Fraud ManagementPre- or Post-Transaction? In-House or Outsourced? What’s the Best Approach to Fraud Management?

January 14, 2022 | 12 min read

Fraud Management

In a Nutshell

In this resource, we’ll explain fraud management from both the pre- and post-transaction angle. We’ll also look at some different fraud management examples, and explore the benefits and challenges of both internal and third-party solutions.

Thanks to the internet and eCommerce, you have greater access to eager consumers than ever before. Shoppers from around the globe can easily become regular customers. The world is your marketplace.

The downside: fraudsters can get to you just as easily as legitimate customers.

Online fraud management has become one of the greatest challenges you’ll face as a business. According to a recent report from CNBC, online fraud attempts jumped more than 25% in the first quarter of 2021. For high-risk verticals, the numbers are even more severe.

You can’t ignore this surge in fraud activity. Something needs to be done. But, like many merchants, you may not even know what options are available.

What is Fraud Management?

Fraud Management

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Fraud management refers to an overarching strategy designed to identify and block potential online fraud. A comprehensive fraud management strategy also allows merchants to prevent future fraud occurrences, and recover revenue lost to fraudsters.

Retail fraud isn’t a new phenomenon. However, the internet era has opened new worlds of opportunity for fraudsters.

The scope and reach of eCommerce means crooks can attack from almost anywhere. At the same time, online anonymity makes validating the buyer’s identity very difficult. All things considered, it’s no wonder we’re seeing such a massive surge in fraud reports.

An effective online fraud management solution must address the problem from multiple angles. In addition to recognizing and understanding the different types of fraud, you’ll need to know which prevention and response methods work best in each situation. You’ll also need the ability to track down the true sources of your fraud. This can be much more complicated than it sounds.

There are two key questions to ask as you research how to build out your online fraud management strategy:

  • Should you devote more resources to pre-transaction or post-transaction threats?
  • Should you try to manage fraud in-house, or outsource the problem?

Let’s look at these two questions, and examine what each entails.

Pre-Transaction Fraud Management: Strengths & Weaknesses

Of course, the best payment fraud management strategy is to identify a bad transaction it before it goes through. Automated fraud filters, backed by other fraud detection tools, can help by flagging or denying suspicious orders.

Unfortunately, filters are not 100% reliable. Automation can be a great time-saver, but fraudsters are constantly developing new ways to game the system. Like any automated strategy, filters can be fooled or bypassed altogether.

There’s also the problem of parameters. You select the guidelines for what the system marks as fraud, which can be a delicate balancing act. Obviously, setting the parameters too wide allows more fraud to slip through. Tighten the filters to stop more potential fraud, however, and you’ll end up declining more legitimate orders. In fact, it’s estimated that false declines cost US merchants $34 in lost sales for every $1 in “prevented” fraud.

Post-Transaction Fraud Management: Strengths & Weaknesses

Threats like friendly fraud and cyber shoplifting are effectively invisible to filters, because the fraud doesn’t even happen until after the transaction. And, once a chargeback has been issued for these attacks, your only option is to contest it through the representment process. Filing and keeping up with these post-transaction threats is yet another facet of online fraud management.

So, can you prevent post-transaction fraud? In a great number of instances, yes. You need to find the true source of your chargebacks, then take steps to resolve each dispute trigger.

But, like we mentioned earlier, that can be harder than it sounds. In friendly fraud situations, the real cause of the chargeback is usually quite different from the “official” cause. Your fraud management strategy should include extra measures to dig out the true source of each chargeback. Otherwise, you’ll be trying to solve the wrong issues with the wrong solution.

Managing fraud today means fewer chargeback losses in the future.


In-House Fraud Management: Strengths & Weaknesses

The typical first response to fraud management is an attempt to use in-house resources. That’s not a bad starting point, as an in-house strategy is usually capable of addressing easy-to-manage issues. It can clear out the “low-hanging fruit,” as it were.

Proponents of in-house management point out that their method is more cost-effective. They also argue that in-house fraud management allows them to react faster to situational changes, and puts the process in the hands of people most familiar with the business.

There is some truth to this argument. However, anti-fraud management is a multifaceted process. Requirements can vary dramatically according to industry, risk, and other factors. A strategy that works for one merchant might be a complete bust for you. Also, an in-house management department has several strikes against it right from the start:

Cost Efficiency

From the outside, fraud management DIYers seemingly save money by using existing resources and eliminating fees. But wouldn’t your people be better utilized in other, revenue-generating areas? The lack of efficiency here could ultimately cost you more than hiring professional providers.

Reporting Transparency

Without transparent, in-depth reporting, it’s hard to know how much your fraud management actually costs, or how much ROI you receive. In-house profit and loss assessment typically lacks the kind of cost transparency that fraud management tools bring to the mix.


Fraud doesn’t remain static. Techniques and technologies are constantly evolving. In-house teams may be able to recognize and adjust to new fraud and chargeback patterns, but usually not until after the fact. They can’t proactively put preventative measures in place.


It’s true that no one knows the business better than the people who work it every day. But by the same token, a fraud expert is daily immersed in the world of chargebacks, fraud, and emerging threats. Unless your people are fraud professionals, they’re going to miss things an expert provider will catch.

