Well if it isn’t, it most definitly should be. Various different types of credit card fraud costs businesses billions of dollars annually and has been increasing every year since 2013. It is estimated that fraud losses cost businesses around 1.9% annually, but it can actually be closer to 7% when all the costs involved with fraud are included. This number obviously varies greatly from business type to business type and from merchant to merchant. Clearly an online, or eCommerce, high risk type business is going to have a higher fraud rate than say a tiny local children’s store may have. But no matter how much or how little it is costing a business, it is important to be aware of it and make sure it is budgeted for.
A business budget is an action plan for the business. It is what is used to help a business control its expenditures. Your budget helps to ensure that you will have enough money to operate the business every month throughout the year without going in the red. A business that budgets properly will have a better view of the financial health of the business and will also be able to refer back to that budget on a regular basis and use those numbers to measure how well they are performing.
It’s common for a business to plan for expenses such as payroll taxes, a commercial lease, or even an advertising campaign. All of these things are chocked up to the cost of doing business. But, they don’t tend to think of fraud and the costs involved as an expense. Instead it is often looked as as more of a loss that is out of their hands. It may feel to a lot of business owners that to have to dip into your profits for something like fraud prevention tools is a lot like having to buy earthquake insurance and never knowing if an earthquake is ever going to happen. It doesn’t feel tangible. Unfortunately, it’s probably 100% more likely that fraud will happen.
Right now, at the beginning of the year, it’s the perfect time to take fraud, fraud prevention tools and chargeback management into account and set a budget for them. Keep in mind that fraud costs a lot more than the actual amount lost in the fraudulent transaction. It is estimated that the actual costs involved in fraudulent claims can be anywhere from $240 to almost $350 for every $100 lost to fraud depending on the type of business. These excess costs are attributed to costs involved in dealing with the fraud such as administrative costs and banking fees and fines. It’s clear that preventing fraud is just as important as budgeting for it so you don’t get caught with huge fees you didn’t expect your business to have to shoulder.
Tips for forecasting for fraud in your 2018 budget.
Take a look at your year-end profits and determine what kinds of losses you took in relation to fraud. Figure out if your fraud losses are in the average for the business of your type or much higher. Remember that losses due to fraud accounts for around 1.9% of total revenue (not including prevention tools). If you find that they are higher than expected it’s time to consider implementing stricter protocols or more prevention tools.
Now that you have a good idea of how much of your annual revenue can be attributed to fraud, take that number and calculate in the costs of any fraud prevention tools as well as any training or implementation costs. Now you are ready to budget for fraud as a part of doing business for the coming year. A good rule of thumb is to plan for anywhere from 13 – 20% of your operational budget to go to fraud and the prevention costs related to avoiding fraud.
While this can add to your costs, it is worthwhile to take steps to protect both your business and your customers. Remember this is a cost that you have control over rather than losses that victimize you and your customers. And it’s hard to calculate the losses you experience when you lose your customer’s trust.
Update your security protocols if you haven’t already done so.
It’s also important to remember that the deadline for the new security protocol mandate set by the PCI Security Council is quickly approaching. Since you’re doing your budget for 2018 now, it is a good time to plan for implementing your updates to make your systems compliant and meet the more secure TLS 1.2 security protocol by July 1. These protocols are put on place to help protect against hackers acquiring credit card information and will go along way towards helping to lower your fraud losses each year.
Credit card fraud, whether through maliciousness or friendly fraud, is an unfortunate and inevitable part of running a retail business. At the end of the year, when you calculate how much fraud has dipped into your profits, it’s impossible not to see it as a loss. But by implementing fraud prevention tools to help lower the incidence, and budgeting for the costs involved you have the ability to look at those costs as a planned for cost of doing business.
Fraud prevention, planning upfront to manage fraud, rather than becoming a victim of fraud, is a much more proactive way of attacking a difficult facet of business ownership. Not to mention how good it feels to stick it to the hackers and say “Ha! You can’t get me!” Maybe it is just semantics, you are still spending some of your profits, but instead of feeling they are stealing from you, you will feel more in control in your profits. You have the power to decide how much it is going to cost you and make sure your budget can handle it. No surprises.
If you would like to learn more about fraud prevention tools, chargeback (friendly fraud) management, or would just like help crunching your numbers and understanding your chargeback reason codes don’t hesitate to give Bankcard Brokers a call today. With our world class customer service we make it our priority to do whatever it takes to keep our customer’s business safe and profitable.