As businesses work hard to continue meeting evolving shifts in consumer behavior, it is increasingly important for them to understand and assess their overall costs -- and perhaps one of the most critical focuses should be around the comprehensive financial impact of their fraud solutions.

Gartner’s recent report, How to Create a Payment Fraud Detection Strategy at the Organizational Level, offers an opportunity to focus on your fraud prevention strategy through the lens of identifying the total cost of fraud to your organization. While the report is focused on payment fraud detection strategy, the insights presented are actually very applicable to any fraud detection team:

  • Forward-thinking fraud detection strategies
  • Aligning your organization with a total cost of fraud model, in order to understand tolerable fraud rates and their impact on your fraud controls
  • Taking a look at how to work with cross-functional teams that are also stakeholders

If you’re looking to optimize and understand the impact of your fraud investments, developing a total cost of fraud model can enable you to determine tolerable fraud rates — and a fraud rate is defined as the direct cost of fraud, such as stolen account funds or chargeback costs — in order properly implement the right fraud solutions throughout the consumer journey.

Let’s start at the beginning, with learning how to identify your total cost of fraud.

Calculating your total cost of fraud

Gartner’s total cost of fraud (TCOF) model is a fairly straightforward formula, in which you add together the three core pillars of fraud controls: your overall fraud rate, the cost of your fraud tools and team members, and the customer lifetime value impact.

Overall fraud rate

This is simply the sum of your fraud losses, which can be any direct fraud costs to your business, such as stolen account funds or chargeback costs.

You might be expecting to aim for a fraud rate of zero, but then you won’t be generating any business. If your fraud rate is too low, your total cost of fraud actually goes up due to false positives, the cost of tools, lost customers, etc. And of course, a fraud rate that is too high will result in a total cost of fraud that increases alongside it, due to escalating fraud losses from high cost frauds like identity fraud and
account takeover (ATO). What you’re looking for is the right balance, in which you reduce fraud as low as possible without significantly impacting your customers or your team’s operational efficiencies.

Cost of your fraud tools and personnel

Now you need to consider what you’re investing in fraud prevention tools, and understand how effective and efficient those tools make your team. Do you look at the amount of work that your team can do based on the efficiencies introduced by your fraud controls?

Customer lifetime value impact

Do your fraud controls increase the latency on the customer interaction, or perhaps challenge them to verify their identity? Fraud controls have varying consumer impacts and subsequent business impacts, all of which should be considered as they’re implemented.

Total cost of fraud at account login, onboarding and transactions

As you consider the total cost of fraud across the customer life cycle, there are many different types of interactions you have with consumers. For our intents and purposes, we’re going to focus on three: account login, onboarding and transactions.

Account login

For a lot of businesses, logging into customer accounts is a big area of fraud and customer friction. As you add in account access controls, think about how you can reduce friction like password resets, or really anything that might create challenges for the customer. This allows them to easily access their account and execute transactions with you, thereby improving the customer experience and increasing your overall revenue per customer.

From a cost perspective, you’ll want to focus on ATO, since your business bears the cost of much of the losses occurring in those channels. There are significant operational efficiencies due to account access points, which can result in spikes in call center traffic, or unnecessary step ups that are both a cost to your business as well as impactful to the customer experience. Finally, you want higher throughput for consumers: think about expediting requests from those customers, and finding better utilization of your contact center agents.


Another major area of fraud is during customer onboarding, but there are also great opportunities here to improve your business’ overall ROI based on the fraud controls you put in place.

Onboarding new customers comes with revenue impacts, since any kind of friction can result in abandonment and drop-offs. Additionally, fraud controls can result in higher review costs when they’re flagged for risk, if you’re not precise about that identity proofing process. In this case, superior fraud controls and processes can result in higher pass rates, higher revenue per customer, more loyalty, better experiences, and higher balances transferred to new accounts.


Cart abandonment is a significant problem with transactions or payments, and according to the Baymard Institute, just shy of 70% of online shopping carts are abandoned.1 If your fraud controls create too much friction, you’re going to have individuals abandon their cart and go to other places. And if you aren’t precise enough as you profile risk, you might actually decline or delay purchases from good customers, resulting in loss of revenue.

One of the areas that we’ve seen have a significant impact in transactions is using Email and Phone Verification to profile risk. Email is almost always present with online purchases, and it is an incredible correlation to the fraud rates and risk of a particular transaction.

Involving cross-functional stakeholders in your fraud strategy

As a fraud leader, there are going to be many different people that you need to interact with. It could be your identity and access management team for account access, legal and compliance teams for regulatory environments and data protection, customer experience and marketing for promotions and conversions… the list goes on. As you’re putting a fraud strategy in place, it’s good to involve each of those team members to truly understand the impact that your fraud solutions can have upon the overall success of your business.

Be asking yourself: what are the challenges of each of these groups, and what are the requirements for their success? How does that map to the tools you’re exploring? Understanding these teams and including them early in the evaluation of tools is going to ensure more successful results.

Solutions for optimizing TCOF throughout the customer journey

Implementing the right solutions for optimizing TCOF is a balancing act of identifying how to balance the consumer experience with reducing risk. From TransUnion’s perspective, we provide solutions that help you establish the consumer identity. Are they who they say they are? Are they the possessor of that identity, and is there any risk associated with that identity?

We also help you authenticate consumers, as they come back to access their account, by validating that their claimed identity is in fact who they say they are. We do this with a friction-right approach, so that based on what they’re doing, we have some authentication techniques that are completely transparent, and others that offer strong authentication when needed.

Finally, we help you prevent fraud. You need capabilities in place that can identify risk, both of origination access and payment activities throughout that customer journey, and investigate suspicious behavior to eliminate that from your business. But across the board, this is about optimizing those experiences for each consumer interaction.


Learn more about creating and optimizing a fraud detection strategy using Gartner’s total cost of fraud model in the latest Gartner report, available here.

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    Baymard Institute, 41 Cart Abandonment Rate Statistics