How to speak ROI for fraud prevention

Regardless of economic circumstances, companies keep a close eye on operational costs — cutting costs, tightening budgets, and wherever possible, asking teams to “do more with less.” 

The only problem is that scammers smell opportunity when companies scale back. According to a 2009 study conducted by the Association of Certified Fraud Examiners, over half (55.4%) of the respondents reported a slight or significant increase in fraud levels in the previous 12 months during the Great Recession. Additionally, approximately half (49.1%) attributed this increase to heightened financial pressure.

During a recent webinar about the ROI of fraud (see details below), we asked attendees how they measure ROI. A surprising 40% admitted they don’t have an ROI metric they currently track. 

If you don’t have data to show what you are working to mitigate or improve, it’s harder to justify money spent on fraud prevention. But we can help you change that.

This article covers the importance of measuring the ROI of fraud prevention, how to calculate ROI for fraud, and which teams you should partner with, and offers a holistic framework for measuring the value of fraud management.

Prefer to listen? Watch the on-demand webinar for a deep dive into the ROI of fraud prevention with:

• Sophia Carlton, Senior Manager, Fraud and Financial Crimes at Accenture

• Tara Mitchell, Senior Director of Chargeback and Abuse Recoveries at Signifyd

• Ronald Praetsh, Co-Founder of About Fraud

• Jeff Sakasegawa, Trust and Safety Architect at Persona (that’s me!)

Why is measuring ROI for fraud prevention important right now?

Downsizing has become commonplace in every industry. Fewer people means less work is being done across the business. Plus, with the markets in flux, budgets are under strict scrutiny.

“The markets are going up and down, but the need for trust and safety practices is constant, or if anything, increases over time,” said Charlotte Willner, executive director of the Trust & Safety Professional Association.

This is why it’s more important than ever for trust and safety teams to align with key teams, such as the finance and growth marketing teams, to figure out how you plan to measure the ROI of fraud prevention and the impact it will have on the business. 

Calculating the ROI of fraud prevention

Before you can talk about ROI, you need to understand your company’s fraud risk appetite and define thresholds. These are the foundational components that ultimately feed into ROI. They make it clear what you’re operating against and whether or not you’ve achieved what you set out to do. 

Your instinct as a fraud professional might be to say, “There’s fraud, I need to reduce it,” but there may not be appetite at your company to simply reduce. It may feel counterintuitive, but your company might be willing to absorb more risk because they see growth opportunities. Or they may simply want predictability and therefore are willing to maintain the current fraud risk.

Set expectations with leadership and the finance team. Ask a few core questions:

1. What are their goals?

What is their fraud loss tolerance? Is their expectation that your team reduces fraud, maintains current fraud risk, or increases fraud exposure in exchange for growth? 

2. What ROI would be considered positive or negative for your business?

You also might have a scenario where the C-suite and finance teams are comfortable increasing the fraud budget because they are launching a new product or expanding into new markets. You don’t want to lose money, but you do want to agree on a budget for understanding what’s going on, learning, and adapting quickly.

Once you define fraud risk appetite and thresholds, you are one step closer to securing investment for your fraud programs and proving value.

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Advice for new fraud leaders

If you are a recent fraud leader at a new organization, there is a good chance you don’t have reliable historical data. So how do you set goals, allocate budget, and calculate ROI? You can start by using industry data from the following resources:

• Association of Certified Fraud Examiners: The Fraud Risk Management Guide

• Merchant Risk Council: 2023 Global Payments and Fraud Report

• Research industry-specific groups: e.g., Coalition Against Insurance Fraud

Using relevant data from the resources listed above is a great way to not only benchmark fraud loss but also the size of your team and what they should be trained on. From here, you can figure out what you expect your exposure to be and plan accordingly.

Communicate with leadership

Once you have your plan with industry-specific benchmarking data, you can set the foundation with leadership for why fraud management matters. When leadership sees how other companies are experiencing loss and what type they may be exposed to, they become curious. They want to know if they are losing money, how they are losing money, and which type of fraud is really happening.

Set a fraud management plan to align with existing exposure

Define how you’re going to measure the performance of various fraud management activities, from hiring talent to implementing new technology. When you have your measurement methodology and cadence in place, share with leadership when they can expect updates from your team and how you plan to optimize and improve on the data once you have it. This is the concrete evidence you need to prove the value of your program. 

“Some organizations have less fraud risk and fewer losses and require less mature fraud management capabilities. Others are on the opposite end. We really don't know where you fall until you do that type of analysis,” Sophia says.

Evergreen ROI considerations

There are a few evergreen ROI considerations that are common and easy to benchmark. 

False positives and false negatives

If the company is focused on maintenance and stability, it may care more about false positives and negatives. There is a nuance to how many good users you are deflecting vs. how many bad users you are letting through.

Block rates

If your company is growing and has a high-risk appetite, they will care about your block rate. What percentage of fraudulent transactions are you blocking?

Chargeback rates

When a customer disputes a transaction, they contact their bank or credit card company to initiate a chargeback. They usually claim the charge was fraudulent, the item wasn’t as described, the item never arrived, etc. Then the bank will investigate to determine if a refund will be issued. This is a very common type of fraud among bad actors.

If your company is increasingly losing money to chargebacks, they’ll naturally want to measure chargeback rates and see a reduction. 

Customer experience

The customer experience can be helpful when telling the ROI or value story for fraud management. If customers have a seamless experience when something bad happens, they are more likely to stay with your business. You can look at engagement rates following a fraud event and determine ways to increase it while fine-tuning your response to stressful events in your customers’ lives.

