Cost of KYC: How Much It Is & How to Reduce It

by Tamas Kadar
Calculating the cost of fraud isn’t pleasant or easy. Let’s do it anyway.
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Fraud is increasing on a global scale and at a worrying rate. Security Magazine calculated it cost $57.8B to businesses in 2018, with an alarming 45% increase due to account takeovers.
Online credit card fraud rose 76% in Australia between 2017 and 2018. The travel industry lost $21B due to fraudsters last year. And that’s before we even delve into bot attacks, account farming and friendly fraud, which now affects everyone, from the iGaming to the dating and adult industry.
This is costing a ton of time, effort and lost resources in Risk Ops. And it shows no signs of slowing down.
By all accounts, it’s not going to get better any time soon. The problem is compounded by the fact that fraudsters utilize increasingly sophisticated methods, and target a growing number of industries and markets, both using identity and transaction fraud.
Moreover, mCommerce complicates things. The increase in card-not-present payments puts businesses more at risk than ever, so does targeting international markets.
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“It is estimated that every dollar lost to fraud ends up losing the organization up to three dollars in indirect cost.”
So how do you measure the true cost of the impact of fraud? Firstly, of course, is the monetary value. It can be calculated by taking a number of factors into account, such as:
And of course, you have to take into account the cost of your fraud prevention team.
But there’s more. Indirect losses might not be as easy to measure, but they are just as costly:
All the above may lead to lower employee morale, which may even affect the HR department in the long term.
In fact, it is estimated that every dollar lost to fraud ends up losing the organization up to three dollars in indirect costs.
For many organization leaders and executives, the first instinct in reducing fraud direct and indirect costs is to look internally. How can we:
One option is to look at a third-party fraud prevention solution. Of course, it adds another cost layer to your budget. There is also a risk factor when trying new solutions.
But it should essentially be easy enough to calculate your ROI and quickly see if it is worth it for your organization.
For one-time costs, you will only have to take into account:
Then, there are a few recurring costs:
While there are crossovers between identity and transaction fraud, it is useful to understand which one is targeting your vertical.
Essentially, managing identity fraud is about controlling which customers you allow in. It is the area of focus for loan providers and financial institutions, for instance. Account takeovers are also the bane of the gambling industry.
Meanwhile, chargebacks and disputed payment fraud are crippling eCommerce retailers, who must therefore focus on transaction fraud, or filtering out bad customer before they pay.
As fraud prevention becomes an increasingly important part of business plans, leaders and organization executives cannot ignore the numerous tools at their disposal.
In some cases, they may have to look externally to assist their own fraud team or outsource the whole prevention. And it may be hugely beneficial if the tool meets the following requirements:
And perhaps even more granularly, you should look at the fraud prevention pricing model. Does the company offer:
Quite simply, you should have a realistic idea of what our fraud prevention service is like. If it’s not for your company, you should know straight away as to not waste anyone’s time. If you think it’s for you, you should be able to try before you buy.
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You might also be interested in reading about:
Learn more about:
Browser Fingerprinting | Device Fingerprinting | Fraud Detection API | Fraud Detection with Machine Learning & AI
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Tamás Kádár is the Chief Executive Officer and co-founder of SEON. His mission to create a fraud-free world began after he founded the CEE’s first crypto exchange in 2017 and found it under constant attack. The solution he built now reduces fraud for 5,000+ companies worldwide, including global leaders such as KLM, Avis, and Patreon. In his spare time, he’s devouring data visualizations and injuring himself while doing basic DIY around his London pad.
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