Should you offer Chargeback insurance?

Over the recent years, the Fraud Prevention industry has become divided over the question of insuring its services. This is particularly evident in the realtime transaction monitoring field. Let’s face it, the industry is split between the “Never Insurers” and the “Make-Decisions-Great Again” camps. This split has been going on for years and both sides are dug-in. As someone who offered both products within a single platform, I thought it would be beneficial to share the pros and cons of these approaches.

Chargeback Insurance (Decision-based)

Pros:

• High revenue

• Doesn’t require big investments into UI

• Unique value proposition with relatively low competition

• Strong lock-in effect

Cons:

• Low margin rate (losses, fees and high operational costs)

• Performance-based pricing + different pricing model = need of customer education

• Not applicable to every industry and APM

• Relevant to liable parties only (e.g. merchant of record)

Fraud SaaS (Score-based)

Pros:

• High margin rate

• Mass-market product, all industries and APMs

• Servicing risk teams instead of replacing them puts your on their side

Cons:

• Crowded category + usage-based pricing = race to the bottom in pricing

• Requires much more product development to shine

• Stiff competition (PSPs such as Stripe are in the game as well)

It’s rare for a single customer to need both products and usually we had to choose which one to lead the pitch with (unless you operate both on different flows, but that’s a more advanced case).

To whom would I sell a score-based product:

• Customers with low percentage of card transactions (e.g. BNPLs, A2A, etc.)

• Customers with professional risk teams that don’t want/need managed services

• Customers which pose a significant seller/collision risk (e.g. MLMs, P2P, etc.)

• Customers with high rates of 1st party fraud (e.g. gambling, crypto, adult, etc.)

To whom would I sell a decision-based product:

• Small customers that haven’t establish fraud teams (yet)

• Large/enterprise omnichannel merchants that aren't digital natives

• High ATV merchants with a 3rd party fraud problem (e.g. electronics, etc.)

• Low ATV merchants where my prices are competitive with score products

These above are just some of the guidelines, but again the point is that every opportunity is unique and can benefit from a different solution. I don’t think there’s a “better” product between the two, at the end it’s about what’s your strategy, who do you target and what product will fit them better as a rule. What I don’t get is how come we don’t see more and more vendors offering both products.

(And no, offering a score doesn’t mean you’re offering a full-fledged score-based product…)