The evolution of an expert fraud investigation team

Fraud investigation teams are an essential part of managing e-commerce fraud, but with the proliferation of fraud tools they have become somewhat of a taboo topic in the industry. Many of the new fraud solutions suggest that fraud investigator reviews can be completely eliminated and merchants can instead rely solely on machine learning to make conversion decisions on all orders. What happens to the orders machine learning models deem too risky to process? Even the most advanced machine learning systems cannot reason, perform deeper investigations or connect the more obscure dots on risky orders—that all requires human intelligence. In reality, these risky orders are frequently labeled as fraud when they could actually be legitimate orders. Not only do these machine-enabled errors create a poor customer experience, they also reduce profit.

Consider the following scenario. An order is shipping a long distance to a person that is not the cardholder, the IP address where the order is placed is from a third location, you have never seen this customer before and the purchase has a high order value of $2,000 with overnight shipping.

Is this a criminal stealing credit card information and shipping the stolen merchandise to themselves, or is it a legitimate customer sending a gift across the country? Orders that are layered with suspicious attributes will often trip up a machine learning model. It takes human ingenuity to identify the following scenarios:

• The IP was off because the cardholder was traveling for business;
• The customer needed the item quickly because it was a last-minute birthday gift; or
• The gift recipient lives in a different state.

It’s important to note that orders should be held for review in extremely low percentages. In order to produce the most manageable order review population, merchants should utilize data analytics and strive to make the fraud investigator queue as fraud rich as possible. Having a team that can review the small percentage of orders that would otherwise be canceled by many fraud tools ensures higher order conversions of legitimate orders, less friction for the customer and added revenue for the merchant.

While fraud investigation teams are essential, not all teams are created equal. To achieve optimum results, merchants should deploy a professional fraud investigation team whose breadth of knowledge and responsibilities enable the most sales and create the best possible customer experience.

By exploring the evolution of a fraud investigation team, merchants will better understand their true value.

Call centre order investigation teams

A fraud investigation team is usually created by a company when they realize they are losing money from fraud and need to take action. Typically, these teams start off in a call centre and the agents are dual purposed as customer service representatives and fraud investigators. These early-stage teams have little to no analytic capabilities, causing the investigators to manually review far too many orders. They utilize basic fraud screening tools and, due to limited metrics and quality measurements, they struggle to deliver high quality decisions. While some fraud is prevented, there is a higher incident of false positives that ultimately impacts a merchant’s bottom line.

Standard banking hours fraud investigation teams

As companies grow and gain a better understanding of the financial and customer experience impact of using a dual purpose fraud investigation team, they realize adjustments are needed. The dual purpose customer service representatives are converted to full-time fraud investigators, generally working five days a week. With more advanced tools and methods for fraud screening, these teams are better at identifying fraudulent orders. Fraud review best practices are created and goals with key metrics are set for all fraud investigators to ensure consistency. Depending on the size of the team, coverage may also be expanded to weekends. While these teams may do a better job at minimizing financial loss, there are still gaps when it comes to scaling, analysis and the customer experience. Because they do not operate 24 hours a day, seven days a week, there are lapses in review coverage that cause delays in order processing. Plus, limited analysis capabilities directly impact data quality and ultimately the type and quantity of orders held for investigator review.

Professional fraud investigation team

Very few fraud investigation teams are able to evolve into a dedicated professional team but, if they do, they are experts at their craft. In addition to their proficiency in fraud detection, they add value in the following key performance areas:

Data analysis: Fraud investigators are able to perform analysis, suggest rule changes, and block and link on fraud trends to prevent as much fraud as possible. These investigators are able to identify orders that should and should not be held for review. Their expertise enriches data quality and establishes a more efficient rules engine ensuring the investigator review queue is as fraud rich as possible.`

Eventually investigation teams will spin off higher level analytical teams that strictly focus on rule analysis. Fraud investigators give constant feedback to these dedicated rule professionals to ensure the outsort rate is always optimized.

Customer experience: Professional fraud investigation teams balance fraud loss and customer experience flawlessly. They place a strong emphasis on minimizing false positives and avoid canceling good orders at all costs. The team adheres to strict time-in-review goals to ensure any order held for review is prioritized and processed as efficiently as possible to meet customer SLAs.

24/7 review coverage: This is a big differentiator from the standard banking hours fraud investigation team because, unlike banks, online retailers do not close. A nine a.m. to five p.m., five-day workweek simply cannot satisfy the dynamic nature of e-commerce fraud. Professional fraud investigation teams have 24 hours a day, seven days a week coverage to ensure minimum time in review. For some purchases such as digital gift cards and in-store pick up orders, customers expect their delivery within a few hours. With round-the-clock coverage someone is always available to ensure decisions are made promptly and sales are converted quickly.

Scalability to meet demand: These expert fraud teams are able to manage spikes in demand without hiring additional people. They can identify fraud trends to work orders in bulk and decrease the time in review when going through orders one by one. Because the department’s analytical teams are also highly skilled in order investigations, they can help the fraud investigation team scale to meet increased order volumes during seasonal and promotional periods.

By now, it should be obvious that building a professional fraud investigation team is a difficult and lengthy process. Even if a merchant succeeds in that essential 24 hours a day, seven days a week dedicated coverage, it’s unlikely the results will be any better than the industry average due to the lack of expert analytics backed by big data. That means a lot of money will still be left on the table. Fraud management is best left to experts.

This article originally appeared in the November 2016 issue of Direct Marketing.