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Sponsored Supplement: E-Payment Solutions and Security: Finding the right combination in tough times
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Understanding the data behind each transaction can help retailers identify what are the common factors to chargebacks. Litle & Co., for example, offers chargeback management consulting that includes reviewing the reason codes assigned by Visa and MasterCard to each chargeback. As part of its chargeback analysis, Litle & Co. will look for common underlying factors, such as customer claims they did not receive what was ordered. Litle & Co. will then work with the retailer to identify ways to improve fulfillment to reduce such claims, which lead to chargebacks.
“Common reasons for a chargeback are ‘not as described’ or ‘defective,’” says Jason Pavona, executive vice president of sales and marketing for Litle & Co. “Once retailers understand the reasons behind the chargeback, they can look internally to indentify where and how the problem originates. A good processor helps retailers track this type of information and identify where bottlenecks occur and how to correct them so business goals can continue to be met.”
The same principles can be applied to fraud detection. “If a retailer is performing manual reviews on 25% of transactions and still suffering from a high fraud rate, they need to step back and ask what is the cause of the fraud and do they have the tools to detect it,” says Pavona. “This exercise helps retailers determine the optimal percentage of transactions to manually review and whether that fits their business goals.”
To illustrate his point, Pavona says that a retailer with higher margins can afford to manually review a higher percentage of transactions than a retailer with thinner margins. “Fraud-detection applications have to be matched to the retailer’s business and keep pace with changes in the way criminals perpetrate fraud,” he adds. “There is no one-size-fits-all approach.”
Know the territory
Retailers that sell globally are advised to select processors that have fraud-detection tools specific to merchant categories and local markets. GlobalCollect, for example, partners with InterCard AG, which provides tools designed to spot fraudulent direct debits in Germany.
“Sometimes local experts can provide a stronger level of fraud prevention and detection in a specific country,” says GlobalCollect’s Vollebregt. “The same goes for partnering with specialists in vertical markets.”
Other fraud-detection companies GlobalCollect partners with include Retail Decisions and Quova Inc., a provider of Internet geolocation data to determine where shoppers are located. Geolocation is helpful in spotting IP addresses originating from countries that are hotbeds of fraud.
Another way to thwart criminals is by encrypting transaction data as it enters a retailer’s server to prevent identity theft as the information moves downstream to the processor. Identity theft is one of the largest sources of fraudulent online transactions.
Chase Paymentech has developed a public-private encryption key code that allows retailers to encrypt customer transaction data entering their servers using the public key code, but prevents them from opening it once the data is encrypted. Chase Paymentech is the only holder of the private key code that can unlock the data and convert it into a readable format to ensure the message cannot be decrypted within their systems either by a rogue employee or a hacker.
Chase Paymentech developed the encryption method to protect transaction data as it moves out of the retailer’s server and across its processing network. “Most data breaches take place while data is in transit to another touch-point, not while the data is in storage,” says Chase Paymentech’s Bullard. “Encrypting transactions addresses the security concerns for securing transient data within a client’s network upstream of the card number encryption process.”
In the past, e-retailers validated good shoppers by running small transactions using the Credit Card Verification (CCV) number, at the point of purchase, to validate the card. The retailer’s processor would charge a fee for running this transaction and many merchants would neglect to inform their processor to reverse the amount after verification, negatively affecting the cardholder’s available balance.
In February 2009, Visa enacted the Visa Authorization System Zero Dollar Verification Message, which allows a retailer to validate the CCV and other authenticating pieces prior to obtaining an actual authorization. This is a way of saving the merchant from incurring additional authorization charges, and protects the cardholder’s open to buy.
“Offering retailers zero dollar authorizations can add up to a substantial savings and improve customer satisfaction with the overall transaction,” says ClearCommerce/Certegy’s Kuzio.
Helping retailers increase their operating efficiencies through improved automation is another way processors are helping retailers control acceptance costs. Through its Orbital Payment Gateway, Chase Paymentech plans to offer additional automation by sending electronic updates to credit card account data kept on file for recurring billing. When a credit card expires or is reissued because it has been reported lost or stolen, retailers that charge customers on a recurring basis must update the account information.
Currently, Chase Paymentech sends the updated information to the retailer, which then manually inputs it into their system. “Once this process is automated, we can electronically update the account data for the retailer,” says Bullard.
In addition to helping retailers streamline their operations, Chase Paymentech offers a variety of alternative payment methods, including PayPal, BillMeLater, Green Dot MoneyPak and electronic checks.
Another way processors can help retailers lower their acceptance costs is by offering a direct, secure connection to the processor’s network. Typically, e-retailers connect to their processor through a third-party secure gateway. The third-party gateway encrypts the transaction data and transmits it over the web back to the payment processors in the format they desire. Third-party secure gateways add an extra layer of cost to processing since they charge their own fees.
Connecting directly to a payment processor enables the retailer to remove the additional layer of cost created by third-party gateway service providers. “Retailers need to ask if a third-party gateway connection is worth the additional money,” says Litle & Co.’s Janakiraman. “For retailers looking to reduce acceptance costs, connecting directly to their processor is a good place to start.”
Eliminating operational redundancies, such as trimming the number of fraud-detection applications used, can further reduce a retailer’s payment acceptance costs. “Many times retailers will support fraud-detection applications that are not highly effective,” says Litle & Co.’s Pavona. “Retailers are better served by performance testing which fraud-detection applications are the most effective and eliminating those that don’t work as well. Supporting operational redundancies is costly.”