Fraud is something companies and individuals experience everyday, but not all fraud is the same. In fact, some of us have committed fraud and may have not even known. In all instances, fraud negatively impacts a company’s bottom line. So what are the differences?
True Fraud vs. Friendly Fraud
Fraud can happen in a variety of different ways, but for the sake of simplicity, we will be discussing the two categories that are most prevalent in the digital age.
True Fraud is the category that most businesses are familiar with. It is most often labeled as identity theft and can cost companies millions of dollars and even result in a loss of business. When an individual steals another individual’s name, credit card, SSN, address, or any other piece of information to open an account or make a purchase, they are committing true fraud. Thanks to the numerous amounts of sensitive data leaks, fraudsters have relatively easy access to stolen data, which they can use to impersonate a good user (thanks Equifax, Facebook, UPS, Marriott, etc.). True Fraud hits companies the hardest and should be the main type of fraud to focus preventative efforts towards.
Friendly Fraud generally refers to chargeback fraud; the fraudulent request for a return or refund in the form of a chargeback. The expanded view of friendly fraud can be seen as any legitimate user committing malicious activity on your platform. Meaning, a user creates a profile that is true to their identity, but proceeds to try to “game the system” It can be as innocuous as creating multiple accounts with different emails to as serious as money laundering through your platform. This type of fraud is less frequent, but much harder to prevent.
3 Ways to Prevent Fraud
1. Verify your users!
This is going to be the biggest barrier to true fraud. Using a service to confirm a user is who they say they are will greatly reduce the amount of fraud you see. Many companies have regulatory requirements to do this already (KYC). But, even if your industry does not require identity verification, this process helps weed out bad actors from your platform.
2. Make support easy
Users need an avenue where they can easily reach support if they see unknown activity on their credit card or account. Be available to combat fraud.
3. Have a fraud prevention tech stack
IDV is one piece of the puzzle. But, if your business experiences fraud on a very large scale, you should look at integrating a transaction monitoring service as well. There are services that monitor activity in real-time and can be a powerful addition to your security program.
Fraud is a problem that consistently plagues businesses. Cognito is committed to helping companies prevent this problem as securely and as seamlessly as possible. If you’re interested in exploring Cognito’s IDV solution or if you have any questions regarding how to improve your Customer Identification Program, feel free to connect with us!