Jim McCarthy, CEO of Thredd, told PYMNTS’ Karen Webster that the challenge of authentication in the B2B space is decades old.
Before the advent of the internet, he said, and stretching back to his previous tenure at Visa, merchants “would go from one acquirer to the next, and they’d go offshore and they’d move around — because there’d never been a good way to identify who bad actors are, where they are and how they’re behaving.”
The conversation was part of the latest “What’s Next in Payments” series, focused on authentication.
The challenge of knowing that the businesses that are onboarded as trading partners are in fact, legitimate, said McCarthy, is becoming harder in the age of faster payments. PYMNTS Intelligence found more than a year ago that know your business (KYB) processes were regarded as inefficient to support growth plans of middle-market companies.
The efforts in the digital age to ascertain identity have been fragmented, especially going back to the earlier days of eCommerce.
McCarthy said personal account numbers (PANs) and tokens have promised to make things easier. Merchant IDs promised to make things safer. And yet, chargebacks have continued to be a problem, he observed, and multi-level marketing scams, hidden in print and mail categories of yesterday have, in the digital age, evolved into fraudulent storefronts on commercial marketplaces. Acquirers are unable to go, as they once did, on annual pilgrimages to the physical location of a merchant to make sure that they are who they say they are.
“Thirty years later, the problems have only gotten worse, not better,” McCarthy said. “How do you really start to bind credentials and underwriting to entities in a way that actually has some teeth in it?”
Mobile commerce is further blurring the lines of commerce — and just who a merchant can be. After all, the Girl Scouts, noted McCarthy a bit wryly, now take payments online.
Getting merchants onboarded quickly may be a competitive advantage — it’s what happens after the onboarding that makes all the difference, creating protections that keep commercial interactions safe.
“The answer,” he said, “lies with data.”
Once a merchant is onboarded onto a platform, he said, it’s critical to look at data — the velocity, the types of transactions, where the money is coming from and where it’s flowing. Artificial intelligence (AI) helps here, he said, simply because humans cannot keep up with it all.
“The intermediaries — the reputable ones,” introducing friction at just the right moments, “will do what they need to do to make sure that, before they send money downstream to the bank account,” said McCarthy, “that you are really who you say you are and there will not be chargeback waves.”
Standards on data sharing will prove to be important, McCarthy said, especially as faster payments, via account-to-account flows, do away with the intermediaries that have traditionally underpinned digital transactions. He cautioned that regulators, who typically have no proverbial skin in the game, may not fully understand the ramifications of some standards — so input from the private industry is important.
There are some examples to be gleaned from what’s worked in the past. McCarthy told Webster that stakeholders would do well to create something along the lines of what’s been wrought by Early Warning System — where data’s been pooled and shared in real time.
He offered up the example where, during his time at Visa, there’d been the existence of Issuers’ Clearing House, where banks would submit to Visa information on fraudulent card applications — which in turn would be pulled from the stack.
“You could have a database of information that an issuer could ‘ping’ against to say, ‘haven’t we seen this bad actor before?’ … there’s an opportunity to do similar data sharing on the merchant side.”
As he told Webster, “we just need standards where everyone’s playing by the same rules.”
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