Identifying the key risks and preventing fraud is a top priority for many businesses today. As the digital sphere is widening and the number of scams online is equally increasing, it’s important to have a clear understanding and an effective business strategy.
Identity theft and credit card fraud remain the core issues for organizations online. Basically, anyone can leave traces of fraud. To ensure your company’s safety, you want to welcome only trusted customers to your platform. According to Timothy A. Scott, criminal defense attorney in San Diego, digital fraud impacted 38% of Americans in Q1 2022, which is the same as mid-2021. While phishing was the most reported fraud scheme people experienced (29%) followed by stolen credit card (26%) and money/gift card scams (25%), unemployment scams impacted 10% of respondents.
One way to do so is through effective fraud risk management. Keep on reading to find out more.
The truth behind fraud risk management
It’s a tool that assists your business in identifying traits and historical patterns along with suspicious patterns and fraudulent activities online. If you want to ensure your customers’ safety and avoid compliance fines as well as major profit losses, the logical step would be to add a fraud risk management system to your organization’s agenda.
Fraud detection is part of the life of many businesses because it gives control of future outcomes. Once you detect the potencial risk, you can act proactively. The biggest benefit – it prevents fraud and the potencial aftermath that certain risks can cause. That’s why, with so much at stake, it’s best to avoid risks.
Interesting fraud statistics to keep in mind
Nowadays, users have a higher expectation for a positive online experience security-wise. This is no surprise, as the level of crime in the digital world is continuing to rise. According to the Federal Trade Commission, there were nearly 1.4 million reports of identity theft in 2020, making identity theft the most common type of fraud lodged by consumers.
The pandemic accelerated the spread of cybercrime as well. As per the Guardian, More than £2.3bn were lost in 2020. This just goes to show that it’s very easy for scammers online to hack companies’ security systems or use forged identities to conduct further crimes. For example, stolen credit card information is now being sold on the Dark web for only $0.50 per card, which is extremely little compared to the damage to the cardholder.
Assess your risks – it’s important
To put it simply, risk management is a prevention system and fraud detection tool designed to assess fraud scores, which can be set from high to low. Such a system can be used as a way to authenticate third parties, customers, or business partners and check if they are real. Of course, where money flow is involved, there’s a higher chance of fraud. That’s why various industries, such as financial institutions or Fin-Tech companies, use the risk-assessment system to check the transactions and ensure security.
With the right digital tools, risk management empowers organizations to deal with potencial risks in a more speedy way. Since such online software is automatic, traditional paper-like methods don’t stand a chance. Once the risk is detected online, it’s easier to mitigate it and plan the next steps. Of course, that automatically improves the chances of the company becoming a successful enterprise in terms of security, profit, and the all-in-all image.
Here are three main points why you should take care of your business and proceed with good fraud risk management:
It’s a way to plan easier. A successful business isn’t a coincidence; usually, it’s a result of constant panning, organizing, developing, and seeking perfection. With fraud risk management in your business plan, you can provide an extra layer of security and receive insurance that you’ll be able to reduce the potencial risks, and if needed, mitigate them effectively without bumping into lawsuits and security threats.
It helps reduce costs. Taking precautions costs less than having to deal with non-compliance fines or losses due to data breaches or similar cyber-attacks. Risk management helps divide income risks and expense risks without the result in a loss of income. In other words, if you detect certain fraud patterns, you can prepare strategies and how to deal with them properly in advance, or even better, avoid them entirely.
It’s good for your reputation. Once you follow a proper fraud risk management strategy, you can be more confident that your organization will convey a positive image. Having a safe workplace environment and a safe business overall prevents reputational damages both emotionally and financially.
Effective risk management requires knowledge
At first, choosing and implementing fraud risk management into your business strategy might be a bit tricky. For this reason, it’s best to do research and know all of the details behind this mechanism. To manage risks effectively, you’ll need to use a special fraud scoring software in order to allot scores based on the users’ activity. This tool evaluates fraud patterns, scanning databases, such as the Black market, and determining if the fraud risk is high, medium, or low:
High risk. If a company receives this alert, it’s an instant “code red” – the business needs to take immediate action against the entity in question.
Medium risk. Pretty self-explanatory medium-type level meter, meaning there’s no strong indication of a positive or negative outcome. Depending on the business needs and strategy, further security measures can be taken.
Low risk. The user activity isn’t fraudulent. Since there’s the lowest possibility of fraud, the transaction can be resumed without any additional checks.
User activity involves online transactions or new website registrations and log-ins. To assess the risk, such a tool uses accurate parameters, like the user’s address, IP, fingerprints, payment data, full name along with phone number details, reporting a red flag in cases when the phone number was used for criminal activity. Any user online leaves a trace, including the digital footprint of fraud.
How to turn fraud management into good practice?
Designing a fraud system based on fraud scores allows organizations to detect fraudulent transactions and criminal user behavior online. Once implemented, this practice is efficient and effective. To make it right, you need to think about a few aspects, depending on the industry the business operates in.
For example, fraud management or fraud scoring needs to be automated; therefore, only online systems can check numerous transactions and assign values to them. Based on the value, it can either approve, deny or review the transaction again. The banking sector benefits from this security measure greatly, as fraud scoring blocks customers from using false identities. This way, it’s possible to prevent your company from being used for money laundering and being involved in non-compliance inconsistencies.
E-commerce businesses are also a target for fraudsters. As a solution, such companies can use fraud scoring to mitigate fraudulent transactions from fake customers. Once the risk is detected, the fraudulent transactions can be stopped, including the misuse of vouchers and promos.
Final thoughts
Successful businesses prioritize having efficient security systems. In a wider picture, such organazations plan every step ahead. To have a better grip and more control over online risks, businesses need to think about fraud management and score-based risk assessment. Such an automated process can save you a lot of nerves and resources.
Also Read: Financial Software Development
