#102 - Fraud targets are broken. Ask for a budget

“We don’t want to prevent 100% of fraud. We want to grow the business in a sustainable way so we don’t lose too much.”

I was listening to Jaanus Uudmäe, Head of Fraud at Bolt, as he was speaking about how he manages expectations with his business team.

Most fraud leaders would nod along to that line.

And it kept coming back throughout our conversation, as we talked about managing fraud as a budget instead of a goal.

But there’s one piece we skimmed over - how you get the business to agree to that budget in the first place.

So here’s my take.

Why do fraud teams lose this argument?

Every fraud team has had this conversation. You want to block more, and the business wants to block less. Or not at all.

But these conversations rarely blow up. They just end without a conclusion both sides are happy with.

And when that happens, the business wins. Almost every time.

That leaves the fraud team frustrated. They wait for the losses to roll in so they can say “I told you so.”

Don’t ask me how I know.

But here’s the thing:

Most of the time, it comes down to how you pitch it. And fraud teams usually pitch it badly.

Why? Because most teams fail to realize that this is a sales conversation, and the business team is their client.

You want to agree with someone on terms? That’s a deal. You want both sides to be happy with the terms? That’s a good deal.

And in these sales conversations, I see fraud teams make two mistakes.

Are you speaking your client’s language?

The business cares about two things:

1. The top line - revenue, and how approval rates feed into it.

2. The bottom line - margin. Losses, chargeback fees and other costs all eat into it.

Yet fraud teams walk in talking about false positive rates, precision and recall. In extreme cases, AUC.

But none of these are numbers the business is measured on. Or understands. So while it’s very clear to you what trade-off you’re suggesting, for them it’s not.

And a lack of clarity lowers confidence. No wonder, then, that they hesitate to agree.

Instead, make sure you translate everything into revenue and losses.

“Declining 2% of incoming payments costs us $X in revenue and saves us 30bps in losses” is a sentence your business can actually weigh.

Are you giving them a choice?

The second mistake is harder to spot.

The fraud team comes in with one recommendation: “To control losses, we need to decline the riskiest 2% of payments. That saves us $300K a month.”

Notice the word “recommendation”. Is it really a recommendation if you only give your client exactly one option?

No. In fact, that creates two problems.

First, they can’t see the alternatives, so they get clarity about a single point on the curve and none about the rest of it.

And without that clarity, as I just outlined, it’s very hard to build confidence.

Second, you’ve turned a negotiation into a yes/no decision. If the answer is no, you’re stuck in limbo and go back to “I told you so.”

So here’s what I do instead - I bring a menu.

Always at least three options - low, medium and high risk appetite. Each one priced in decline rates and losses.

A business in hyper growth, happy to eat losses to get there, needs to see what the high-risk, high-revenue scenario looks like. A business protecting margins needs the opposite.

What each option means in actual decline rates depends on your business, but always bring three.

Often, the business won’t pick any of them. Because when the business understands the trade-offs better, they might ask you to model something between medium and high.

That’s a good sign. It means you’re negotiating together, and both sides walk out with a number they agreed on.

Will they sometimes pick the high-risk option you’d never choose? Sure. But now it’s an informed choice, and you were in the room when they made it.

Managing your budget

This is my favorite part.

When you agree on a decline rate with the business, you’re agreeing on a budget.

Eventually it translates into dollars. But more importantly, it defines the playground you can act in without further approvals.

You know how much volume you can decline, and roughly how much loss that should save.

Within those limits, every tactical decision is yours. Model, rules, manual review - you don’t need to run each change by the business anymore.

Let me break it down:

Say you agreed on the medium option, and it lets you decline 1% of payments. At a 1% decline rate, your Machine Learning model would cut fraud by 20bps.

You can decide to give only 80% of that budget to the model. The other 20% is your rules budget - already approved, and yours to spend.

But now every rule has a bar to clear. It needs to save at least as much loss per declined payment as the model would with the same slice of budget.

Otherwise, you’re better off handing that slice back to the model.

And when you go over budget, you have two levers. Retire rules that no longer pull their weight, or dial the model down a notch to free up room.

Meaning, you get to manage your decisions like a portfolio, with the business’s approval already in your pocket.

Where does this leave you?

Speak revenue and losses, because the business doesn’t buy precision.

Bring a menu, because a single recommendation is an ultimatum.

That clarity would build confidence. And confidence would win you a budget.

Then every tactical call is yours.

And if this way of thinking clicks for you, go listen to my conversation with Jaanus, where he comes at the same idea from the loss side.

How do you agree on decline limits with your business today? Hit reply, I’d love to hear how it goes.

In the meantime, that’s all for this week.

See you next Saturday.

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