4 Fraud Analyst Strategies to Fight Fraud and Reduce Chargebacks

In today’s interconnected world, where online transactions and digital interactions have become ubiquitous, the role of a fraud analyst has gained paramount significance. These experts meticulously analyze vast transaction datasets from online orders, employing advanced tools and technologies to detect patterns and anomalies indicative of fraudulent behavior. Their proactive stance is instrumental in safeguarding businesses from a myriad of fraudulent threats that have become increasingly sophisticated in recent years. As merchants continue to navigate the complexities of the online environment, the expertise of a fraud analyst has become indispensable in maintaining the trust and security of digital transactions.

Recruiter.com forecasts a growing demand for fraud analysts, with a 12% increase in job opportunities from 2020 to 2029. Here are some guidelines to consider if you’re hiring more fraud analysts to join your team in the fight against eCommerce fraud. Or, if you’re ready to explore outsourcing to an expert team of analysts, jump to Is It Time to Outsource Your Fraud Analysts?

Fraud analysts establish baseline profiles for customer behavior, transaction history, and account details to understand typical shopping patterns. To scale efforts, analysts will use intelligent algorithms and sophisticated fraud detection software to monitor transactions in real-time, setting up alerts to flag unusual patterns or deviations from established norms (which may indicate fraudulent activity). Any deviations from baseline patterns trigger further investigation by the analyst.

Here’s an example of how a fraud analyst uses their behavioral expertise to detect an unusual geographic spending pattern:

Suppose a fraud analyst monitors credit card transactions and notices a series of transactions from a single account. Ordinarily, this account has a history of making purchases within a specific geographic region. However, the analyst observes a sudden and significant increase in transactions from a completely different and distant location within a short time frame. The steps the analyst would take are as follows.

• Establish a baseline: The fraud analyst has previously established a baseline for the account’s typical spending behavior, considering factors like location, transaction frequency, and spending habits.
• Anomaly is detected: The sudden surge in transactions from a distant location triggers an anomaly alert. The analyst’s system flags this as unusual behavior compared to the established baseline.
• Investigation begins: The fraud analyst investigates further, considering factors such as the time of day, merchant types, and transaction amounts. They may discover that the transactions are inconsistent with the account holder’s historical behavior.
• Confirmation of anomaly: After thorough investigation, the analyst confirms that the transactions are indeed unusual and do not align with the account’s regular spending patterns.
• Take immediate action: The fraud analyst acts promptly, such as placing a temporary hold on the account, contacting the account holder to verify the transactions, or escalating the case to the appropriate department for further investigation.

In this example, the fraud analyst’s ability to recognize a deviation from the established pattern of geographic spending played a crucial role in identifying potential fraudulent activity. Such pattern recognition helps prevent unauthorized transactions and protects the account holder from financial losses.

Fraud analysts review large sets of transaction data using advanced analytical tools and techniques to identify potential fraud threats as early as possible before they snowball into more significant challenges. By understanding macro trends across shopper behavior, fraud analysts can assess transaction risks and set up alerts within their detection software to trigger notifications when a transaction needs further review. The best fraud prevention software also has robust machine learning models to help analysts keep detection methods current as the technology leverages the latest data and insights to fight fresh fraud schemes.

When analyzing data, fraud analysts need to have the ability to spot macro trends across multiple datasets. Some examples of analyses include:

• Correlation analysis: Examine correlations between various factors such as transaction types, locations, and customer profiles. By identifying relationships and dependencies, analysts can uncover hidden connections between seemingly unrelated data points.
• Temporal analysis: Analyze data over time to detect temporal trends and patterns. For example, a sudden increase in a particular type of transaction during specific hours or days may signal a growing fraud trend.
• Geospatial analysis: Incorporate geospatial analysis to detect fraud trends associated with specific geographic regions. Unusual concentrations of transactions or unexpected changes in transaction locations may indicate emerging fraudulent activities.
• Chargeback analysis: Examine the history of chargebacks and disputes. A high number of chargebacks may suggest fraud or that customers are dissatisfied with their purchases.

Fraud analysts can use their data-backed insights to set up and manage alert systems to identify and respond to suspicious transactions promptly. Here are some types of alerts that an eCommerce fraud analyst might set up to detect and address potential risks:

