Fraud rate

What share of accounts or transactions turn out fraudulent.

If 1 out of every 1,000 transactions is confirmed as fraud, the fraud rate is one in a thousand, or 0.1 percent.

Confirmed fraudulent events as a proportion of total events over a defined cohort and window. A cohort is the group being measured, such as all signups from one channel, and a window is the period over which the events are counted.

Two choices shape every fraud rate:

• The numerator, meaning what counts as fraud, such as confirmed cases only or also suspected ones.
• The denominator, meaning what the fraud is measured against, such as all attempts, only approved cases, or total value processed.

Teams report the rate in two common ways:

• By count, which is the share of transactions or accounts that were fraudulent.
• By value, which is the share of money involved, often in basis points, where one basis point is one hundredth of a percent.

The measurement has a built-in delay, because fraud is often confirmed weeks or months later through disputes or investigations. A recent period can look cleaner than it really is until the reports catch up.

Fraud rate sits next to terms that are easy to mix up:

• Chargeback rate is the share of transactions disputed through card networks, which networks measure separately from a merchant's own fraud rate.
• Pass rate is the share of genuine users approved, which shows the cost of strict fraud controls.
• False positive is an honest customer flagged as fraud, which a low fraud rate can hide.