5 Fraud Trends We’ll Be Keeping an Eye On in 2021
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Last Updated: June 28, 2024 by Bence Jendruszak
Key Risk Indicators are powerful metrics but are harder to understand than KPIs. Is it better to use KPIs or KRIs to measure your risk team’s success?
The short answer is that you need both. However, because there still seems to be confusion between the two types of metrics and their usage, we wanted to break them down so you understand these concepts better. Let’s start by looking at Key Risk Indicators and how they can help your risk operations.
A Key Risk Indicator (KRI) indicates how damaging an activity might be. It’s a key feature of RiskOps analysis and risk monitoring, which aim to predict how likely an action will hurt the company financially or through a bad reputation.
This is especially useful for upcoming projects, such as taking on more transactions, attending a public event, or launching a new product.
The key difference between a risk management KPI and a KRI is that key performance indicators are designed to measure how well (or badly) things are going using historical data. On the other hand, Key Risk Indicators point to future adverse impacts.
In other words, KRIs can measure risk that has yet to occur, which is useful for unveiling new growth opportunities or assessing which processes need to be optimized.
A good way to know if you’re dealing with a KPI is to ask if it measure how well your risk team doing. A KPI example would be to log and monitor the chargeback dispute success rate per agent.
If the data you use measure helps anticipate a risk factor, then it’s a KRI. An example would be to estimate how many more cybersecurity attacks you would risk by launching a new product.
Explore what fraud scores consist of, how they can be the most accurate indicator of risk and how you can leverage them to boost business efficiency.
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As mentioned above, KRIs help us see where risk could potentially exist. Using them can help with a multitude of scenarios when working with unknowns:
A KRI should help you answer questions in the following scenarios:
As you can imagine, there are two things you need to deploy them: a strategy and access to the right data. The strategy part has to do with the selection of the right KRI, but also understanding if you will be able to measure it.
Access to the right data comes from your tools. Is your data accurate? Can you quantify doubts with numbers? And which monitoring, tracking and reporting tools do you use?
An interesting point is that you can actually use these large-scale metrics to focus on more granular KPIs. Following our key characteristics of KRI, you could use the cost of an attack against your business to:
Interesting (and very useful questions you could answer include):
And crucially, you could estimate the value of hidden or invisible risk.
Once you have found a satisfactory way to calculate the metrics, you must decide how transparent you will be with them. Sharing these metrics with upper management can be beneficial, especially if there is a significant increase in risk. However, if the metrics touch upon personal performance, such as cost saved per agent, consider masking identities to avoid making employees uneasy and disincentivizing the worst performers.
Sharing enough data with the team can foster self-regulation and mutual support without management intervention. Additionally, Key Risk Indicators (KRIs) can justify promotions, bonuses, or internal training. They are also valuable for deciding on investments in software or infrastructure by providing concrete ROI measurements, such as hours saved and improvements in employee performance.
Now we’ve established the difference between KPIs and KRIs, let’s see how this applies to fraud prevention.
In the context of risk management, KRIs help managers with their balancing act. On the one hand, they want to block as many fraudulent transactions as possible. On the other, they want to accept as many transactions as possible. If you were to block all transactions, the fraud rates would drop down to 0%.
So a standard KPI for measuring fraud rates would look like:
Fraud = chargebacks + refunds / total accepted transactions in a given time period.
But these results also need to weigh in your acceptance rate (ratio of approved vs declined transactions).
Moreover, factoring false positives into the equation can be tricky, because you may lose more than the value of a transaction. A false positive could turn a loyal customer towards competitors, which means your customer lifetime value (CLV) and customer acquisition costs (CAC) are also wasted.
So we’re now already looking at a much more complex equation:
Cost of fraud = transaction value + chargeback fees vs. false decline = transaction value + CLV + CAC
As you can see, the cost of fraud can be a very strong KRI because it gives us a better view of how fraud affects various business areas.
More importantly, you can use that number to spot when something goes wrong. If, say, a payment service goes down, you should immediately see a change in the numbers.
For this example, we’ll look at KPIs that are relevant for online stores and e-commerce, but many of them can be adapted to any kind of transaction, be it a SaaS or a B2B business.
SEON provides a robust, customizable, and fully explainable fraud scoring system that enhances risk assessment for each transaction through a combination of human intelligence and machine learning. Here’s how SEON helps with risk assessment and provides a risk score based on the following components:
By offering a comprehensive and flexible fraud scoring system, SEON enhances risk assessment capabilities, providing more accurate, real-time evaluations and helping to safeguard against fraud effectively.
SEON’s customizable fraud score threshold automatically declines or alerts you to risky transactions to protect your business from online fraud
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Key risk indicators are a form of measurement used by a business / organization to manage and analyse potential exposure to risk whether financial, reputational, or compliance-related.
Some examples could be the turnover in staff, the number of processing errors or the number of viruses, phishing attempts, and other cyber attacks the company has faced.
KRIs allow companies to better identify and predict any potential exposure to risk, before anything serious takes place. Companies that understand where they need to strengthen can be more proactive in protecting their business.
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Learn more about:
Browser Fingerprinting | Device Fingerprinting | Fraud Detection API | Fraud Detection Using Machine Learning
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Bence Jendruszák is the Chief Operating Officer and co-founder of SEON. Thanks to his leadership, the company received the biggest Series A in Hungarian history in 2021. Bence is passionate about cybersecurity and its overlap with business success. You can find him leading webinars with industry leaders on topics such as iGaming fraud, identity proofing or machine learning (when he’s not brewing questionable coffee for his colleagues).