Economic risk and staff churn threaten security outsourcing

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Just as logistics and marketing are complex enough to require professional help, fraud is now so pervasive and customer expectations are so high that retailers can benefit from investing in expertise.

Until recently, most retailers handled much of their fraud prevention in-house. As the frequency and complexity of fraud grow, more third-party fraud-prevention providers offer supplemental or outsourced fraud prevention. These vendors can take the staffing and skill burden off merchants, but decision-makers who are used to a fully in-house program may have doubts.

But there are challenges. Onboarding any third-party service requires research, conversations and careful consideration.

One risk that's rarely mentioned in the fraud-prevention market is having too much of a retailer's fraud prevention strategy concentrated in a few resources or activities, with nonexistent or inadequate contingency plans. Just as merchants risk their in-house fraud experts leaving and taking their knowledge with them, merchants can also face the prospect of a fraud-security vendor going out of business.

To reduce this type of risk when outsourcing, retailers should ask prospective vendors about their backup plans and do due diligence to ensure the vendor has the resources to maintain and grow its capabilities.

By asking the right questions and carefully considering the answers, merchants can find ways to reduce fraud and improve customer experience in all their channels.
Advantages of working with a third-party fraud service can include custom scripts written for customer contact during manual reviews; flexibility to deal with sales peaks without sacrificing approval or fraud rates; specialization and expertise to prevent complex and dynamic fraud; continuous updates regarding new technologies and fraud patterns; reduction of risks that come with relying heavily or exclusively on a small group of employees who might leave the company.

Merchants looking at third-party fraud services should also for detailed information regarding their modus operandi and results, including the steps they take to protect clients' data.

It's also wise to look for a service with a strong record of working with clients to customize fraud-prevention programs to each client's vertical, price points, customer base and product launches.

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