Can you give our readers some background information on ClearSale and its role within the payments industry?
ClearSale is a Card-Not-Present fraud prevention operation that protects e-commerce merchants against chargebacks. Our flagship product, Total Guaranteed Protection, is an end-to-end outsourced fraud detection solution for online retailers.
There are a lot of vendors that offer technology and tools for retailers and merchants to do their own fraud management. What Clearsale offers is something quite different. Although we bring with us our sophisticated technology, when it comes to tools and resources we are completely agnostic.
We will use the best the market has to offer, including a wide range of third party sources of data for comprehensive and efficient fraud management. Our goal is to truly resolve the issue of fraud, leaving retailers free to focus on their core business.
Our industry leadership position is the result of intense and optimum use of all the technology available, and our ability to quickly react and respond to voracious fraud attacks, deploying integrated management of technology, statistical intelligence and people.
I sometimes compare our solution to an actual war. We don’t sell the war tanks or the technology for someone else to fight the war. We are right up there on the front line, fighting fraud with all our tools and our people. This makes a difference in how we understand fraud, fraudsters and the consequences and the pain of not handling good consumers very well. A good buyer is like an innocent victim of war. We cannot allow that to happen. Good buyers should not suffer the effects of actions perpetrated by cyber-criminals using their personal data to commit fraud.
It has been well documented at this point in the United States that card not present fraud has dramatically increased since the EMV liability shift. What recommendation would you give to a merchant who is experience a heavy volume of CNP fraud?
•First – breathe. You aren’t alone. Stores in any industry, including luxury brands, have had issues with fraud. And there is something you can do about it; you just need to do your research to find a partner that meets your needs.
•Get to know your payment flow. Every store should have a fraud prevention method in place, even if the merchandise being sold is not attractive to fraudsters – some fraudsters will use an unprotected store to test credit card information.
•It’s not only about avoiding fraud. It’s important to think about your fraud strategy as part of your business strategy, not only about fraud prevention. Fraudulent transactions are at an all-time high due to EMV adoption, implementation of digital wallets, and account takeovers as result of continued large data breaches and cyber attackers moving to the cloud. However, there’s another important cost that sometimes people forget about: the false declines due to suspected fraud. They already cost US merchants $118 billion per year, and given the uncertain times, that cost may be on the rise.
•Plan your fraud strategy. There’s no “one solution fits all.” Regardless of whether you are going to use a third party or an in-house solution, in order to attack the problem, the merchant should consider if the solution is capable of:
oProviding all the relevant reports to track results?
oBeing flexible with costs according to my sales (no fixed costs)?
oHandling the chargebacks that might occur (financial health)?
oDealing with orders coming from different profiles (wholesale, retail, special occasions, etc.)?
oHandling your customers with care and giving extra care to VIP customers, example?
oDealing with different delivery time categories?
oWorking with the specifications of transactions coming from different parts of the world (custom fields, different time zones, different languages, etc.)?
•Monitoring and constant updating. Fraudsters change their targets and strategies. New technologies are constantly launched in the market. Consumers are increasingly impatient. For these reasons, it is important to keep up to date in relation to fraud attacks and possible prevention strategies.
Why do you believe that when it comes to reducing false positives that human involvement is a key component for businesses?
It is well known that fraud prevention algorithms can make decisions faster and cheaper. They have great value, especially when used as one component of a combination of technologies such as device fingerprint, in-screen behavior and others. However, despite the clear advantages of implementing algorithms (efficiency, scalability, etc.), there remains the question of final decisions in situations where algorithms alone are not enough, situations in which human intervention is necessary and desirable, such as:
•Algorithms are based on historical data, but what happens when there is a completely unprecedented event? Or cases that AI has not yet been taught to resolve? I’m reminded of the Winograd Schema questions, proving that some tasks cannot be solved through machine learning, but rather require the use of knowledge and commonsense reasoning.
