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BPM Analytics

KPIs of a fraud management system

Digital platforms and e-commerce sites have increased the risk of fraud manifold. While stringent security measures minimise instances of fraud, they can inadvertently block many transactions that are legitimate. Interestingly, these ‘false positives’ can cost businesses 75 times more than the cost of fraud in the value of cancelled transactions and lost opportunities for further business.

Your fraud management system, therefore, has a threefold responsibility –

  • To detect and prevent fraudulent activity
  • To ensure that you do not block legitimate transactions in the process of minimizing your fraud rate.
  • To enhance security without compromising customer satisfaction

It is worthwhile tracking a few KPIs to know if your current fraud management system can fetch the desired business outcomes.


Effective KPIs for fraud management

Most fraud prevention tools allow you to track useful metrics such as the percentages of approved transactions, declined transactions, and false positives. However, these values, taken in isolation, cannot give you a comprehensive picture of the overall performance of your fraud prevention software and strategies.

Here are six effective KPIs for fraud management that will help your organisation balance security with customer satisfaction:

  • Approval versus denial rate

    >Approval refers to the volume of transactions that receive the ‘approved’ status after the screening , a critical factor in evaluating your risk management strategy. This includes transactions approved by your fraud detection system and human teams. Your approval rates should be close to 80% unless you are in a high-risk business.

    Denial rate refers to the number of transactions declined from the total transaction volume, a key performance indicator for assessing fraud management effectiveness. Denials can come from your fraud management system or analysts, card issuers, payment gateways, or chargebacks, impacting your overall fraud prevention efforts.

    A high approval-to-denial ratio is among the best KPIs of fraud management. However, it is crucial to factor in the source of denials to enhance your risk management approach. For instance, if your denials stem mainly from chargebacks or if your chargeback rate exceeds 1%, it is time to tweak your fraud management system despite a high approval rate.

  • Incoming pressure

    Incoming pressure is the total volume of transactions identified as fraudulent, regardless of whether those transactions were approved or declined. In other words, incoming pressure measures how much fraudulent traffic your organisation faces in a specific period.
    Tracking this fraud management KPI can tell you whether your approval and denial rates align with your industry standards and help you reduce fraud effectively.

    For instance, an 80% approval rate is reasonable if your incoming pressure is high but suboptimal if the incoming pressure is low. Similarly, if your incoming pressure and denial rates are inversely proportional, you should reassess your fraud management system strategies to ensure optimal performance and fraud prevention success.

  • Precision versus false positives

    This is a crucial fraud management KPI to balance security with customer satisfaction. Of the total volume of declined transactions, precision is the percentage of fraudulent transactions, while false positives are legitimate transactions misidentified as fraud which can affect your fraud KPI. In other words, precision is your ‘hit rate’ and false positives are your ‘miss rate’ in the context of payment fraud.

    False positives indicate a subpar customer experience, costing you sales, business opportunities, and customers. Keeping your precision percentage high and your false positives minimal is vital.

    But it is also important to remember that the precision metric only refers to declined transactions correctly identified as fraud, which is crucial for accurate fraud KPI assessment. It does not apply to fraudulent transactions that get processed and approved. A high precision percentage, therefore, may not indicate optimal performance.

  • Recall

    Optimize your fraud detection strategy with essential fraud KPIs

    Optimize your fraud detection strategy with essential fraud KPIs  

    Out of the total number of approved and denied transactions your organisation eventually tags as fraud, recall, or ‘catch-rate’ is the number of cases your fraud management system has declined before processing.

    A high recall is the gold standard of an optimally functioning fraud management system. Your precision metric has little value if your recall rate is low, especially in the face of rising fraud cases. You can maximise recall by investing in an AI-driven fraud management system that accurately scores the risk level in every transaction.

    Your recall and precision metrics, taken in combination, should justify your decline rate and reflect the effectiveness of your fraud prevention efforts. If your decline rate is substantially higher than your recall and precision, it means your fraud management system is blocking too many legitimate transactions, contributing to a higher fraud rate.

  • Fraud-to-sales (F2S) ratio 

    The F2S ratio is the volume of fraudulent transactions divided by the total transaction volume in your organisation, serving as a key performance indicator for fraud management. Ideally, your F2S ratio should not exceed 1%, but this percentage is industry-specific and reflects current fraud trends. This is a useful fraud management KPI to ensure that your organisation’s security levels meet industry standards.

    A sharp rise in your F2S ratio calls for reassessing your security systems or fraud prevention strategies to effectively mitigate payment fraud.

  • Good user approval rate

  • A good user approval rate is the percentage of ‘good users’ or legitimate transactions from the total volume of approved transactions, essential for maintaining a healthy checkout process. This is perhaps the most important KPI of fraud management, as the prime objective of a fraud prevention system is to maximise legitimate transactions and minimise false positives while effectively managing fraud cases.

    Comparing the relative values of your good user approval rate, overall approvals, and incoming pressure can give you a good idea of the efficiency of your fraud tool.

For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organisational expectations with a robust digital mindset backed by innovation to prevent fraud. Enabling businesses to sense, learn, respond, and evolve like living organisms will be imperative for business excellence. A comprehensive yet modular suite of services is doing precisely that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.


How can Infosys BPM help with Fraud Management KPIs?

Balancing fraud management with customer satisfaction is challenging for most organisations. With our comprehensive set of fraud detection and prevention analytics tools, we help organisations analyse massive and complicated data sets to detect irregularities, eliminate false positives, and deliver comprehensive, advanced fraud control solutions.

Know more about Infosys BPM’s fraud management solutions.


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