• Unusual purchase amount: Alert triggered when a transaction amount is significantly higher or lower than the average order value, indicating potential fraudulent activity.
• Rapid succession of orders: Alert triggered when a customer places multiple orders in quick succession, which may suggest automated or fraudulent behavior.
• Unusual shipping address: Alert triggered when a shipping address differs significantly from the billing address or when there are frequent changes in shipping addresses.
• Mismatched billing information: Alert triggered when there are discrepancies between the provided billing information and the data on file, such as mismatched names or addresses. (For more, read: The Revenue Conundrum: How AVS Mismatches Can Undermine eCommerce Profits)
• High-risk countries: Alert triggered when transactions originate from countries with a high risk of fraudulent activities, based on historical data and risk assessment.
• Proxy or VPN usage: Alert triggered when there is evidence of transactions originating from proxy servers or Virtual Private Networks (VPNs), which can indicate fraudsters attempting to hide their location.
• Unusual time-of-day transactions: Alert triggered when transactions occur during unusual hours or outside the typical activity times for the account holder. For example, if you have a legitimate, returning customer who has never placed an order at 3:00 a.m., it could indicate a fraudster attempting to complete an unauthorized purchase in the hope that they are less likely to be caught or flagged by the victim.
• Multiple failed payment attempts: An alert is triggered when there are multiple unsuccessful payment attempts, suggesting potential fraudulent activity or card testing.
• Abnormal device characteristics: Alert triggered when transactions are initiated from devices with unusual characteristics, such as outdated browsers, suspicious plugins, or unfamiliar device fingerprints.
• New account with large orders: Alert triggered when a new customer creates an account and immediately places large or high-value orders, which may indicate fraudulent behavior.
• Unusual product combinations: Alert triggered when there are orders with uncommon combinations of products, as fraudsters may attempt to test stolen payment information with small, high-demand items. Additionally, fraudsters may mix lower-priced items with high-priced items to appear like regular customers and avoid drawing attention to their activities. 
• Unusual shopper behavior: Alert triggered when there are sudden changes in user behavior, such as a shift in browsing patterns or frequent account logins from different locations.

Make sure not to block orders simply because it triggered an alert. Leverage multiple data points to cross-reference the validity of transactions and use alerts as signals that a fraud analyst needs to investigate further.

Fraud analysts conduct risk assessments to evaluate potential vulnerabilities and areas susceptible to fraudulent activities within eCommerce transactions. Too often, businesses set up unnecessarily strict risk criteria that block good orders — and revenue. Learn how you can strike the right balance in The eCommerce Guide to Passing More Medium and High-Risk Orders.

For fraud analysts, they typically assess risk by reviewing the following data segments:

• Historical data: Review historical transaction data to identify patterns of fraudulent activities. Analyze past incidents, their characteristics, and fraudsters’ methods to understand potential risks.
• Transaction behavior: Examine the typical behavior of legitimate customers, considering factors such as average order value, purchase frequency, and preferred payment methods. Deviations from these norms can signal potential risk.
• Geographic risk assessment: Evaluate the geographic locations associated with transactions. Certain regions or countries may have higher risks of fraudulent activities, and this information helps in setting risk thresholds and alerts.
• Payment method risk: Assess the risk associated with different payment methods. Some payment types, such as prepaid cards or certain digital wallets, may pose higher risks due to their anonymity and limited traceability.
• Device and IP address analysis: Scrutinize the devices and IP addresses used to initiate transactions. Unusual device characteristics or frequent changes in IP addresses may indicate potential fraud.
• User account analysis: Review user account data, including account creation dates, login history, and order history. Unusual account behavior, such as rapid account creation followed by large transactions, may raise red flags.
• Velocity checks: Implement velocity checks to monitor the speed at which transactions are conducted. Rapid or repetitive transactions from a single account in a short time span may indicate fraudulent activity like card testing.
• Chargeback analysis: Examine the history of chargebacks and disputes. If there are seasonal spikes or the overall rate of chargebacks is higher than average, there may be a vulnerability in the eCommerce process.
• Device fingerprinting: Utilize device fingerprinting techniques to track unique characteristics of devices used in transactions. This helps identify and prevent fraudsters attempting to conceal their activities using multiple devices.
• Machine learning models: Implement machine learning models that learn from historical data to predict and identify emerging patterns of fraudulent behavior. These models can adapt to evolving threats and enhance risk assessment accuracy.
• Collaboration with industry networks: Collaborate with industry networks and technology partners to share information about known fraud patterns and trends. Connecting with other businesses and organizations can provide valuable insights into emerging threats.
• Policy review and enhancement: Regularly update fraud prevention policies and procedures based on evolving threats. This includes adjusting risk thresholds, updating security protocols, and incorporating new technologies.

By working in collaboration with other departments and external partners, and understanding shopper behavior, fraud analysts become experts in protecting your shop. As they’re on the front lines, they are most informed about emerging fraud threats and new techniques used by fraudsters. The acquired knowledge makes them valuable contributors to fraud prevention policies, adapting new strategies to counter evolving threats.

A fraud analyst manages claims and investigations by meticulously scrutinizing transactions and resolving disputes to safeguard the integrity of the online retail platform. Tasked with evaluating the legitimacy of customer claims and potential fraudulent activities, these analysts comb through transaction data, conduct in-depth analyses of customer behavior, and utilize digital forensics to gather evidence and build cases against fraudulent claims. 

