A monthly forum of compiled insight from top leading industry thought leaders to help you protect your payments and boost your profits
Question of the Month
What’s the biggest contributing factor to profit losses due to CNP fraud and friendly fraud?
Welcome to the May edition of the Verifi newsletter. Lack of merchant-issuer collaboration in the payments ecosystem has been a longstanding problem that has caused both parties millions in lost profits. This month, we’ll look at the benefits for merchants and issuers to work together to put a stop to fraud and friendly fraud. We’ll also re-visit Millennials and look at how they are shaping the banking world. Finally, we’ll look at what’s up-and-coming in the payments space, including contextual payments and Internet of Things.
CNP fraud – including friendly fraud – is on the rise. Additionally, merchants are losing hard-earned profits to chargebacks initiated by confused cardholders that don’t recognize billing descriptors. Add in the fact that merchants and issuers are not communicating, and you’ve got a recipe for disaster.
In the interest of customer retention, Issuers are inclined to adopt a “customer is presumed right” and “zero liability” mindset. Many issuers give customers temporary credits to their account in response to disputes, essentially freeing them from the responsibility of paying for the good or service. This process adds both cost and risk to the entire payments ecosystem.
Fraud and friendly fraud are not going away and merchants need a game plan to protect their bottom line. As e-commerce continues to rise, alternative payments continue to evolve and fraudsters get trickier, efficient collaboration and communication between issuers and merchants will be imperative to stop fraud and protect profits without harming the cardholder experience.
Contextual commerce pairs a consumer’s intent to buy with the context that makes it easy, fast and natural to go forward with the purchase. Uber is a shining example of how contextual commerce can be magical. The user procures a ride (an available driver in close proximity is assigned through the app) and since the Uber app stores payment info, no interaction or intervention is required during or after the ride to pay. The driver reaches the destination and the card on file is charged automatically.
There is plenty of room for this ideology to expand to other channels and platforms. Social media has started to scratch the surface, with sites like Pinterest adding buy buttons to their content, making inspirational purchases a reality for consumers who are motivated to buy based on the content they consume. The key is shortening the cycle between engagement and the actual purchase. The ideal is to present the product, gain instant interest and intent to purchase from the consumer and then make it possible to buy instantaneously.
When it comes to banking, younger millennials are far removed from the traditional ideas that the Baby Boomer generation embraces. Younger millennials are geared towards digital and avoid the physical assets associated with traditional banking (credit cards, checks, etc.) In fact, more than 20% of millennials have never written a physical check to pay a bill. This generation also avoids credit and lending – 63% of adult millennials do not have a credit card. Compared to consumers as a hole, only 35% of people over the age of 30 do not have credit cards.  This is a group of consumers set on making their digital – and only digital – mark.
Millennials are choosing to bank online through mobile apps, but even that could be falling by the wayside soon if banks aren’t able to connect with them on a more personal level. A recent report showed that 73 percent would be more excited about financial services advancements through tech giants like Google, Apple or Amazon than from banks, and 33 percent believe that soon they won’t need a bank at all.
We’ve come a long way since the dawn of the Internet. As computer and Internet users, we’ve grown accustomed to the idea that we are the sole way for computers to get information. However, with the Internet of Things, we are beginning to see ways in which computers can begin to gather information for themselves. What this requires is that they be given their own “senses”…or sensors, to be exact. iBeacon technology has enabled computers to gather information about different objects…or “things”, making it easier for processes across a wide range of industries to be more automated.
While these technological advancements are undoubtedly “cool,” they also present serious security risks. On the other hand, they also present more opportunities for added security and authentication. Emerging technologies like biometrics make authentication more secure than ever, but it is not perfect. The potential for fraud and friendly fraud still exists and in some cases, may even be made easier. Hackers have already found ways to replicate fingerprints with a simple photo of a person’s hand, proving that merchants must still be on guard against fraud when it comes to using the latest and greatest technology to authenticate payments.
Payments are moving faster than ever. Millennials continue to shape the payments landscape, causing merchants and banks alike to forge ahead into (often unknown) emerging technologies and digital payments. Additionally, expert outlooks point toward contextual payments, which will feed into the Internet of Things…making it easier than ever for motivated consumers to buy on the spot. While the payments universe seems to be expanding exponentially and at increasing speed, merchants always need to bear in mind that fraudsters are out there lurking, ready to take advantage of these new technologies – and holes in protection – to steal profits. As technologies revolutionizes payments, merchants need to ensure they’re paying as much attention to security and fraud prevention as to the next new shiny technology to ensure that their customers – and their bottom line – is protected.
Ask us how our Cardholder Dispute Resolution Network (CDRN ™) can help prevent and STOP chargebacks before they happen as well as provide a feedback loop to inform your front-end fraud control tools. Since chargebacks cannot be completely avoided, our Chargeback Revenue Recovery service provides representment expertise so you don’t leave money on the table. We’ll help you decide when to fight and when to walk away, so you can focus on what’s most important – running your business successfully.
Don’t forget…you can now download our updated ebook: What Every Card Not Present Merchant Should Know: Navigating Today’s Challenging Payment Ecosystem? Get it now!
What are your thoughts? Ping us on Twitter (@verifi) with #paymentstips and let us know what you think.