E-commerce payment fraud prevention is becoming a big topic with some great companies delving into automation these days. Automation is helping to isolate risky orders and reject fraud, but not everything can be automated yet. Check out my article about automation with CNP on why.

There are two major day-to-day categories that require human eyes: Manual Review & Chargeback Responses. And they cost a lot of money to hire for.

But there’s another way – creating a blended team of outsourced and in-house fraud analysts. You hire outsourced agents for manual review & chargeback analysis for <$10/hr instead of the $60-80k salary. Transition your high-cost agents to handle process improvement and escalated cases, while you hire low-cost agents to do the day-to-day groundwork. I’ll walk you through my experience outsourcing manual review & chargeback responses, then provide the top steps you need to take to get started.


My start in outsourcing fraud prevention


At Wanelo, we started hiring fraud analysts in-house at the same time we were building out the customer support team via outsourced agents. Hiring & training both simultaneously gave me the insight that the basic functions of these two very different roles are the same: they are process and reaction-driven. If you see X, respond with Y.

So I started playing around. We decided to keep one person in-house, but start testing an outsourced agent for manual review. This meant breaking down our manual review process into if, then rules. This exercise helped us to bring simplicity and greater understanding of our fraud prevention system. We had to isolate and rank key good and bad signals. Set up services to help with identity verification (we used WhitePages Pro). Build a workflow that was efficient, trainable, and thorough.

We started with 1 person in manual review, then 2, then during the holidays, we had up to 8 people working on manual review. We were able to scale an entire fraud prevention team for less than the cost of one full-time employee.

Chargeback responses are very similar to training customer support agents and just as do-able to outsource. For the chargeback responses, I build a template system. For each chargeback code, there was a process to be followed. Gather data, write a response, submit.

Our team maintained a chargeback rate of <0.4% year-round, often as low as 0.2%. When we started our prevention strategy, we were averaging a chargeback rate of around 0.9%. Our decline rate was capped at 2%. Our win rate went from around 15% up to over 60% consistently.

Outsourcing Fraud Prevention helped us learn to simplify the process and monitor metrics

Outsourcing early makes you simplify your process because you have to train someone in another language that has literally no background on what they are going to do. My old boss used to say, if a drunk toddler can’t understand your spreadsheet, it’s too complex. Well, outsourcing pretty much forces you to think this way. Layers and layers of confusing instruction beget failure. So you have to boil down complex solutions into step-by-step tasks with absolute clarity. This experience is a huge eye opener and a great exercise.  

Successful outsourcing also requires a heavy focus on KPIs. We had to build a strong KPI process to give us insight on how our outsourced team’s performance. This made us think heavily about metrics like average time review a order or respond to a chargeback, our decline rate in total and by agent, even weighing the risk-averse attitude of our agents. This early learning created a culture of data-driven decision making; and therefore, better data collection at the ground level.

For chargeback responses, the agent would record data in a spreadsheet that helped streamline future analysis. This included data on whether it was malicious fraud or bad customer experience. This made it easy to go in at a high-level and assess how our departments were functioning – were customer support related chargebacks rising? Were there more product bugs last month? Is malicious fraud spiking because we changed our rules? This data collection from the chargeback responder was impactful.

For manual review, our agents would record why the order was flagged by our system, their decision, and why they made their decision. This made performance analysis once we received chargebacks much faster. If chargebacks spiked for a given period, we could then see if that order got flagged for review and why we processed it. This helped us to constantly improve our rules for flagging orders as well as our decision-making process once the order was flagged.

This heavy focus on metrics analysis meant we were always thinking about optimization and where to improve.

Outsourcing fraud prevention worked extremely well for us at Wanelo and that’s why I want to share it here.. It might work for you too. To get started, here are the high-level agenda items you’ll need to complete:


Outsourcing Chargeback Responses


Quite frankly, this is the easier of the two to outsource. It’s about creating a response process based on chargeback codes. To do this, you should:

  1. Create chargeback templates!!!
  2. Create a checklist for all of the data pieces that should be submitted per reason code
  3. Create a workflow on how a chargeback response should be handled
  4. Develop KPIs to track performance
  5. Create a place for your responder to track what they see in each chargeback
  6. Review process to monitor performance once chargeback resolutions are in


Outsourcing Manual Review


This takes a more significant hands-on approach but is very scalable and cost-effective once you’ve got the process down. The key thing here is that you are training someone to deeply understand who your customers are and what their normal purchasing behaviors are based on simplified characteristics. It takes time, but it can be very worth it long-term.


Create a thorough training guide on how to review suspicious users

  • Key behavioral signals and where to find them
  • Describe each rule that flags orders as suspicious and rank them in terms of importance and signal. Some rules are able to show an order as definitely fraudulent, while other rules are a slight signal. 
  • The decision-making process
  • Company philosophy on risk aversion, aka preferred monthly decline rate

Develop metrics to manage agents

  • Track time spent on each review & set up a timebox
  • Total daily decline rate & agent decline rate
  • Trac, why they approve or reject

Start small, hire one person first

  • Walk through training, this will highlight where the training doc was unclear
  • Test period to train analysis
    • After they are trained, give them a test period to analyze and then compare to what you (or another agent) decided. Talk through the variances.
    • Once they match your analysis consistently, transition to full-time
  • Train this person extremely well so they can help train the next person
  • Review the metrics of this agent daily and work hands-on to fine tune the understanding of the basic core principles


Once you’ve managed these steps, you can start to scale. One of the greatest benefits of outsourcing is that it forces you to create a scalable hiring process. For outsourcing to work, your processes must be easy to digest and well documented. If you build these uniform processes, a large portion of the work is done to build a strong training program. With the training program set up, it becomes much quicker to hire new agents at low cost.