Other considerations for ROI

Let’s dive a little deeper and talk about other factors to consider when figuring out how to measure and calculate the ROI of fraud prevention.

Control groups

If your fraud management program is mature enough, control groups are a great way to answer this important question — if we remove our fraud protections, how much will we lose? 

Control groups are a way to see how much fraud your team is actually preventing. A popular ride sharing app temporarily implemented a control group with the support of its finance team. When they turned off their protections, they discovered that they were deflecting 75% of bad actors and fraudulent activities — a big win for the fraud team and the business.

“Control groups are the gold standard for experimentation, and to me, they are the best way to talk about ROI. But it’s an expensive, complex proposition, so I wouldn’t recommend this to a new company looking to get its feet wet,” Tara shares.

You have to agree with your finance team that you will lose money for the sake of accurate benchmarking. In addition to communicating the budget you’ll need, you’ll also share how your tech stack works to keep bad actors out and quickly block any scammers let in during your experiment. If your company is mature enough, they should be comfortable letting you temporarily turn off fraud controls to ensure you are spending money in the right place to keep your community secure.

“Control groups are really powerful. It speaks to the data science side that wants those rigorous metrics. It speaks to finance who want to put a dollar value and multiplier on it. And it speaks to growth,” Tara explains.

One large fraud calculation vs. segments by fraud types

In some instances, like allocating team budget, it can be useful to share one aggregate fraud loss number to get buy-in. But in other cases, you can break down types of fraud and share data specific to those areas to get additional budget and investment in new technology: synthetic fraud, account takeover, fraud rings, promotion abuse, etc.

Tip for presenting fraud exposure: Map risk and pinpoint exposure across the customer journey or the entire ecosystem. That way you address specific areas of risk, but also provide the bigger picture for more impact. This gives the finance team less of a chance to pick apart certain aspects of your overall fraud prevention strategy.

Which teams should you discuss ROI with?

There are multiple teams you should discuss fraud prevention ROI with, but when it comes to advocating for resources, there are two teams you should regularly report to and offer more transparency in your work: the finance and growth marketing teams.  

The finance team

The finance team’s core mission is to help your company make money and avoid losing and spending too much, which is why it helps to have them on your side during budget discussions. If you’re asking for more budget, you’ll have to talk to finance anyway, so it helps to have already built a rapport with them and shown value.

“All roads lead back to finance. If you’re asking for budget or justifying the budget you have, chances are you need to talk to finance. They are the people who care about the dollars and cents of your company,” Tara says. 

I’ve worked at companies that view fraud prevention and the finance team’s core mission as so intrinsically linked that the fraud team is a sub-team of finance. Regardless of your organizational structure, it’s critical to maintain lines of communication with regular updates on the progress you’re making against your ROI projections.

The growth team

If the fraud team is well resourced and does an excellent job, they don’t generate money for the company — but the growth team does. The growth team builds up the customer base and drives revenue. They can only be successful if the majority of the revenue they generate is legitimate and not later found to be fraudulent. 

It’s helpful to align around the idea of sustainable growth. You can help them do their jobs more effectively and spend money on the customers that create the most value. 

“The growth team builds our site. The growth team builds up our customer base. They drive sales and revenue for the company. The idea that fraud teams and growth teams are opposing forces needs to be broken down from the top down. Growth is the reason we have a company, so we need to help the growth team do their jobs effectively,” explains Tara.

Tailor your messaging

While sharing the same story and ROI metrics with different teams might seem like the easiest path to take, you’ll run the risk of losing some of your audience if what you’re saying doesn’t align with their goals. Focus on who you are talking to and what you want the outcome to be, then tailor your messaging to ensure the metrics you present are relevant. 

“Think about their background, how much they understand fraud, what they like to see, and the language they like to use and match it … It can have a big impact on the success of these conversations,” Sophia says.

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A framework for measuring the value of fraud management

There is no official formula or equation for calculating ROI — it’s different for every company. But there is a generic framework that can be tailored to your needs that Sophia shares toward the end of the webinar. This will help you talk about the value of fraud management and how you measure it, which results in ROI. This leads to a more holistic and comprehensive conversation. 

Fraud management has two sides: 

• Growth drivers: Does the investment enable profitable growth or reduce friction and enhance the customer experience?

• Cost drivers: Does the investment reduce losses or increase efficiency? 

When you think about fraud from these different levers, you get a stronger sense of what is going on and what you’re contributing as a fraud team. 

Remember: Don’t neglect the intangible or difficult-to-measure benefits of a fraud prevention program. Some things are tough to track! It’s hard to put a dollar value on protecting your customers. It may be less tangible, but that doesn’t mean it isn’t a big value driver. Plus, some work is more foundational and does not have a clear ROI, but it can be an enabler for enhanced maturity over the long term and set you on the path for more holistically measuring ROI.

A comprehensive and flexible approach to fraud prevention

Deciding how you plan to measure the ROI of fraud prevention has never been more critical. You need to know your company’s risk tolerance and expectations, define how value will be calculated upfront, and have strategic conversations cross-functionally to get the support you need.

Calculating ROI and investing in the fraud prevention technology that works for your business are not one-size-fits-all endeavors. What suits another business, even one in your industry, may not work for you. That’s why Persona offers a comprehensive yet flexible approach to fraud prevention, helping you fight fraud at every angle. Customers can customize their verification flows and adjust friction in real time based on fraud signals to proactively keep bad actors out and welcome good users. 

Still have questions about ROI? Watch the on-demand webinar for a deeper dive into the importance of fraud prevention, ways to advocate for the resources you need, and how to calculate ROI and the value of fraud management.

If you’re ready to take the next step on your fraud prevention journey, try Persona for free or sign up for a demo today.