In this guest post, James Blake, the founder of Hello Soda, talks about how Payment Service Providers can minimise chargebacks and make the process of payment more efficient – all by leveraging digital data.
A massive 51% of purchases are now made online, with that statistic being much higher in younger populations. We are at a stage where consumer behaviour is in limbo between the online world and the offline world, and the increasing demand for convenience and efficiency means that it is essential for businesses to implement more efficient and innovative verification systems – soon.
Many young consumers, including millennials, and even more so Generation Z, have grown up with technology at their fingertips, and the ability to get whatever they want with a click of a button.
63% of millennials with a smartphone already use it to make purchases, compared to 44% of other generations, highlighting the huge appetite for online shopping when it comes to younger consumers. With the value of contactless payments in 2016 reaching $9 billion back in August, the growing demand for a seamless user journey is evident.
The ease of modern transaction processes has now entrenched itself into our everyday lives. People have come to expect access and convenience to be at the forefront of any buying process and many are known to abandon their shopping carts or leave a store and shop elsewhere if the payment process is too drawn out. With so much competition in the ecommerce world, it has become essential for businesses to tailor their entire offering around the consumer in order to complete sales and build a loyal customer base.
A key concern surrounding online payments is how to make this process simple and efficient, while also ensuring that the risk of fraud and associated losses is at a minimum.
For Payment Service Providers (PSPs), the risk of chargebacks is much higher for card-not-present transactions. Chargebacks occur as a result of the consumer disputing a purchase made on their card. This can be for reasons such as duplicate billing, people being unhappy with their purchase, fraudulent use of a card or “friendly fraud”, which could be claiming that the package didn’t arrive, that the purchase was made accidentally, or even forgetting that the transaction took place.
Chargebacks can take as much as 90 days to be reported, leading to unexpected losses for PSPs, issuing banks, and merchants. As well as being costly for the companies involved, chargebacks can damage their reputations, and in some cases can lead to the closing of a merchant account.
The risk of this happening can be substantially reduced with know-your-customer principles. To make the entire process easier for PSPs, merchants, and the user, there needs to be advancement in how the online payment process is undergone, with the prevention of chargebacks being the most attractive benefit.
One option is 3D Secure. Already commonplace, 3D Secure allows PSPs to verify a card user online via their bank. Firstly the user needs to set up a Verified By Visa or MasterCard SecureCode account, and from then on, they will be redirected to the issuing bank’s website for authorisation where they will enter their password before each transaction.
Although this is a good method of verification, it does cause disruptions in the buyer’s journey, often resulting in customers failing to complete the purchase, meaning lost revenue for the seller. Consumers seem to hate it; being redirected to another website takes time, and passwords can be difficult to remember since they need to be complex in order to be secure. In turn, merchants likely lose valuable business. Removing 3D Secure can improve drop-off rates, but it can also carry the risk of increasing fraudulent transactions.
A viable alternative is to offer consumers the option to leverage their existing digital footprint as a way to verify their identity. While people can create fake accounts, usernames, email addresses and more, a deep and interconnected digital footprint is something very difficult to falsify.
With big data analytics tools, it is possible to identify not only whether a user’s account is likely to be fake – and therefore in need of further, alternative verification – but also whether the user is who they claim to be, by verifying details such as their location, their age, their employment status, and more.
Big data analytics tools take a multi-pronged approach to verifying a user’s identity, by looking at quality of data, quantity of data and corroborative data. Quantity of data means the actual amount of digital data that is available on the user, and corroborative data assesses whether information is consistent across different online accounts. Both can help determine whether an account is real or not.
Determining the quality of online data takes it one step further by analysing, the types of digital interactions the user is having and whether this data is meaningful, thereby verifying the identity of the user.
This is all done with consent from the user and in real-time, without the need for yet another password or verification account to be set up, streamlining the customer journey.
The faster people can shop, the more likely they are to do so. Therefore, in order to minimise chargebacks and user drop-offs, and consequently improve their bottom line, it is time that companies embrace these modern methods of ID verification. It is time to leverage digital data.
After years of working in a big credit corporation, James Blake started Hello Soda out of both frustration at how consumers were accepted or rejected for loans and credit, and a passion for empowering consumers. He has since expanded the business into new sectors, including two consumer-based products. He is continually looking for ways to improve his products and grow his business.
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