Fraud Deterrence vs Defense vs Offense: Which strategy is best?

It’s no secret– fraud costs businesses and consumers alike billions of dollars each year, and fraud is only getting more and more expensive as our lives continue to migrate online. 

All businesses need a fraud strategy to keep both themselves and their customers secure. But when it comes to fighting fraud, it can be difficult to know which strategy is best for your business.

A fraud defensive strategy

The core of a defensive fraud strategy is understanding the types of fraud that your business encounters the most and coming up with measures to help prevent that– external and internal fraud included. Typical defensive measures include implementing a hotline where customers can contact your business to report suspicious activity, setting up regular review cycles where your company reviews customer transactions and flags any that seem suspicious, and conducting background checks on prospective employees. 

Fighting fraud defensively tends to rely on adding headcount in order to manage these additional processes and systems. It also relies on your business having encountered the types of fraud you’re trying to prevent before– meaning, you may have had to lose a fair bit of revenue and reputation before implementing this strategy effectively.

Fraud defensive strategies do run the risk of overloading customers and employees with too many processes and procedures– limiting how well they can engage with your platform and their effectiveness, respectively.

A fraud offensive strategy

Fighting fraud offensively is a very similar strategy to fighting fraud defensively. The core of a fraud offensive strategy is identifying the individual(s) who are attempting to defraud your platform and/or customers and taking action against them.

Businesses that choose to fight fraud offensively will sometimes hire a white hat hacker to expose weaknesses in their system or prosecute fraudsters that they catch attempting to defraud their business. Fighting fraud offensively tends to rely on additional budgeting to support these endeavors.

A fraud deterrence strategy

Fraud deterrence and fraud defense strategies are very similar and often implemented hand-in-hand– but a key factor that sets deterrence ahead of defense is this: defense is about putting up safeguards to help protect your business while deterrence is preventing that attack from happening at all. And the key to this deterrence is not just understanding fraud; it’s understanding the bad actors themselves.

In our experience, the most common type of fraud that businesses encounter is accidental– fraud committed by your own customers mistakenly incorrectly inputting their personal information or employees accidentally CC’ing in the wrong person. The second most common type of fraud is opportunistic– bad actors who will take advantage of a chance to defraud when the opportunity arises, but won’t go out of their way to do so.

Businesses who make it a priority to deter these two most common types of fraud are able to prevent most of the fraud that businesses face from ever happening. The most successful deterrence method that businesses can implement is one-to-one mapping, or tying an online account to the human in the real world. This can be done through email/phone verification and by verifying someone’s government-issued ID through an ID verification software solution.

Fraudsters and bad actors don’t want to be identified. They prefer to either create a completely new, fabricated identity or hide behind someone else’s stolen identity. By forcing them to be identified with a deterrence strategy like an ID verification solution, businesses prevent the fraud from occurring at all– and can even decrease the chances that other fraudsters will target their business.

What’s the best strategy to fight fraud?

Preventing fraud is a top priority for all businesses, and the most successful and effective strategies rely on pulling the processes from each of these strategies that work the best for your business. Most companies typically tend to rely on a combination of defensive and offensive tactics to fight fraud, such as encouraging customers to report suspicious users or activity and then, depending on the severity, prosecuting the perpetrators and banning them from their platform. 

Still, while defensive and offensive fraud strategies are generally pretty successful, they don’t really tackle the key issue with fraud and, instead, rely on fraud already taking place in order to combat it.

The businesses that are most successful at protecting themselves and their customers make it a priority to focus on deterrence– not just fighting fraudsters or working reactively. 

Interested in learning more about fraud deterrence and identity verification software solutions? Check out how Berbix works here.