6 Ways Risk Management can lead to ecommerce profit

August 11, 2017 Risk & Fraud
Robert Carlson
By Robert Carlson, WePay Business Development MBA Intern
Robert Carlson
By Robert Carlson, WePay Business Development MBA Intern

Profit From Risk

We often talk to clients who think they don’t have a risk problem. A risk management program is an extra to them, something to worry about after their company gets to a certain size in transactions or when they feel real pain from chargebacks. This points to a misunderstanding of effective risk management services – the best ones can boost revenue and profit, not just save company costs. Here are the top 6 ways a sophisticated risk management system drives increased revenue and profitability, also improving the experience customers may have.

1. Increasing the Number of Merchants on your Platform

Platforms want to reach as many merchants as possible and to onboard these merchants as quickly as possible to increase engagement. A risk system can be designed to onboard merchants as quickly as possible, minimizing information requirements placed on them. Faster onboarding and higher engagement on the platform can lead to more transactions overall, which means more revenue on your platform.

2. Increasing Payer Conversions

We’ve all had the experience of paying for something online and had to enter information multiple times, creating an unnecessary level of friction. A sophisticated risk management program means payers only get asked for the most critical information to enable payments. Minimizing what you ask makes it easier on them, improves their user experience, and, in turn, increases the chances that a user completes a transaction and sends your merchants money.

3. Increasing the number of transactions that are auto-approved

Once you have a payer who wants to make a transaction, then you have a different issue – whether to approve their transaction or not. Risk management in ecommerce tackles the challenge of offering payers a great user experience (including speed and ease of use) vs. protecting your company from fraud. Focusing on one will often come at the expense of the other. But some new payments companies help you get the best of both. These companies use a combination of ever-improving risk signals and machine learning to provide more accurate risk profiles. Better understanding the riskiness of a given payer or merchant using your platform means you as an ecommerce provider can auto-accept more transactions instead of declining them out of fear of fraud and still offer a customized user experience. That means more revenue for you.

4. Saving Time through Managing Manual Reviews

You can’t auto-approve all transactions; some need personal attention. This requires having risk analysts who can make a determination and customer support agents to handle all user queries. As you can imagine, manual reviews require significant resources. Moreover, because you won’t be operating at the same scale as a company specializing in risk, there can be meaningful challenges ramping up and operating efficiently. A risk management company can create a program to manually review fewer than 5% of cases. Your company starting out would likely review about 20%. Being better at manual reviews also means less work for customer support. So in addition to saving money on personnel expenses, you also save time.

5. Increasing Profit by Lowering Chargebacks

Now that you’ve boosted conversions, auto-approvals, and enabled an efficient manual review system, you still have to deal with chargebacks and refunds, the main drivers of loss. Finding a provider who can help you identify causes of chargeback fraud in your system can prevent significant chargebacks on your platform. Even better, risk systems improve over time, meaning you could save even more money later on.

6. Increasing Your Merchants’ Cash Flow

Many platforms assume a merchant using their solution will receive funds for services rendered either the same day or the next day. Wary of risk, acquiring banks limit the speed in which these funds are dispersed. Risk systems employ a number of measures that could unnecessarily disrupt a platforms’ merchants: blocking potentially fraudulent transactions, holding a portion of a merchant’s funds in reserve, or affecting a merchant’s time to payout. A proper risk program can strike the right balance between protecting you and minimizing disrupting risk management efforts to improve your merchants’ access to their cash.

Risk management is more than preventing fraud on your platform. A good program can improve the user experience with your company in a number of ways. But understanding fraud that may be occurring on your platform is important too. If you’re interested in learning more, this blog post includes a link to a webinar specifically tailored to platforms: https://blog.wepay.com/2017/03/14/expert-advice-on-payment-platform-fraud/.

 

About the author

Robert Carlson

Robert Carlson, WePay Business Development MBA Intern

Robert Carlson is an MBA intern at WePay and a current MBA candidate focused on payment strategy and revenue scalability, after time in national security and management consulting. He is always up for lengthy discussions concerning cooking, coffee, craft beer, and the best dog breed (there is only one correct answer, and it is German Shepherd).

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