"Fraud Alerts": The Digital Merchant's New Nemesis

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Presentation transcript:

"Fraud Alerts": The Digital Merchant's New Nemesis Your source for payments education "Fraud Alerts":  The Digital Merchant's New Nemesis Scott Adams, FraudPVP.com, CEO/Founder Lyz Nesvold, Clickbank.com, Director of Risk Service Management …

Key Takeaways Learn what “Fraud” is Understand Visa regulations around Fraud Learn about some methods to fight back

What is a Fraud Rate? Currently, Visa determines your fraud rate by the dollar amount of your fraud transactions each month in comparison to your sales in USD and USD settled currency for that same month. Transactions that qualify as Fraud are reason codes entered by the issuer of the customer’s bank during the dispute. We have found in fraud data over 85% of this is friendly fraud, not stolen cards or criminal fraud. This is not the same as your chargeback rate. Fraud rate is dependent on only fraud reason codes, where as Chargeback rate is all chargebacks. You can have a fraud alert that never becomes a chargeback.

October 2019 Visa is changing the way their programs are structured to make it even more restrictive. This includes Chargeback rates, fraud rates and the monitoring of acquirers as well. We will go over the new regulations, as taken directly from Visa’s Site: http://click.broadcasts.visa.com/xfm/?17847/0/7d27eec4c394cddf369d981 bda1cad4d/lonew

Qualification Criteria Visa Early Warnings Early Warning Notifications Early warning notifications provide acquirers and merchants and opportunity to reduce fraud and/or dispute levels before a merchant and its acquirer are identified in the VFMP, VCMP and or VAMP. Effective 1 October 2019, Visa will provide acquirers with monthly Early Warning notifications when their merchants do not exceed the program standard thresholds but have met the following qualifications in the previous month: Early Warning Type Qualification Criteria VCMP Early Warning 75 or more disputes AND 0.65 percent or higher ratio of dispute count-to-sales count VFMP Early Warning USD 50,000 or more in fraud amount AND 0.65 percent or higher ratio of fraud dollar-to-sales dollar amount VAMP Early Warning USD 250,000 or more in fraud amount and/or 375 or more in dispute count AND 0.45 percent or higher ratio of dispute count-to-sales count / fraud dollar-to-sales dollar amount

Enhancements to Risk Programs Enhancements to Risk Program Thresholds The following table outlines the changes to the VCMP, VFMP and VAMP thresholds. Each month, a merchant and its acquirer will be identified if it meets or exceeds these thresholds: Program Threshold Criteria VCMP Standard Program 100 or more in dispute count AND 0.9 percent or higher ratio of dispute count-to-sales count VCMP Excessive Program 1,000 or more in dispute count AND 1.8 percent or higher ratio of dispute count-to-sales count VFMP Standard Program USD 75,000 or more in fraud amount AND 0.9 percent or higher ratio of fraud dollar-to-sales dollar amount

How do I get my fraud rate? Your acquirer/processor can provide you with the transactions that have been reported as fraud from the issuer. If you have an early warning notice of being in the VFMP program, then you should be provided with a TC-40 report, which is your fraud report. If you can’t get it through your acquirer/processor, there are companies here that can help you with that.

Looking at the Fraud Data Looking at each transaction, you can put some of these methods to use: Refund Reasons – What is your policy, is it causing issues? Are your customers refunding for common reasons? Do you utilize Refund Reason codes? Did the Customer call in? Did the Customer receive the product? Is your sales flow confusing or the billing terms not clearly stated?

