The increased use of credit cards online, combined with the lack of resources to prevent online fraud and the growth of organized crime, has recently caused a significant increase in financial losses due to fraudulent transactions. In many cases, it is difficult to detect fraudulent activity until it is too late. Because of this, outsourcing fraud management to a third party provider has become a popular option. In recent years, the prevention of online fraud has become a challenge for businesses. For example, the resignation of the Alibaba Group’s CEO and COO due to insufficient fraud control shocked the business community and sett off alarms across management circles in every online market. Soon after, an internal investigation revealed that many of the company’s employees knew that hundreds of sellers on the Alibaba site were committing fraud. Fraud is costly. Companies have reported billions of dollars in losses in the past couple of years alone. According to the Consumer Credit Mediation, in October 2010, merchants consistently reported an average loss of 1.4 percent of revenues to payment fraud. A majority of the loss was due to the fees merchants had to pay after consumers were filing charge-backs. These chargebacks were filed when consumers felt that they were not getting what they had paid for. In such situations, the credit card company withdraws the money for the transaction from the merchant’s account and is deposited back into the customer’s account. This type of fraudulent activity is especially common in the airline industry. According to the 2010 Deloitte Airline Fraud Report, airlines worldwide suffered an annual loss of approximately 5.6 billion USD. Increased online fraudulent activity is attributed to the growth of organized crime, ineffective fraud detection, increased credit card use and limited fraud prevention resources. Scammers are aware of fraud detection vulnerabilities and exploit automated technologies to their advantage. Most companies have limited fraud expertise and are only able to detect fraud after repeated losses. To avoid losses, merchants have no other option but to give the utmost importance to online credit card transactions and fraud prevention. To address the problem, many merchants manually review orders. Although manual review helps detect fraud, it is an inefficient process. A manual review system is error prone, expensive, limited to working hours, labor intensive and time consuming. Manual review is also ineffective due to the sheer number of transactions. In fact, CyberSource’s 2009 Online Fraud Report maintains that merchants manually review only one of every three orders on average. Large automated companies have even lower manual review rates. Outsourcing online fraud management to a third party service provider is a viable way for businesses to circumvent fraud. Business Process Outsourcing services combine automated tools with offshore capabilities to minimize client revenue loss. By collaborating with a BPO service provider like WNS, clients have access to experienced, knowledgeable personnel. Such providers use well-defined metrics to assess performance and improve fraud detection. Furthermore, clients receive continuous fraud detection support regardless of their operating hours and the number of online orders. The author of this article is associated with WNS (Holdings) Limited, a leading global business process outsourcing company. WNS’ BPO services include banking and financial services, customer relationship management, human resources, supply chain management, technical support and more.
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