How To Stop Chargebacks (Before They Happen)

It’s predicted that U.S. card issuers could very well face card-not-present (CNP) losses totaling nearly $6.4 billion by 2018. Today’s eCommerce- and mobile commerce-enabled landscape, coupled with the recent EMV liability shift, has led cybercriminals to change their focus and efforts to zero in on CNP fraud opportunities.

The protections offered through EMV chip-enabled cards is good news for consumers, but for merchants and issuers, it can be a whole different story. Not only does this open the door to more fraud but also to more chargebacks.

“That card-not-present scenario is open to more fraud, as well as different types of fraud,” explained TSYS Group Executive of Product Strategies Andrew Mathieson, “and, in the chargeback case, a key way of recovering that fraud exposure from an issuing standpoint is chargebacks to the merchants.”

Mathieson broke down the situation like this: First, there is confirmation that fraud has actually occurred on a consumer’s account; it’s then reconciled, then comes the rather cumbersome and slow process issuers deal with today that involves initiating the chargeback process, which can sometimes take weeks and has the potential for money losses to occur during the process itself.

But what if that could actually be done in hours, or even minutes? Saving time, effort and essentially stopping fraud in its tracks.

That’s the idea behind the TSYS Transaction Recovery Network, powered by Ethoca, which Mathieson said is designed to alert all participating merchants within the network that a card is “bad” or fraudulent within minutes of that distinction being made. This valuable information can then allow the merchant to take action to intercept a shipment and cancel an order so the transaction itself doesn’t, in fact, need to be charged back.

The solution could constitute a win all-around; both consumers and merchants are on board because it can help to cut down on fraud and false declines, while issuers see a process that would have taken weeks and comes with indeterminate outcomes now being resolved much more quickly and on an automated basis, Mathieson explained.

Now, merchants and issuers can work together in a collaborative way, in the same manner criminals have been doing for years.

As Trevor Clarke, Cofounder and EVP of Issuer Relations at Ethoca, pointed out, the partnership has connected these card-issuing banks across the world to more than 3,500 merchants in 37 countries, allowing issuers and merchants alike to operate in an environment where they are now collaborating.

“Criminals have been working together, and our vision is that we need to bring the good guys together. We need to break down the barriers that, in the past, have prevented issuers and merchants from working directly together and put in place the solutions, processes and the right security and privacy that enables these two parties to stamp out a significant amount of fraud,” Clarke continued.

While collaboration for the “good guys” is essential, it also comes down to speed.

As Mathieson put it, a criminal’s work day never really ends, which means the solutions to combat them must not only work around the clock but at a faster pace. The speed at which a fraudulent transaction is stopped and a fraudster is stopped from receiving a good can be the difference between lowering and increasing the subsequent costs that both merchants and issuers face.

“The process that we’ve enabled through the TSYS Transaction Recovery Network enables the issuer to recover a lot of these funds in lightning speed time that provides significant value back to them,” Clarke said.

Clarke mentioned that, at the recent TSYS Fraud Forum event, an airline presented on how it’s been able to use Ethoca alerts to prevent passengers who used fraudulent transactions from getting on a plane or even being able to go and tap the shoulder of a passenger who hasn’t actually paid with a valid card.

“It sends a signal to the market that this activity is going to stop and we are going to work to prevent it — that drives value for both the issuers and the merchants at the end of the day,” Clarke said.

“We have some very big players in the digital space that will auto-refund up to 100 percent of all transactions that otherwise the banks are going to have to invest in to create the chargeback or, ultimately, they might write off because the cost of the chargeback exceeds the value of the transaction that they want to cover,” he added.

As TSYS and Ethoca work to continue scaling up the network, Clarke said the objective is to partner and work with even more vendors in the ecosystem to ensure issuers and merchants can, as quickly as possible, collaborate to help stamp out fraudulent activity.

“We are not only looking at fraud losses but, more holistically, how we can help reduce and mitigate fraud or any kind of financial risk exposure for our clients,” Mathieson noted.

To learn more about TSYS Transaction Recovery NetworkSM  powered by Ethoca click here.

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Andrew Mathieson

Group Executive, TSYS

Andrew Mathieson is a group executive at TSYS. He currently manages product strategy for the company’s issuer processing businesses across its North America and International segments. His group ensures that TSYS is focused on the most relevant needs and problems of clients in the context of market trends, competitor activity and TSYS’ strategic priorities. For products and services, his teams define strategic functional requirements; guide pricing monetizing recommendations; evaluate buy, build or partner recommendations; and propose sunset and substitution strategies.

Previously, as group executive for relationship management at TSYS, Mathieson was responsible for relationships with more than 30 TSYS clients — spanning the consumer credit, commercial credit and debit card platforms — along with the overall development, implementation and ongoing management of turnkey credit card services.

Mathieson has more than 27 years of experience across the financial services, health insurance and travel industries. Prior to joining TSYS in 2009, he was the founder and president of Fintura Corporation, which provided financial institutions with product management outsourcing solutions. Mathieson has worked extensively with financial institutions in the analysis of credit card portfolios and the assessment of new business opportunities and has developed a wide range of proprietary financial modeling and forecasting tools. He has extensive experience in strategic planning, new product design and development, distribution planning and business development in the financial services industries — gained through both consulting and line management positions. Mathieson also previously served on the board of directors of MRU Holdings, Inc., a publicly traded (NASDAQ) student loan company, and was a founder and managing director of InfiCorp Holdings, Inc., the parent corporation of InfiStar and InfiBank, N.A, and a wholly owned subsidiary of First National of Nebraska, Inc.

Mathieson holds an MBA from the University of Chicago with a double specialization in marketing and business economics. His undergraduate degree is from the University of Michigan.

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Trevor Clarke

Cofounder and EVP of Issuer Relations, Ethoca

As one of the founders of Ethoca and executive vice president of issuer relations, Clarke is responsible for the engagement and ongoing success of card issuer participation on the Ethoca platform. Clarke has served multiple roles within Ethoca, including CTO, where he led the buildout of the Ethoca platform and supporting operations, while managing the engineering, operations and security functions within the organization. Concurrently, he also developed Ethoca’s Channel Partner program and worked with PSPs, gateways and ISOs to rapidly expand the reach of the collaborative network and stop more fraud and chargebacks. Clarke is now fully engaged on expanding card issuer participation and working closely with both merchants and issuers to define and deliver more collaborative solutions that yield mutual benefit. Prior to starting Ethoca, Clarke spent his time working with major telecommunications carriers, financial institutions and online gambling while with Deloitte Consulting, IBM and CryptoLogic.