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January 12, 2017

What are the fraud subtypes and why it matters to measure those as KPIs in e-commerce services?

What are the fraud subtypes and why it matters to measure those as KPIs in e-commerce services?

Payment fraud impacts the bottom line of e-commerce services. It is therefore essential to also measure historical fraud trends. There are essentially two fraud subtypes:

  1. the frauds where the principal is lost and
  2. the frauds where the principal is not lost.
# Principal Description
1 Not lost Principal not lost, e.g., because of the liability shift or because the e-commerce service won the defense of the case.
2 Lost Principal is refunded; this are the “chargebacks.”

Why it matters to measure both fraud subtypes?

It is necessary to track the two fraud subtypes, because the financial impact differs between each. Moreover, fraud rates vary significantly between payment methods, with the geographical origin of payments, and with the product type, which means additional KPIs per fraud subtype may be needed.

Finally, these two fraud rates (as well as the volume of transaction and the volume of frauds) are essential to determine if the e-commerce service falls under the liability shift, the insurance-like mechanism that protects merchants from chargebacks in case of fraud, when the payment was acquired with 3D Secure.

References