All those children’s TV shows and stories lied: Sharing is not easy. Sharing is, in fact, enormously complex, prone to fraud and frustration, at least when it comes to digital payments and commerce. The rise of the global sharing economy — tied to online marketplace operations — is sparking challenges related to trust, security and confidence for buyers and sellers alike.
However, as Mike Gramz, chief risk officer at Yapstone, told it (and this is something children’s literature and drama generally got right), a challenge is just another way to describe an opportunity.
For platform payment providers, that means handling payments in a way that takes in massive amounts of data without friction, and, in some cases, providing robust cash flow to suppliers to give the platform a competitive edge. His recent PYMNTS interview with Karen Webster provided a look at the main hurdles that face the global sharing economy, and the main ways in which digital payments could help overcome them.
The stakes involved in getting this right are nothing short of enormous, Webster pointed out, setting the stage for the larger conversation. The global sharing economy stood at about $148 billion in 2014 (certainly nothing to sneeze at), and will balloon to $335 billion by 2025, less than six years away. For the sharing economy to grow in the right way — to not be nudged off track by fraud, bad PR or other negative factors — requires a new way to assess and manage risk, Gramz argued, underscoring how the digital economy continues to force shifts in legacy systems, technologies and thinking.
Under the old ways (the traditional marketplace methods), “you have risk teams and risk analysis,” he said, “and the marketplaces thought their jobs ended there.” After all, the traditional marketplace transaction was, and is, pretty simple: Someone offers a product and someone buys that product, with faulty items typically handled by returns or — in this day of payment cards — chargebacks.
However, the sharing economy has upset that relative simplicity, and that holds especially true for property rentals.
“Now, you are putting strangers (buyers) in someone’s home (suppliers),” he said. The task at hand is to make sure the buyer is reliable, and that the property listed for rent via a vacation site or other type of share marketplace is as described — that it’s a genuine product. Oh, yeah — and payment service providers involved in these sharing transactions must do that in a quick and seamless way, with authorization ideally taking place under three seconds. After all, impatience comes easy and quick on the part of consumers, given all the competition out there.
“One myth to dispel is that we [have] a lot of time to do this,” he said, and that goes for both buyers and suppliers. “It’s a very emotional transaction. When someone wants to list property on the supply side, they pretty much expect that decision to be approved or declined instantly.”
So, what works to achieve those goals? Data — massive amounts of data combined with algorithms, a rules-based scoring process and machine learning, according to Gramz.
The idea is to work amid a concept of personas — buyers and suppliers — and figure out if the people behind those personas really are who they claim to be. The idea is to build a solid foundation of trust, one in which the frequency of certain transactions, combined with multiple data points, can ensure growth for suppliers, and frictionless purchases for buyers — all of which serve to fuel the progress of the sharing economy.
The idea, too, is to cut down what Gramz called the “insult rate” — those false-positives that prevent the authorization of what would have turned out to be a legitimate transaction because certain data points lead to a higher potential of fraud. Too many such “insults” can result in millions of dollars of lost revenue, if not more, he said.
Supply Of Data
During the PYMNTS podcast discussion, Gramz and Webster dug deeper into which data points create the risk assessment scores that avoid those revenue-draining false-positives. That includes the usual stuff, Gramz said, like email and IP addresses, credit bureau data, phone numbers and transactions histories. However, social media can also provide solid signals about buyers and sellers, such as whether a property that a supplier wants to list really lives up to the description. All that data-supported verification, of course, takes place behind the scenes — generally, in seconds.
Process can also go a long way to establish trust in the sharing economy. That includes what Gramz called a “staged onboarding process” for suppliers.
By providing “minimal information,” a supplier can quickly set up a listing and even start accepting bookings, though the verification process isn’t exactly finished. Then, the process would require more information before letting those bookings reach a certain level, and even provide advanced payments on reservations so suppliers can improve their cash flow. Gramz said Yapstone will “advance pay weeks, if not months, in advance if we are comfortable with them.”
His comment reflects an important part of trust — on some level, there is always a gamble involved. Some person or party must usually take at least the first half-step. That holds true even in 2019, when data is on a fast path to replace gut intuition (whether that can really happen is a discussion for some other time).
Take those insult rates mentioned above — depending on how often Yapstone has dealt with a certain buyer, and how much that buyer has purchased, the company might send along their transaction to the issuer for authorization without putting it through the company’s rules engine. It’s all about reaching what Gramz called a “higher comfort level” with such buyers. Over the last 12 months, he told Webster, Yapstone has reduced its insult rate by 77 percent.
The sharing economy often seems like it’s been with us for longer than it has, and is even being taken for granted in certain quarters — that’s probably a good sign of its success. Yet, there is so much more work to do to ensure its healthy growth in the coming years, not the least of which is making sure there is a solid and enduring level of trust among buyers and suppliers.