Looking at these transactions, are they Friendly Fraud? Fraud Data Continued Looking at these transactions, are they Friendly Fraud? If the customer is verified through the data they provided, that is a very easy way to tell. Criminal Fraud… Are they stealing product by having it shipped to empty lots, odd addresses? Are they using stolen cards? Does the information not match the card holder or the person making the order? (billing address, shipping address, phone number and device location are all different)

What Kinds of Programs Can Help? Third Party Data – These providers help with that customer verification piece. Representment Companies – These guys fight the chargeback so you can retain the loss for friendly fraud. Pre-CB Alert Services are products that are driven to prevent the fraud alerts and chargebacks. VMPI – Visa Merchant Purchase Inquiry – Visa service that communicates between issuers and merchants to prevent friendly fraud

Visa Merchant Purchase Inquiry No myths – Just Facts

Visa Merchant Purchase Inquiry I heard it’s not live. Its been live nearly a year Someone told me only 3 issuers used it. Issuers all over the world are participating VMPI Myths or Facts? Only large merchants allowed. Any size merchant is welcome Its really difficult to integrate and takes a long time. Little to no integration … Live within days

Visa Merchant Purchase Inquiry Provides Cardholders Information from Merchants Combats “Friendly Fraud” VMPI: a few more facts Prevents previously refunded chargebacks Let’s merchants receive TC40 and other data in real time Saves sales for merchants

How does it Work? – The OLD Way The customer calls their issuing bank Customer says “I don’t recognize…” Issuing bank files a chargeback Merchant loses the sale and is assessed fees

How does it Work? – The VMPI Way The customer calls their issuing bank. The agent for the bank pushes the Inquiry to VMPI. VMPI provides the transaction details to the bank. The agent relays the information to the customer, closing the transaction. Merchant keeps their money and there is no chargeback!

VMPI Info and Merchant Case Study NOTE: All exact numbers in this case study are changed to protect confidentiality, but the ratios are real

VMPI – North America Coverage USA/Canada – Top 5 Banks: Wells Fargo Bank of America Chase Bank Citibank Capital One ... Hundreds more

VMPI – International Coverage Non-USA – Top Banks: BBVA Bancomer SBI Cards ANZ HSBC Mexico Banco Santander CitiBank Banco do Brasil

VMPI Terminology Deflections Refunds Pre-emptive Rapid Resolution Alerts and Notifications

Clickbank’s Results 48% Saved Inquiries and deflections These are transactions consumers called their bank on Deflections: merchant keeps the money and lives to bill another day February 2019 – Results* Inquiries from Visa card holders: 11685 Deflected – Cardholder remembered: 5635 Saved Sales: No Chargeback Saved the Sale 48% Saved * Exact numbers changed to protect confidentiality – Percentages are real

Clickbank’s Results 78% Avoided Pre-emptive refunds These are inquiries on transactions refunded before the consumer called All would have been chargebacks February 2019 – Results* Without VMPI: 1635 Issuer honored our Refund Alert: 1270 Lower Chargebacks: No Chargeback No Chargeback Fees Didn’t hit their CB Rate 78% Avoided * Exact numbers changed to protect confidentiality – Percentages are real

Clickbank’s Results February 2019 – Results* Show me the money! Assumptions Avg Ticket of $35 Chargeback fee of $25 Inquiries from Visa: $408,975 Chargeback Fees of: $292,025 VMPI Deflected 48%: Inquiries $408,975 x 0.48: $196,308 Fees of $292,025 x 0.48: $140,172 Total Saved: $336,480 Or 48% of Inquiries Won * Exact numbers changed to protect confidentiality – Percentages are real

Clickbank’s Results Real Time Data Uses Stop shipment February 2019 – Results* Fraud / TC40: 6135 Chargebacks: 9420 Cancel Recurring: 770 Exception: 565 If even 10% of these placed a second order after the first report Another $59,115 saved Real Time Data Uses Stop shipment Revoke entitlement Prevent future transactions Receive these alerts at the exact same time as the Issuer reports it No more waiting 24 hours to 3 weeks or never getting them at all * Exact numbers changed to protect confidentiality – Percentages are real

How do I sign up? Figure out data strategy … think about what you need? Find a Merchant Facilitator Go live in days Impact your CB rates and save money fast!

Director of Risk Service Management Lyz@Clickbank.com Questions? Scott Adams CEO/Founder Scott@FraudPVP.com Lyz Nesvold Director of Risk Service Management Lyz@Clickbank.com