How do you manage fraud and chargeback risks as a merchant acquirer?

To manage fraud and chargeback risks, a merchant acquirer employs advanced fraud detection systems, real-time transaction monitoring, and comprehensive merchant underwriting processes. They ensure compliance with security standards like PCI DSS and use tokenization and encryption to protect sensitive data. Effective chargeback management involves clear communication, dispute resolution tools, and early warning systems. Additionally, they provide education and training to merchants and collaborate with industry groups and law enforcement to stay ahead of emerging threats. These strategies collectively enhance the security and reliability of the payment processing environment.

Managing fraud and chargeback risks as a merchant acquirer requires a multi-faceted approach. Firstly, implementing robust fraud detection tools and real-time transaction monitoring can help identify and prevent fraudulent activities before they escalate. Utilising gateway services which offer advanced fraud protection features, can significantly reduce chargebacks. Setting clear, transparent policies and providing excellent customer service can mitigate disputes from escalating to chargebacks. Collaborating with third-party chargeback management companies can also be beneficial, as they offer specialised services.

As analytics and data science have advanced, KYB will advance to more continuous monitoring. As businesses go through phases, use new acquisition models, and their customer base changes, being able to track how they do on and off the platform will be crucial.

It is important to perform multiple layers of checks when it comes to "knowing your merchants". Personal and business identity theft is rampant and the fraudsters have become quite slick. Apply multiple checkpoints at various stages of the merchant onboarding and early processing cycles. Front-loading the validation of TIN is helpful as is using a service such as Plaid to validate checking account ownership. And beware of checking account change requests that come in shortly after approval. After performing thousands of loss post-mortems, one of the common behaviors on fraudulent merchants is an early DDA change.

Fraud prevention has three phases, pre-authorization, authorization, and post-authorization. With the advances in AI as well as fraudsters getting smarter at circumventing security aspects as mentioned here, being able to identify fraud through all stages will be important. But also storing data, as will be necessary with Visa's compelling evidence 3.0.

Our internal research uncovered that a tiny delay of 0.05 seconds in transferring data to an external antifraud system reduces conversion 😕 But wait, there’s no need to compromise between security and sales. Customisable antifraud solutions may be the key. Tailored to your industry's unique risks and fraud patterns, they allow you to set specific rules for flagging suspicious transactions in real time. Moreover, these systems can seamlessly integrate with external third-party services to make informed decisions on transactions.

In addition to using fraud prevention tools, fostering strong customer relationships can help reduce chargeback risks. Educate customers on recognizing and reporting fraud promptly. Use tools like Signifyd or Sift for comprehensive fraud management, and maintain clear, transparent communication to build trust and prevent disputes. Engaging with your customers proactively can significantly mitigate chargeback occurrences.

Anothert way is to use tokenization to replace sensitive payment data with a token, and encrypt data both in transit and at rest to protect it from unauthorized access.

Emphasize the indispensable role of advanced fraud prevention tools in risk mitigation. Explore a spectrum of tools, from traditional methods to cutting-edge technologies like blockchain. Position fraud prevention not just as a defence but as an integral component of a technologically advanced risk management approach. Delve into the realm of adaptive fraud prevention. Discuss how machine learning continuously evolves to identify new fraud patterns, providing a dynamic defence against ever-changing threats. Propose the integration of blockchain for secure and transparent transactions, ensuring an immutable record that enhances fraud detection and prevention.

Educating your merchants is crucial. Provide clear, updated guidelines on secure card payment processing and compliance. Offer advice on handling disputes, refunds, and customer service issues. Conduct regular webinars and send e-learning materials. This approach not only reduces errors and complaints but also boosts merchant satisfaction and loyalty.

Educating a merchant about how to handle chargebacks could be a little tough task and there are lots of chargeback specialists in the market to take care of it. However, acquirers can guide the merchant while onboarding to minimise the chances of chargeback and fraud. To make sure, a merchant has added a clear refund policy, a clear descriptor which tells about the merchant, customer support or chat support so that the customer can connect with the merchant before escalating the issue with their bank. Acquirer can also assist merchants by guiding them about Matercard's Ethoca or Visa's RDR program

In my experience, it has been more effective to teach merchants how to be better merchants rather than trying to train them on being better risk/fraud specialists. They need to get the basics right. Things like, responsive customer service, quick shipping turnaround, and liberal refund policies. Educating and training merchants on risk and fraud ends up providing limited ROI.

A great way to do that is by unlocking different levels of risk by getting merchants to either have their own internal fraud manager go through it or continuously stay up to date with the best practices.

