A Forrester Research report analyzes the early successes and failures of Apple’s mobile payments system.
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Online real-time bank transfers connect a shopper directly to his bank account when he clicks on a payment icon on the retailer’s site. What makes this attractive to retailers is that such transfers eliminate the risk of fraud since the shopper must identify himself to his bank using a password or other identification method. Plus, there is no chargeback risk. Funds are then transferred to the retailer immediately.
A shopper can pay by cash by clicking on the appropriate icon on the retailer’s checkout page, which links the shopper to a page with a transaction voucher and bar code. The shopper prints the voucher and presents the voucher and the cash for the purchase to a local bank affiliated with the processor. GlobalCollect works with 250 banks around the world to handle such in-person cash payment of online transactions.
After accepting the voucher and the payment, the bank scans the voucher into the processor’s network and electronically transfers payment. The processor matches the bar code with the transaction identification number on file and electronically settles the transaction with the retailer. Retailers can check deposits made to their account online 24/7.
“Cash payments are used to complete as much as 30% of online transactions in Brazil,” says GlobalCollect’s Vollebregt. “These are low-cost, no-risk transactions for the retailer because they are not susceptible to fraud.”
Pay by phone
Cash acceptance is not the only way for e-retailers to attract new shoppers that do not have credit cards or that lack a bank account. Charging online purchases to a shopper’s phone bill can broaden payment acceptance and help retailers reach new customer demographics.
Typically, this payment method is used to purchase digital content such as on-demand video, music and games. The risk of hackers using the phone number to make other purchases is reduced because the consumer’s landline telephone account is billed and steps are taken at the time of purchase to authenticate the phone number and the shopper.
“There are limits to how much can be charged to a phone bill, and what purchases can be billed to a phone number aren’t likely to appeal to criminals that use stolen credit card account data to purchase goods,” says Greg Carter, CEO of payment processor BSG Clearing Solutions. BSG’s payment services link retailers to more than 1,400 telephone carriers and can reach approximately 110 million households in North America.
BSG’s Bill2Phone service connects directly to the retailer. Transaction data flows from the retailer to BSG, which routes it to the phone carrier in the proper format. Purchases are charged to the shopper’s monthly phone bill. After the shopper pays the phone bill, the carrier routes payment for the purchase to BSG, which settles with the retailer.
In 2008 BSG cleared and settled hundreds of millions of dollars in phone-based transaction volume, which includes Bill2Phone digital transactions, long-distance charges, operator-assisted calls, enhanced services charges and recurring subscription-based charges.
Phone carriers charge BSG a flat transaction fee or a percentage of each transaction, which it passes along to retailers. “While the carrier fees vary, retailers with an average ticket of $10 can cover the transaction costs and still net a profit,” says Carter. “Bill2Phone is a way for retailers to add value to their payment acceptance strategy at a time when shoppers may have limited open credit to make purchases, have stopped using their cards because of the recession or who fear online fraud.”
Billing to a telephone number also reduces the risk of fraud. BSG, which also offers credit card processing, uses a multi-pronged strategy to prevent fraud. Retailers can request real-time information from BSG about any recent billing disputes over other phone charges associated with the shopper’s phone number. BSG gathers the data through the billing service it provides phone carriers.
BSG provides a comprehensive risk management solution and also has tools and information available to identify what types of telephone numbers are available for this form of billing.
BSG’s URU Identity Authentication service verifies the shopper’s identity using such techniques as age verification and verification of the shopper across multiple commercial and proprietary databases. “Our goal is to provide retailers of digital content a truly low-risk, alternative payment method to credit cards,” says Carter.
Authenticating the shopper not only reduces fraud, but prevents chargebacks that occur when a family member attempts to make an unauthorized purchase, according to Carter. “Allowing accountholders to impose spending limits can reduce the chance of misuse of the account by a family member that knows how to access the account and authenticate themselves, which is a benefit to retailers, since they incur a cost to defend chargebacks.”
‘I never got it’
Transaction disputes are a common occurrence for retailers of digital content. The most frequent claim is that shoppers insist they never received delivery of the content.
ClearCommerce provides tools that allow retailers of digital content to verify that downloaded content has been received before the shopper can open the file.
“Proof of delivery is tough to prove in the world of digital content from a retailer’s standpoint,” says Steve Kuzio, vice president of strategic planning for ClearCommerce/Certegy, a Fidelity National Information Services Company, that provides payment processing and fraud management tools to e-retailers as a part of its CommercePointe suite of services. “Requiring the shopper to verify the download has been received before the file can be activated eliminates chargebacks arising from such claims.”
One pitfall retailers need to guard against when it comes to fraud detection is rejecting good transactions because they show characteristics of fraud. These types of transactions, often called false positives, can damage customer loyalty and the retailer’s brand.
Keeping a database detailing characteristics of a good transaction and tracking individual customer’s shopping patterns, such as the time of day when they typically purchase and the IP address of the device they typically use, can significantly reduce false positives.
“A lot of retailers don’t factor in positive transaction histories when making the decision whether to accept a transaction,” says Will Hazama, vice president of sales for ClearCommerce/Certegy. “Rejecting a good transaction can be insulting to shoppers, and retailers want to avoid this whenever possible.”