management to a vendor that offers fraud-as-a-service on a best effort basis. But in both scenarios, the client retains financial liability for fraud losses or the financial impact of a fraud attack. However, a new breed of anti-fraud vendor is putting its money where its mouth is and offering a financial guarantee or warranty on top of its anti-fraud solutions.
With credit and debit card fraud, 70% to 80% of fraud loss liability typically sits with the e-commerce merchant. Many small to midsize merchants do not have the in-house expertise or tools to effectively mitigate fraud and limit its financial impact. Increasingly, they are turning to chargeback guarantee solution providers. In addition to actively managing fraud for the e-commerce merchant, these providers reimburse the merchant if it approves a transaction that becomes a fraudulent chargeback. The merchant gets the best of both worlds: subject-matter experts managing a complex part of its business operations and the protection against fraud losses in the form of a fraudulent chargeback reimbursement.
Midsize and large merchants that manage fraud in-house can use a variation of the chargeback guarantee. If the merchant’s fraud system recommends declining an online transaction, the consumer receives a hard decline. However, some of these merchants are turning to chargeback guarantee vendors to see if they would approve the transaction. This allows merchants to convert what would have been a declined transaction (and thus resulted in no revenue) into an approved transaction. Naturally the price point for this limited engagement is usually higher.
Fraud guarantees first started in the chargeback guarantee space, so it’s no surprise that a number of vendors have this type of offering, including Accertify, Apruvd, Bolt, ClearSale, Cybersource, Eye4Fraud, Forter, Kount, NoFraud, Riskified, Signifyd, and Vesta.
Not all fraud targets the transaction or results in a chargeback. Another class of fraud targets the online account and causes other types of financial hardship. A common problem today are credential-stuffing bot attacks used to compromise online accounts. These automated attacks leverage stolen username/password pairs to ascertain which ones are still valid. Once the fraudster knows a valid username/password pair, there is a good chance it will work on multiple websites, such as online banking or e-commerce sites. Bots are also a drain on a financial institution’s or merchant’s networks and computing resources, since these attacks can be done at scale. One financial institution recently shared with Aite-Novarica Group that for every one good user login, there are 10 fraudulent attempts.
This past summer, Arkose Labs launched an industry-first credential-stuffing-bot warranty to reimburse clients for up to US$1 million in incident response costs incurred from hacked accounts. Covered costs include legal consultation, forensic services, notification expenses, identity theft, and credit monitoring. It comes with a set of managed services to help clients mitigate losses from these attacks. What’s noteworthy is that this is the first warranty I have seen outside of the financial transaction.
With all guarantee and warranty solutions, the devil is in the details. Buyers should ask about what exclusions apply, under what circumstances they receive financial reimbursement, and what services the vendor provides.
At last, financial institutions and merchants have an option to mitigate the financial impact of fraud. No longer do they have to be the sole bearer of fraud losses and related expenses. And that is thanks to firms that are confident enough in their solution to walk the walk when it comes to stopping fraud.
If your firm offers a guarantee or warranty, I would like to hear about it. Contact me at [email protected].
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