Outsourced Fraud Management: Strengths & Weaknesses

It’s hard for in-house teams to determine where fraud comes from. Even merchants who pay attention to such details often misinterpret data or rely too heavily on reason codes. Plus, at some point the job simply becomes too big—and requires expertise in too many different areas—for a casual, “part-time” approach to be effective.

From that perspective, it’s easy to understand why outsourcing fraud management is better for many merchants. The benefits should be obvious: professional handling, less stress for you, and a clear and measurable ROI. Plus, outsourced solution providers can adapt more quickly to changing conditions than an in-house team.

Of course, there are still downsides to consider. Some of these include:

Up-Front Investment

Outsourcing your fraud prevention may require a larger up-front investment than building out an in-house strategy over time. You can’t always ramp up service as you need (or are able) to do so. This could result in you paying for service capacity you’re not using.

Procedural Transparency

You don’t have as much oversight as you would with an in-house team. Even with detailed reporting, there are certain operations that are going to remain opaque. This can be worrying for those who like to take a “hands-on” approach.


There are facets of fraud management that you simply can’t automate. If you rely on a solution provider that promises automated fraud management, it could lead to familiar problems (false positives, failing to identify new fraud sources, etc).

For example, look at where most of your fraud is coming from: enterprise fraud management of criminal threats requires a very different approach than dealing with high rates of friendly fraud. And neither approach would be effective if you’re dealing with fraud from your affiliate advertising network.

Reporting: Get the Full Picture on Fraud Management

The reality is that you’re unlikely to suffer from only one type of fraud attack. While the bulk of fraudulent activity may originate from a single source, one or more other sources will almost always exist.

Any truly effective fraud management strategy must be both multi-tiered and customized to your unique needs. How do you determine what those needs are, though?

Even with a great in-house strategy, you won’t know what works—and what doesn’t—without the kind of in-depth reporting tools that outsourced solution providers offer.

The best fraud management solutions deliver:

  • Direct profitability
  • Improved merchant-issuer relationships
  • Greater customer satisfaction
  • Fewer manual reviews
  • Decreased false positives

You can’t identify opportunities to reach those goals without solid reporting, though. So…what’s the answer, then?

Build AND Buy: Leveraging a Multi-Layer Solution

Pre- versus post-transaction fraud management. In-house versus outsourced fraud management. What’s the best approach?

The truth is that you don’t have to limit your options to just one course of action. Instead, ask yourself: Which outsourced products or services would complement your in-house skillset? Which resources would be most useful before or after a transaction?

Allocating different practices to different parties could be the best approach to take. So, when it comes time to outsource to a professional or add various products, what should you look for? Here are a few things to consider:

  • Off-the-rack, “cookie-cutter” solutions are not ideal. No two businesses have the same risk. A one-size-fits-all, automated solution will ultimately be ineffective.
  • What are the guarantees? And what are those guarantees based on?
  • If price is based on transaction volume, can you analyze future growth potential well enough to budget accordingly?
  • Are there client testimonials? Are you able to identify current customers who share common practices/products/sales models with you?
  • Is the vendor adaptable and agile enough to support future technology and fraud developments?
  • Do they have real-world eCommerce experience? Partnering with providers who know the merchant experience will help minimize risk without compromising growth.

Where to Look for Third-Party Help

Who you should turn to for outsourced solutions depends on the specific areas where you need help. This list showcases a few of the most reputable vendors of fraud management software, and their specialties:

Bolt is a one-click Checkout platform using a multilayered approach of machine learning, rules, and manual review for in-house risk management, backed by a 100% fraud chargeback guarantee.
Riskified uses machine-learning to instantly differentiate between good and bad actors, allowing merchants to approve more orders (with a 100% chargeback guarantee) while providing a frictionless customer experience. is the only cloud-based “glass-box” system, and the leading fraud prevention platform for the financial services and digital commerce sectors. Their algorithmic analytics detect fraud in real-time, at scale.
Signifyd offers fraud protection for eCommerce backed by a 100% financial guarantee. Their technology identifies both good and bad consumer behaviors—reducing losses, lowering rejections, and increasing revenue.
Over 34,000 sites and apps—from digital disruptors to Fortune 500 companies—trust Sift to deliver prime customer experiences while preventing fraud and abuse. Their scalable solution uniquely updates risk scores in real time.
Lime Light believes that if merchants can better identify fraudulent transactions, they can eliminate buyers who aren’t bringing value...and focus on real, long-term customers, in addition to reducing the burden of chargebacks.
Simility combines the best of human analysis and machine learning in their approach to fraud protection. This adaptive fraud detection learns and evolves, preventing fraud in real-time and helping merchants grow.
Ravelin provides technology and support to help merchants prevent evolving fraud threats and allow them to accept payments with confidence. They offer machine learning, access to a global fraud network, and more.
Iovation reduces cyber fraud through strict device identification and risk reporting. The company helps merchants keep apps and websites secure by identifying suspicious devices the moment they try to connect.

Help is Here…Whenever You Need It.

The providers outlined above are some of the leading names in pre-transaction fraud management. But...what about post-transaction fraud?

That's where Chargebacks911® comes in.

No matter where you need help, Chargebacks911 should be an integral part of a multilayer fraud management solution. We work closely with your in-house management team to create a customized integration. We also offer the most comprehensive, transparent, end-to-end outsourcing option available, backed by the industry’s only performance-based ROI guarantee.

Contact us today to learn more about our solutions and how Chargebacks911 can help optimize your current fraud management efforts.

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