For Payments, Nirvana After Risk Enlightenment

How to reach Nirvana in payments? How to move past the pain points for consumers and to get shopping cart and transaction abandonment to become a thing of the past, which helps card issuers?

Valid questions to be sure, and ones that bedevil each side of the transaction. In a recent webinar conducted by MPD’s Karen Webster and Ankur Karer, director of global presales and payments security at CA Technologies, there was earnest discussion about how real money can be saved with the embrace of technology and the continuous refinement of risk assessment, which means that issuers can be reassured that their products are indeed being used in the field.

The title of the webinar was, and is, a provocative one: “How To Cut Card Operation Costs By 90%.” The key challenge to cost-cutting, according to Karer, is one that extends across industries and enterprises — namely, whether companies “can handle the boost of CNP [card-not-present] fraud” that is almost certainly slated to rise in the U.S. and beyond?

The balancing act is a delicate one, posited Karer, where on one side there is the customer experience, where “too much fraud prevention,” as he termed it, can lead to frustration on the consumer side and, ultimately, abandonment of the transaction. That, of course, leads to lost revenues for the merchant and lost interchange revenue for the issuer.

Conversely, said Karer, the issuer (or merchant) itself must find an appropriate balance between fraud management, operational costs tied to that management and also efficient ways of tracking consumer (and fraud) patterns. For the issuer, the balance is key as it is the only way to maximize revenue. There are operational cost challenges across both sides, said Karer. Among issuers, operational costs can extend to managing communications through the outbound investigations to manage fraud and to manage the complaints themselves.

Perhaps surprisingly, he noted, “most companies do not track the costs on a detailed level,” related to the fraud prevention tactics that may already be in place and may be inefficient. Case in point: In the absence of a proactive, preventative mindset, when a customer calls in to a call center or otherwise contacts a company in reference to a transaction’s authenticity, there’s a larger issue afoot and one that may be costly to an issuer. Simply put, issuers are not tracking down the true costs related to customer interaction. And an integrated approach by the card company needs to be “user-friendly,” said Karer, and one that also can use outbound communications that can be automated, at least somewhat, and can ensure speed in addressing issues at the card level.

Against this backdrop, said Karer, “fraud is changing,” and noting the rise of CNP malfeasance globally in the wake of card-present transaction protections (EMV, anyone?), the United States “is really lagging” when it comes to risk models and being ready for CNP issues. That’s especially true, concurred Webster, in an environment where mobile payments gain traction. Controlling risk decisions becomes key — “you can challenge everybody” trying to make a purchase, said Karer, which has not been effective for card companies.

Technology plays a strong role in creating a proactive roadmap in fraud prevention and risk control and even in enhancing the customer experience, noted Karer. The growth in online transactions does indeed create some friction and growth in consumer complaints — and for the companies themselves, a deluge of inbound calls can result in increased operational costs, lost time and lost sales.

One solution — encapsulating the 90 percent cost reductions that stood as the theme of the webinar — is a multipronged effort. Karer noted that best practices across risk assessment move beyond risk-adjusted processes that may have been long in place within an issuer. The emerging technologies that embrace analytics and a “zero-touch” principle can help alleviate friction in the payments continuum, as companies can use SMS and other technologies, like a “push notification,” to ensure consumers are kept in the loop about their purchases (and whether to accept or deny them) in real time.

One telling example, as shown by Karer, comes with a “strong performing European credit portfolio” in a real-time case via CA that managed to see its abandonment rate sliced by 80 percent and its failure rate slashed by 90 percent virtually overnight, as zero-touch initiatives were implemented — even though the European rate of abandonment is traditionally lower than is seen elsewhere.

The cost savings with a proactive approach can be substantial, added Karer. In a hypothetical case, a bank with 1 million transactions seen monthly, with a 15 percent abandonment and another 10 percent failure rate, with 25,000 calls into a center at $4.50 a call, can result in costs of nearly $113,000 per month. The zero-touch authentication model can be much more judicious in authentication — to the point where failure and abandonment rates are a fraction of the previous model — and only 2,500 calls hit the centers, to a relatively minimal $11,250 in operational costs monthly — hence the 90 percent savings.

Issuers themselves can benefit from the “real-time dialogue” that exists across the merchant, the customer and the bank, and issuers can make contact via several methods, including SMS, email and other automated methods. By way of example, a $250 transaction — low enough to not be especially risky for a card company to stop — can be authenticated via text and other methods, which involves no human interactions at all.

In speaking with issuers themselves, added Karer, CA’s approach is to discuss the volumes of transactions, the basis points lost to fraud and data scientists that offer up models separate from risk-based models. The discussion turns instead to savings that can be taken into account as a result of the strategies mentioned above, across controlling for risk, contact strategies and cases managed by the issuers.