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Seller Protection for merchants provides 100% protection against chargebacks if the seller ships to a confirmed address in the U.S., Canada or the U.K.
A further element of security, PayPal points out, is that the merchant never stores the consumer payment information, meaning that security is not based on a merchant`s willingness or ability to invest in secure storage.
First National Merchant Solutions has also developed a payments gateway that applies rules and scoring to judge the validity of transactions. It starts with the basics of address verification, CVV numbers, and Verified by Visa and MasterCard SecureCode, then checks transactions against negative files and scores them against 50 other data fields. Like VeriSign, First National applies what it learns across its network to individual clients` transactions.
The processor can build rules across the network based, for instance, on product codes, flagging higher-risk products for closer scrutiny, says Ritchie, product manager for First National`s PayFuse system. "We then spread it across the network to our other merchants who have products like it," she says.
As an example, she offers office supplies as a category that, because of the promotion applied to many products in that category, is susceptible to fraudulent transactions. "Office supply retailers have lots of coupons and specials in the newspapers that customers can use online," she says. "With coupon fraud, we can see what`s happening and build a rule very quickly. If a store is all of a sudden hit with coupon fraud, we can write new rules as the system is processing transactions. The merchant can change the rule on the fly."
Another advantage of developing rules based on a range of transactions, Ritchie says, is that merchants can draw upon First National`s expertise if they want to expand their inventory. "A retailer in consumer electronics, for instance, knows their business and what`s risky within their own product classification," she says. "But if they want to push their inventory into more areas, we can help them flag the products that are riskier or less risky than others."
First National`s system is oriented toward the business user, not the technology department, with user-friendly interfaces, Ritchie says. First National took its screening engine in-house in May 2003 for further development, after outsourcing it before that. Since that time, it has added payment types that the system can process as well as the capability of processing payments from multiple channels.
In addition, First National is planning to add still more data fields to the screens and more transactional information and enable the system to act more quickly on more information. "We`re always working on making the engine smarter," Ritchie says.
Re-write on the fly
Other processors are working on expanding the capabilities of their systems, as well. Retail Decisions recently integrated its PRISM tool with its ebitGuard product, which allows the company to analyze transactions in multiple dimensions simultaneously. For instance, it can bring together its analysis of transaction patterns, velocity checks on card usage and negative databases, all toward flagging or passing a single transaction. "In the card-not present environment, it`s absolutely critical to detect the slightest change in patterns," Kris says.
PRISM is a neural network that constantly analyzes transactions and re-sets rules based on the patterns it is observing. It`s more powerful than human-based rules systems because it can analyze massive amounts of data quickly and re-write rules on the fly, Foster says. "If a team writing rules could set even as many as 20,000 rules based on all products and all customer behavior, when they`re done, all they`ve got is a level of rules that reflect their business today," he says. "PRISM re-sets the levels without re-writing all the rules."
Retail Decisions is also developing PRISM to work at an even deeper level of information, down not only to the transaction patterns at specific sites but even down to types of SKUs. "Someone who buys diamonds and sneakers doesn`t get the same score for each product," Kris says.
Processors are developing technological approaches in part as a way to reduce merchants` manual review of transactions. For instance, Retail Decisions says trials of its integration of PRISM into ebitGuard, which can be programmed to produce any level of manual review that a retailer desires, have reduced manual review by 30% at retailers that were using just ebitGuard before. "If you have a staff of 18 and you can reduce it by six at $50,000 each per year, you can save some real money," Kris says.
Credit cards are not the only online payment vehicles subject to fraud. Just about any transaction that represents money on the Internet is likely to attract criminals. Thus processors have built up security systems around e-checks to ensure that retailers can ship orders paid by e-checks with the same level of confidence as they ship orders placed by credit card.
So far, fraud has not been the problem with e-checks that it is with credit cards, processors say. "Credit card fraud is what`s hurting the merchant," says David Kerlin, president of AmeriNet Inc., which offers the Debit-It e-check product. "Criminals haven`t spotted opportunities with e-checks. "In some ways, it`s like the difference between Apple and Microsoft. Criminals go where the money is and because 90% of the market is on Windows, they create attacks for that part of it. They don`t go after the small guys. E-checks are a small part of the market."
Nonetheless, processors aren`t sitting by, waiting for the criminals to attack. They are developing databases that cross-reference information from multiple databases and processors and merchants are building up systems and information that allow merchants to be more comfortable shipping more quickly to customers as customers build up buying and paying history.
Usually, the type of e-check fraud that merchants experience is related to the buyer changing his mind, Kerlin says. The fraud falls into two general categories--the buyer denies the transaction or claims the product was not as depicted--but usually devolves into a change of mind. "An awful lot of fraud is really just buyer`s remorse," Kerlin says, "and it could be avoided by the customer just saying he wants to return the product and wants his money back."