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April 21, 2021 - Claire Zhou

How to Calculate the ROI of Transaction Fraud Prevention

Preventing fraud can be a powerful growth strategy. But are your transaction fraud prevention efforts delivering the ROI you anticipated? 

ROI, or return on investment, is an essential metric that can reveal just how well your fraud efforts are working. Mitigating fraud should add to your bottom line, even after the costs of fraud prevention efforts have been accounted for. So if you’re not seeing the needle move, then your current fraud solutions might be under-serving you.

One DataVisor client used our simple ROI calculator to figure out the cost of fraud and the monetary advantages of transaction fraud prevention. The following details can help you visualize how an ROI calculator works.

Understanding the Story Behind the Numbers

All the numbers included in an ROI calculation fall into one of two buckets: risks and opportunities. Organizations need to understand the difference between the two and how to properly categorize them so that they’re treated correctly. For example, if a transaction is treated as a risk instead of an opportunity, it results in a lower approval rate and more friction for the customer.

Our client was an online retailer selling everything from electronics to name-brand clothing — products that are prone to fraud. In such cases, it’s easy to fall back on a “proceed with caution” mentality. However, this also means that our customer could be losing out on sales and damaging customer loyalty when you are overly cautious about transactions. 

However, the opposite can be true, too: when you’re focused on high approval rates and let just almost every transaction pass through, you could become a target for fraudsters. 

For our customer, finding the balance was harder when considering extra layers of complexity, such as doing business across borders. Unfamiliar payment methods and signs of fraud can make merchants overly cautious, and in turn, can inadvertently tune out a large portion of their potential customer base.

The bottom line: fear cannot play a leading role in a fraud prevention strategy. As shown by our DataVisor ROI calculator, the approved transaction rate, customer lifetime value, and percentage of customer churn due to false declines can significantly influence your bottom line.

Operational Costs Affect ROI 

Aside from the fraud itself, our customer needed to consider what their current fraud prevention tools are costing them by simply existing. Fraud prevention is an expense, regardless of how effective or ineffective it is. 

Costs associated with manually reviewing red flags can prolong receiving an ROI from your efforts. This is especially true when your manual processes are prone to human error and allow fraud to slip through the cracks or flag activities as false positives.

The lower the operational costs, the faster you can start to see an ROI for your efforts.

The Results

Using DataVisor’s simple ROI calculator, the customer found that a greater level of confidence in detecting fraud could help them approve more transactions while simultaneously decreasing customer churn rate. What’s more, by lowering their manual review rate to just 1% of transactions, they were able to significantly decrease operational costs by $250,000. 

Taking fraud loss savings, good customer hurt cost, and operational costs into account, the customer saw an ROI of more than $1.6 million with DataVisor solutions.

Try DataVisor’s Simple ROI Calculator

Now that you understand the role that ROI should play in your transaction fraud prevention strategy, it’s time to see how your numbers match up. Download DataVisor’s simple ROI calculator to see how much you might be leaving on the table. 

Photo of Claire Zhou
about Claire Zhou
Claire is a Senior Product Marketing Manager at DataVisor with over 5 years of marketing experience in security and fin-tech. She is passionate about empowering enterprise customers with AI-based solutions. Her expertise spans data analytics, cybersecurity, and fraud prevention. Claire has an MBA from UCLA.
Photo of Claire Zhou
about Claire Zhou
Claire is a Senior Product Marketing Manager at DataVisor with over 5 years of marketing experience in security and fin-tech. She is passionate about empowering enterprise customers with AI-based solutions. Her expertise spans data analytics, cybersecurity, and fraud prevention. Claire has an MBA from UCLA.