Build vs Buy Data & Risk Technology
Published September 15th, 2021.
Any business's greatest fear is waking up to losses incurred on years of hard work and sweat. An ideal economic world for a company would be one with minimum or no losses and, of course, an advantage all the time over their competition. However, in reality, everyday companies suffer significant losses with online fraud as a key contributor. And, as technological advancements continue to evolve, so does the threat of fraudulent activity and exposure. Fraud prevention keeps changing and what worked even three years ago is not as effective as we require it now, especially since the rise of the global pandemic. Online engagement skyrocketed and became a playground for fraudsters to capitalise, with almost 13.4 million dollars lost to fraudsters in the US in the wake of this pandemic. Identity fraud is just the tip of one type of fraud experienced in the past year and has threatened the stability of various merchants. Therefore, it is no surprise that many businesses want to develop technology to help protect their data, mitigate the risks they face, and avoid losing billions of hard-earned revenues to individuals who played no part in making profits for the company.
Merchants can only hold out on acquiring data and risk technology for so long. Still, sooner or later, they would have to consider various solutions like the data and risk orchestration hubs specific to identity verification, Know Your Business (KYB) and Know Your Customer(KYC), and help to address fraudulent issues in a company. With the high rate at which fraudsters continue to terrorise thousands of businesses globally, it is almost predictable that companies that have not yet acquired this technology would not have to wait for long to experience the brutality that comes with fraud. Whether massive or small, fraud is catastrophic to any unprotected business.
However, determining whether the fraud solution technology should be built in-house or purchased through a third-party provider can sometimes be challenging. Additionally, there are various options in the risk mitigation and data industry to review, making the decision-making process quite cumbersome and problematic. Here are some of the pros, cons and considerations to ensure the decision best suits your business.
Building an in-house data and risk technology.
Building a good fraud detection solution is not a one-time thing that ends with only the build. There comes the ongoing effort required to support and maintain the fraud and data solution system. One must consider;
- Whether building a system gives you an advantage in the market.
- You have to check whether there is a regulatory reason that propels you to build a fraud system.
- Do you have a team with skills and systems that can develop the data and risk orchestration technology?
- Do you have the time and immense cost involved to support an in-house build?
- Do you have the resources to stay on top of the latest data providers, their associated contracts, fees and integrations?
- Do you have the resources to allocate towards ensuring compliance is managed as regulations continue to evolve?
- Is it industry approved to fully support the ongoing changing regulatory requirements, card schemes, acquirers onboarding, etc.
One key benefit of having an in-built data and risk technology is having total control over the system. Additionally, having an in-built system prevents you from dealing with concerns about an outsourced vendor's possible leakage of confidential information and keeps customer's trust in you and your services. Furthermore, you can customise your system to cater for your business alone; you do not have to buy what seems to work for everyone.
While there are various advantages of merchants building their systems, this option also has downsides to be considered.
- Merchants need to understand that there would be many expenses that businesses would incur to manage these systems. It might be cumbersome on small businesses, which research has suggested that management of a fraud detection system can slash up to 20% of the operations budget. Additionally, if your system is breached and fraudulent activities occur, fines can be astronomical.
- Your team might be incapable of keeping up with the pace at which fraud is evolving and the fraud patterns that keep emerging.
- Staff might be under or overstaffed in case sales volume keep fluctuating.
Buying data and risk technology.
Outsourcing a one-stop solution for KYC, KYB and fraud detection has a lot of benefits.
- A data and risk orchestration hub provider have access to more global data services and sources than your in-house team. Since it is their job, 100% of the time, they are dedicated to identifying all the emerging patterns, recognising fraud and prevent it before it happens.
- Buying data and risk technology helps reduce the number of false declines, number of flagged transactions for manual reviews and improve the number of approved transactions.
- Your business will not drain resources like time, attention and focus on other core business operations, leaving the work to the experts.
- The outsourced solution uses the latest technology, reducing any more expenses to update the systems constantly.
- There is also improved compliance, and buying can support what is already in place while future-proofing regulatory requirements.
Many risk and data orchestration hubs offer premium data and risk services. Others, like 4Stop, provide an extensive suite of risk and data marketplace encompassing advanced leading-edge risk management technology. With 4Stop's agnostic fraud solution, a merchant can fully customise the solution to meet any business need, regardless of industry or region. From dynamic decision-making frameworks, custom workflow management builders, cascading data and fraud evaluation engines to multi-layered risk analysis scoring and reporting. All the while leveraging data collection from active sources through data science to empower growth through quantifiable decisions. Compliance is effortlessly managed through detailed reports for regulatory bodies, automated compliance re-checks and real-time monitoring on AML, adverse media and more. Businesses can easily export reports, specific findings and information for card schemes, acquirers and more. Making the solution a powerful end-to-end data and risk marketplace to provide future-proofed sustainability, regardless of our online evolutions.
Partnering with an outsourced fraud solution can be a stand-alone end-to-end solution or a compliment if you've already established an in-house fraud solution. Following a simple API integration and configuration managed by the outsourced provider, your solution is instantly ready - saving time and money gaining access to leading fraud prevention in the market. Additionally, managing multiple third-party data provider contracts and associated fees are consolidated into one.
The future is data; the online evolution is demanding premium fraud defence. Whether you decide to build in-house or not, an orchestration hub can genuinely be a game-changer in advancing your fraud defence. Enjoy access to unlimited data, data orchestration, and risk tools to be leveraged for customer personalisation to improve conversion and retention strategies.