Move beyond tools to the empowerment of education. Highlight the role of merchant education in risk reduction. Provide nuanced guidance on best practices, pitfalls, and the fostering of a culture of continuous improvement and compliance among merchants. Explore interactive educational platforms. Discuss gamified training modules and AI-driven tools that adapt to individual merchant needs. The focus is not just on imparting knowledge but also on instilling a proactive and adaptive mindset among merchants.

When tracking and analyzing data, especially when the volume starts to grow, leveraging Machine Learning or Fraud Platforms that use Machine Learning can be a great way to stay on top of things. Adding Explanatory ML will be a very necessary component in the future to keep on advancing Fraud prevention.

In merchant acquiring, stopping fraud and chargebacks is key for trust and security. Here's how we do it: Focus on Real-time Monitoring: We watch transactions non-stop to catch anything fishy ASAP. Manage Behavioral Analysis: We spot weird patterns in user behavior to sniff out fraud fast. Understanding the Machine Learning: Our AI learns from past data to spot shady stuff and adjust to new tricks. Teamwork: We share data and tips with others in the biz to stay a step ahead of the frauds and keep things safe.

Tracking and analyzing data is vital. Utilize tools like Splunk or Tableau to monitor transaction patterns, fraud indicators, and chargeback reasons. Benchmark your data against industry standards to identify gaps. This data-driven approach provides insights for optimizing your risk management strategy and making informed decisions to reduce fraud and chargebacks effectively.

Along with tracking and analysing data you should also continuously monitor transactions for unusual patterns or behaviours that could indicate fraudulent activity. Set up alerts for high-risk transactions.

As part of data analytics, identify and track key metrics that are most indicative of potential fraud, like: - Average transaction value - Geolocation of transactions compared to customer billing address - Frequency of returns and chargebacks - Velocity of transactions (number of transactions in a short period) - and many more.... When these key metrics deviate from standard baselines, then rase an automated alert. This allows for quicker intervention and potential prevention of fraudulent activity

There is and always has been a huge gap between Issuer and Acquirer communication in the area of risk/fraud. I am sure there are armies of Risk Analysts and Fraud Investigators in the acquiring community that can attest to how difficult (and sometimes impossible) it is to communicate with Issuers when investigating suspicious card activity. We are in dire need of a common mechanism/channel where Issuer & Acquirer Risk Analysts can freely communicate and collaborate to identify fraud as early as possible post auth and or settlement. In the spirit of "privacy regs", we are shooting ourselves in the foot.

Frame stakeholder collaboration as a cornerstone of effective risk management. Establish regular communication with card networks, issuers, regulators, and industry associations. Compliance with rules and requirements should be positioned as a strategic move to build trust and reputation. Explore the future of collaborative risk management. Discuss the potential of blockchain in creating a shared, immutable record of transactions. Propose the establishment of industry-specific consortiums where stakeholders collaboratively address evolving risks.

I would add to join a collaborative group like the MRC (merchant risk council). I was part of the group of merchants at its inception and the value that has kept it going for 20+ years is in collaboration. It includes all the players in the ecosystem which means we have conversations about the whole solution. (Otherwise the bad actors exploit that fact.). It also provides the ability to have conversations with your peers about what they are seeing, doing, avoiding so that you can benchmark (or have group therapy.) Those conversations save time in strategy and budget and are attractive to you C-suite. Finally, there is power in numbers so collective advocacy to influence change is critical across merchants, cards, providers and regulators.

There are 5 fraud management maturity levels: 1️⃣ Minimal protection, mainly manual script processing. 2️⃣ Basic blocking rules and lists, all manual work. 3️⃣ Metrics, scoring, and data accumulation for more accurate rules. Strategy development based on data. 4️⃣ ML/AI-based system generating rules from historical data. 5️⃣ Advanced self-learning system. Fraud management maturity exists on a continuum — you can't be fully mature or fully immature in every area. But it's important to understand where you fall on this spectrum so you can improve where needed.

Some less obvious things that help are: - Join the MAC network where members are alerted about fraudulent merchants - Create a terminated merchant file internally and leverage any external files you have access to - Make sure your MATCH checks are scrubbing all available fields for all principal and business information, then put logic in place to reduce false positives

Mantener una base de datos "Limpia" y "Actualizada" reduce significativamente el riesgo de fraude y pagos incorrectos. Maneter un sistema en orden permite que el sistema funcione como debe ser evitando el sobre esfuerzo y sobre análisis para encontrar los riesgos.

The obvious answer is "Choose the best fraud prevention tool".. But i think that is the last action that you must take, in my opinion fraud prevention start with a custom, detailed and specific onboarding process plus KYC and KYB. Then you can add some KPI's and specific metrics such as, approval rates by card brand, mcc, average ticket amount, country, currency, etc. So if we combine all of these things with a customer and payer behavour(IA), continous monitoring and the fraud prevention tool, i think that we have a good approach to handle the annoying and in general expensive chargeback situation.