Fraud scoring is a method used by businesses to assess the likelihood that a transaction or user is fraudulent.
This scoring system evaluates various data points, such as the user’s historical behavior, transaction patterns, and geographical location, alongside external factors like IP address reputation and device identification. A partial list of factors examined by fraud scoring includes:
- Dollar value of sale
- AVS response
- Category of merchandise
- Customer IP address
- Order history
- Shipment method
- Social media presence
- Buyer’s time zone
- Time of order
- ZIP code
By analyzing this information, companies can assign a numerical score that reflects the risk associated with a specific transaction or user account.
A higher score typically indicates a greater potential for fraud, prompting further investigation or a decline of the transaction. This proactive approach helps businesses mitigate financial losses and safeguard against fraudulent activity.
How Does Fraud Scoring Work?
So, how does a transaction work when fraud scoring is deployed? The technology goes through the following steps:
- The technology retrieves available information regarding the user, which may either be directly provided during the transaction or collected through indirect means.
- All collected data points are organized into a straightforward format and then processed by the fraud scoring engine.
- The engine evaluates the data against your specific fraud criteria, assigning either a positive or negative score to each attribute.
- Following this assessment, a score is computed and linked to the transaction. In many instances, it also offers an explanation for the assigned score.
Depending on your defined parameters, the system will either approve, deny, or mark the transaction for further examination based on the resulting score.
Why Use Fraud Scoring?
Using fraud scoring in eCommerce provides a multitude of benefits that significantly enhance the security and efficiency of online transactions.
- By implementing this technology, businesses can quickly identify potentially fraudulent activities, reducing the risk of financial loss associated with chargebacks and scams.
- Fraud scoring allows for a streamlined checkout process, as legitimate transactions can be approved with minimal friction, thereby improving the customer experience.
- Analytical insights gained from fraud scoring can help refine risk management strategies, letting merchants distinguish between genuine customers and potential threats more effectively.
- Fraud scoring can assist businesses in monitoring and identifying trends and patterns of fraudulent activity, allowing them to stay one step ahead of fraudsters.
Those are just a few of the primary benefits. Overall, integrating fraud scoring not only protects revenue but also fosters trust between consumers and retailers, creating a safer online marketplace.
Test & Update as Needed
Fraud scoring technology is not foolproof. And, fraudsters are constantly switching up and evolving their tactics. This makes it necessary to test and update fraud scoring parameters on a regular basis. We recommend that you:
- Familiarize yourself with the algorithms and criteria employed by your system. This will enable you to understand the scores better and make more knowledgeable choices.
- Regularly schedule performance evaluations and modify rules as necessary, keeping in mind that strategies that were successful previously may not be effective today.
- Use both simulated scenarios and actual data to assess your system’s responses, helping you pinpoint vulnerabilities or shortcomings in your configurations.
- Implement multiple layers of security. Having redundant tools helps detect fraud that might bypass other measures while providing additional data to reduce false positives.
Conclusion
Fraud scoring is a powerful tool that enables merchants to protect their businesses from financial loss due to fraudulent activities. Its ability to evaluate data points quickly and accurately makes it an essential component in eCommerce security.
While it is not a perfect solution, regularly testing and updating scoring parameters can help merchants stay ahead of evolving fraud tactics, creating a safer and more trustworthy online marketplace for both consumers and retailers. So, integrating fraud scoring is crucial in today’s digital landscape to safeguard your business against financial losses and maintain trust with your customers.