Collaborating with various departments, including customer support, IT, and payment processors, they work towards validating or refuting claims by cross-referencing information, verifying supporting documents, and implementing effective risk mitigation strategies. The analyst’s role extends to maintaining comprehensive documentation of investigations, preparing detailed reports for stakeholders, and continuously adapting strategies to stay ahead of emerging fraud trends, ensuring a secure and trustworthy eCommerce environment for both customers and the business.

Fraud analysts employ a multifaceted approach to detecting and preventing fraudulent transactions, combining advanced technology, data analytics, and human expertise. While the job’s responsibilities can be learned, fraud analysts need to come to the table with a special set of skills to succeed. When hiring, look for analysts who exemplify the following traits:

• Critical thinking: Ability to analyze information objectively and make informed decisions in complex situations, as well as identify patterns.
• Attention to detail: A keen eye for details is essential to catch subtle anomalies and ensure thorough documentation.
• Communication skills: Clear and concise communication with both internal teams and external parties, especially when explaining complex findings. Similarly, a good analyst will have strong interpersonal skills, which help build positive relationships with colleagues, customers, and external partners to facilitate collaboration.
• Empathy: Understanding and empathizing with customers while remaining objective during investigations.
• Adaptability: Flexibility to adapt to evolving fraud tactics, technologies, modern purchasing patterns, and changes in the eCommerce landscape.
• Time management: Effectively managing time and priorities to meet deadlines in a fast-paced environment.
• Problem-solving: A proactive approach to identifying and solving issues, including the ability to think creatively to address emerging fraud threats.
• Ethical judgment: Maintaining high ethical standards when handling sensitive information and making decisions during investigations.
• Resilience: Ability to bounce back from setbacks, maintain composure during high-pressure situations, and learn from challenges.
• Teamwork: Collaborating seamlessly with cross-functional teams, such as IT, customer support, and legal, to achieve common objectives.
• Curiosity: A desire to continually learn and stay updated on industry trends, fraud techniques, and new technologies.

Managing a team of fraud analysts might make sense for some merchants, but if your business is scaling rapidly, it’s probably time to consider outsourcing to experts. For chargebacks, retailers often incur fees ranging between $30 and $100, and an average of 1.8 hours spent resolving each dispute. When you outsource to a solution like NoFraud, your claims are managed by experts and are covered by our chargeback protection policy — which means any order passed by NoFraud will qualify for coverage on additional fees (See Chargeback Protection Eligibility for more details).

Here are some other signals that it’s time to use a solution like NoFraud to be your frontline fraud fighter:

• Growing transaction volume: Outsourcing can provide scalability if your organization is experiencing a consistently high volume of transactions that is challenging for an in-house team to manage efficiently.
• Resource constraints: If your business lacks the resources (human, technological, or financial) to invest in a robust in-house fraud prevention infrastructure, outsourcing can be a cost-effective alternative. An in-house fraud team also requires continued training and development, which can be challenging to maintain. Outsourcing provides merchants with access to a ready-made, trained fraud prevention team.
• Specialized expertise: If fraud prevention requires specialized skills or technologies that your in-house team lacks, outsourcing to a specialized provider can offer access to advanced expertise. NoFraud’s team of experts analyzes fraud across various online industries to inform customers of the latest trends and insights to keep their business safe.
• Fluctuating workload: Businesses with fluctuating transaction volumes may find outsourcing beneficial as it allows for flexible resource allocation based on demand.
• Cost considerations: Evaluate the costs associated with hiring, training, and maintaining an in-house team versus the potential cost savings offered by outsourcing. Outsourcing can also help to maximize approval rates by allowing expert analysts to verify the purchaser’s identity in real-time for the highest-risk transactions.
• Global operations: If your business operates globally, outsourcing to a provider with a global presence can offer region-specific expertise and enhance fraud prevention strategies.
• 24/7 monitoring needs: Outsourcing can provide continuous coverage if your organization requires round-the-clock fraud detection and prevention monitoring.
• Technology advancements: If keeping up with the latest fraud prevention technologies and tools is challenging for your organization, outsourcing can provide access to cutting-edge solutions. NoFraud’s platform leverages millions of data points that feed our machine-learning engine, which continues to evolve and learn how to mitigate emerging fraud threats.
• Expanding markets or product lines: Serving new markets or expanding the products you sell may expose you to new and unfamiliar types of fraud or an increase in fraud attempts that exceed the bandwidth or expertise of internal teams.
• Strategic focus: Outsourcing can free up internal resources so your in-house team can focus on core business strategies rather than day-to-day operational tasks.
• Regulatory compliance challenges: If your industry faces complex regulatory requirements related to fraud prevention, outsourcing providers often have expertise in navigating and ensuring compliance.
• Increased fraud incidents: A sudden or sustained increase in fraudulent activities may indicate the need for a more robust and specialized approach, which outsourcing can provide. Outsourcing can also offer a fresh perspective and improved results if your current in-house fraud prevention measures are not effectively reducing fraud incidents.