Deciding an acceptable fraud level in US merchant services

Deciding an acceptable fraud level in US merchant services

We don’t mean to slight our homeland, but there’s a quote from former British Prime Minister Winston Churchill that describes the US payments ecosystem we tend to agree with. He famously said:

‘You can always count on Americans to do the right thing – after they’ve tried everything else.’

There is plenty to support that quote in the US merchant services and payments industry. Was America not the last established country to convert our credit card payment processes from magnetic stripe cards to those with the EMV chip, thus absorbing fraud losses instead of fighting back? Sixty-three percent of US retailers, according to statistics from Visa, are now accepting EMV chip credit cards as of Q2 in 2018, which is positive.

However, while many US retailers are still authenticating by signature, many other countries in the world have long used authentication by PIN, which is far more secure. It’s one of the ways the US has lagged behind the rest of the world in payments authentication.

The ever-present balance in US merchant services: friction vs. secure payments

Roughly four years ago, we read that online merchants in the US favor a seamless (faster) checkout experience over a secure checkout process. While it is understandable – consumers have little patience, especially those buying online – it is scary at the same time.

We’re happy to report that line of thinking is slowly diminishing. We read a recent survey which found that 60 percent of consumers believe it is the responsibility of banks and financial institutions to find more secure ways to pay for goods and services online while the remaining 40 percent believe the responsibility lies with both the bank and the merchant.

We side with the 40 percenters. Acquiring banks and merchants must collaborate to find that balance in the checkout experience: one that maintains security with minimal friction.

We’ll use a baseball analogy to explain.

In baseball, the greatest hitters are adept at identifying that sweet spot on the bat when there is a 95 mile-per-hour fastball coming at them. There are many variables to finding that sweet spot: stance, coordination, vision and timing, to name a few. Small adjustments often need to be made.

Merchants need to decide what level of fraud risk is an acceptable level – which itself is a risky prospect when considering the frequency of chargebacks and friendly fraud. Some merchants will sacrifice a seamless, frictionless checkout experience for more sales while other merchants will play it conservative with robust security features (such as 3D secure) while risking checkout abandonment and false declines.

Finding the sweet spot is unique to every merchant and hitter, yet it is possible.

What can US merchants do?

Last month we blogged about a survey detailing how US merchants who take measures to combat fraud use more than one scheme to protect their businesses. One of the more effective and modern approaches to fraud fighting is the use of artificial intelligence and machine learning, both of which offer a sliding scale of effectiveness. Both AI and machine learning schemes allow merchants to list and prioritize signs of fraud, such as differing shipping and billing addresses, sudden high ticket purchases in a short window and purchases from suspect locales.

Thus, if sales are down or low and there is a high rate of checkout abandonment, it could be possible that a merchant’s fraud settings are too strict; that many legitimate sales are falsely declined. AI and machine learning schemes allow the merchant to try different settings to achieve that ‘sweet spot,’ the happy medium.

Offering the best in US merchant services

A US merchant services provider for high risk industries, Instabill is partnered with more than 15 domestic acquiring banks, each which specialize in certain industries such as CBD and hemp oil, e-cigarettes, tech support, online pharmaceuticals and nutraceutical products.

In addition to credit card processing, we also offer check payment solutions, of which every merchant should take advantage. Better, we prefer that prospective merchants and partners reach us by telephone at 1-800-530-2444 for an initial consult.

Instabill merchant account managers are available from 8 a.m. until 6 p.m., Monday through Friday at our Portsmouth, N.H., USA office.

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