For both consumers and businesses, the topic of fraud can be scary. It can take an average of 14 months for companies to detect fraud, and more than half (54%) do not recover any of the losses they experience.1
When it comes to safeguarding your business, it's best practice to try and prevent fraud wherever possible.
Preventing fraud can be challenging due to the sheer complexity and variety of fraudulent activity. Some of the types of fraud commonly encountered include:
These and other types of small business fraud can have significant and long-lasting implications, such as a loss of revenue, reputational damage, loss of personnel, loss of customer trust, and limitations on growth. Small businesses are often not well-placed to cope with this level of damage.
There are multiple existing and emerging technologies and risk management strategies that can help small businesses combat fraud. The benefits of fraud detection technology include:
These fraud detection techniques help companies set up and maintain identification and risk management systems that can limit the financial and reputational damage fraud can cause.
Small businesses need to effectively integrate online fraud detection solutions into their operations. To do this, they must establish, implement, and update an anti-fraud program across the organization, including an effective fraud risk assessment process. Additionally, it is advisable to assess and monitor third-party risk, provide suitable training for staff, create a whistleblower process, and use data monitoring.
To align fraud and cybersecurity operations, businesses are required to:
By implementing a comprehensive anti-fraud strategy in this way firms could protect both themselves and their customers from the increasing risks of fraud and cybercrime.
There are tried and tested strategies for small businesses to enhance their fraud prevention efforts. These include:
The sooner fraud is detected, the greater the chance of limiting its impact and so responding promptly to it is particularly important for small businesses, for whom fraud can have significant and lasting financial or reputational consequences. That makes it very important for businesses to have a proper incident response plan in place and to have trained staff capable of reacting effectively to mitigate the risk of fraud and restrict its impact.
One of the key challenges of implementing fraud detection measures is doing so without disrupting the customer experience. For example, putting in place stringent authentication processes may interrupt the sales funnel. Forbes has found that 56% of merchants agree that their approach to fraud prevention makes it challenging to provide a smooth customer experience.2 In addition, 30% of consumers say that if a transaction is mistakenly declined, they may decide to stop shopping with a brand or retailer altogether.2 For this reason, it is important to consider the balance between preventing fraud and impeding the customer journey.
It is also worth noting that prioritizing fraud detection and prevention can enhance customer trust. Transparency when communicating security measures may help customers feel safe when handing over sensitive data.
Fraud can seem like a major challenge for small businesses, both in terms of protecting revenue and meeting consumer demands for a higher level of security, but there are tools that can make it easier to manage.
PayPal can help your efforts to stay one step ahead of the fraudsters. Our Fraud Protection Advanced is an adaptive machine learning solution that helps enable merchants to detect ever-evolving fraud techniques.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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