February 28, 2013, 11:10 AM

How HealthDesigns.com trimmed its fraud rate by nearly 90%

The retailer also conducted fewer manual reviews.

Lead Photo

When online retailer of health supplements HealthDesigns.com decided to expand into selling sports supplements like whey protein powder, the move had an unintended consequence—its fraud rates rose significantly.

One reason for the increased fraud was that the new products led to more orders, both from shoppers in the United States and international consumers. And while the retailer had internal systems that it used to detect fraud, the systems were lenient.

“The old system was extremely manual and labor intensive,” Nicholas Schneider, operations manager of HDI Commerce, which operates HealthDesigns.com. “And while we were looking at specific parameters, like whether the shipping and billing addresses matched, we weren’t accomplishing what we needed to.”

That’s because the retailer’s system couldn’t keep pace with the influx of orders, which led to rising fraud rates, he says. Before the retailer implemented a fraud prevention service from Kount Inc. to help it streamline its review process, its chargeback rate reached 1.795%, which cost the retailer more than $11,000 in a single month. Fraud triggers chargebacks when the legitimate consumer whose credit card number has been used to make the purchase complains to his card-issuing bank, which then retrieves the money from the merchant via a chargeback.

It took about 30 days to integrate Kount with HealthDesigns.com’s Magento e-commerce platform. Kount uses a number of fraud prevention tools, including device fingerprinting and risk-scoring tools, to flag suspicious transactions. Because it provides data about each suspicious order, for example, the shopper’s geolocation, it’s easy for HealthDesigns.com to decide whether to process an order, Schneider says. The system, he adds, also makes it easy to tweak its rules.

As soon as the system was in place the retailer’s chargebacks dropped—from 1.795% to 0.195%. That reduced its monthly chargeback costs from more than $11,000 to less than $1,000, Schneider says.

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