•Keeping databases clean and updated, without knowing the reality that exists behind a set of automatically denied transactions? Some companies deceive themselves by believing that any large database constitutes Big Data. However, the amount of stored transaction data is merely one element of the equation. Increasing the amount of stored transaction data will doubtless improve your forecasting ability; however, its full power is only achieved if the quantity and variability of stored transaction data increases. Variability of the data available is a key component to improving forecasting power. At this point, having human intelligence that captures the nuances and details of new types of fraud to feed the database with new data, and patterns that are different from those already in the system, helps it make better decisions in future. This iterative process must be constant for databases to keep pace with changing fraud behaviors. If the transactions that give rise to this data had been merely denied, rather than being analyzed prior to the decision, the system does not learn and over time will become less reliable.
•Algorithms are optimized for a particular goal in a particular point in time, and do not always understand the trade-offs. For example, if an algorithm is programed to reduce fraud, that becomes its main goal and it does not consider the consequences that a high turn-down rate can have on a merchant’s reputation. There are numerous merchants who believe that fraud is not a problem for them because their chargeback rates are low. Chargebacks are a good measure of the quality of a fraud prevention system; however, it should not be the only one. Relying on chargebacks alone can be a dangerous trap, as it does not reveal revenue avoided – orders canceled due to anti-fraud measures are not recorded in financial statements as losses, but are often lumped together with sales stopped due to mistakes in billing data, cart abandonment, etc.
The question should not be if AI is better or worse than human intelligence. The challenge is not to give into the temptation of trusting AI alone to resolve all problems, but rather to understand its risks and limitations and use it in an optimum combination with human intelligence to unlock the full potential of both. Humans and machines both have their strengths. The best option is a combination of both, using the scalability of algorithms and the ability to understand complex subtleties of humans to ensure the best possible outcome. For example, anti-fraud rules often deny a whole set of transactions where the billing and delivery addresses are different. However, not every purchase with different billing and delivery addresses is in fact a fraudulent transaction. There are legitimate situations where this is justified, such as a young person who recently moved out of the family home and is buying a TV for his or her new home, but kept the parent’s address as their billing address.
Considering that the United States is now going through the EMV transition do you believe that CNP fraud will not be as prevalent given that more information and products and services are available to prevent this than there were when other countries were going through the transition?
It’s true that the US has access to more tools than Europe or Brazil in the early 2000s. However, more isn’t always better. Marketers assume that the more choices they offer, the more likely customers will be able to find just the right thing. Nevertheless, research now shows that there can be too many choices, and that when there is, consumers are less likely to buy anything at all.
The US market is flooded with different fraud prevention tools, but there are just a few companies offering a comprehensive fraud prevention solution for those who are not fraud experts. In order to deal with most of the tools available in the market, the merchant must have a fair knowledge about fraud prevention, otherwise, there’s a good chance they will end up either too exposed to fraud attacks or too conservative regarding fraud prevention, resulting in a high rejection rate. Most solutions are not specialized in fraud prevention, but part of an all-in-one payments or e-commerce solution.
The US market has all the armament needed to be in a better situation, but there are missing soldiers and commanders to operate this armament. Again, more isn’t always better.
As the payment industry continues to evolve what are you most excited about seeing change and what are you most concerned about?
What excites me is the new peer-to-peer platforms that have changed the game and way we think about things, making us question the standard. And this reflects in several segments, including the payments industry. There’s more freedom and power of choice involved, and it’s our mission and obligation, as service providers, to adapt to this, making it even easier and less bureaucratic.
My main concern is the simplification and immediate response for everything that we’ve been addicted to. I am afraid that people will force themselves to believe in a miracle technology that will solve all the challenges of the industry. I’m sure the industry has plenty of room to upgrade, we all have. But the new solutions and technologies should always be questioned and tested before adopted, thinking about the impacts for each stakeholder in the industry (final consumer, bank, merchant etc.) and then adopted after discovering the best balance.
To learn more about ClearSale visit their website here