Being a merchant is tricky these days. Fraud is widespread and ever evolving.
Being a merchant’s processor is even trickier in some ways.
How to know who is on the up and up?
In a wide-ranging interview with PYMNTS’ Karen Webster, T1 Payments CEO Don Kasdon weighed in on how payments processing means eternal vigilance when it comes to merchant services.
We’ll get to that in a moment. But first things first. Everyone wants to get money more quickly into their accounts, with same-day payments viewed as a good thing, but real-time payments are far better.
And Kasdon said he has “figured out a way to pay merchants and partners as [T1] settles.” Under that scenario, a partner will get their money at the same time of settlement. Whatever commission that was going to get peeled off and sent gets done in real time. The process for T1 to get the technology and platforms in place has taken six to eight months, he said, with a significant advantage looming over the 45 to 60 days that typically mark a commission payout.
As of next month, said Kasdon, “All of my partners will get their money at the same time that the firm fires out payments to the merchants.”
Quite a change from the usual process where everybody else in the industry, as Kasdon illustrated, might process for the month of May, and then sales agents or ISO channels might not see their cut of the money until the 25th of the following month (that would be, um, June).
Piecing it all together
Figuring out the mechanics of changing the speed at which these partners could be paid involved a lot of time, a lot of money, a lot of effort and a lot of really smart people, Kasdon said. The systems involved, and that have been built by T1 Payments, to handle such traffic, essentially must operate in real time upon payout, said the executive. “We shut our day off at 4 p.m. PST,” he said, “and we had to build everything [related to the new payout model] around that clock.”
But with real-time payouts to partners comes the question of chargebacks, and the concerns of paying out good money on bad transactions – and here the bad transactions stem from the merchants. Kasdon said his system will self-adjust and block certain accounts from being paid in the event that excessive refunds or other tell-tale activities are spotted by T1.
In addition, he said, his ACH department is pre-funded in the morning, while the 4 p.m. window gives time to verify all alerts that might come in during the day. Almost all of those alerts come in by 3 p.m., which gives T1 an extra hour just in case someone’s payment gets delayed.
Gauging merchant risk
He also said that experience has taught him to get some granular knowledge of what partners might be doing to mask illegal activities, such as aggregating different accounts, hiding, say marijuana sales somewhere in the mix.
Thus the urgency of gauging merchant intent, as Webster and Kasdon agreed. Consider the recent stories surrounding eBay, where the company was used as a conduit to launder ISIS money via fake transactions.
T1 has systems that will, if a site goes dark, said Kasdon, stop accounts from processing. If the site comes back up and nothing has changed,” said the executive, and it was a server problem, let’s say, then that is no problem. If it comes back up and there is a picture or word that has been blacklisted by T1, he said, the system “leaves the account off until we manually review it.”
This pulls back the veil a bit on fraud beyond card fraud. Merchant fraud lurks in the shadows, it seems. The level of sophistication goes up a bit, said Webster, with, for example, a refund being a conduit to fraud (who woulda thunk it?).
“The merchant fraud side of it,” said Kasdon, is nothing new. It’s just hard for the big providers in the space to handle it efficiently; they are always looking at cardholder fraud.
Noting his own interactions with merchants, and his merchant portfolio, the executive said, “I sit in the ‘middle’ area. I don’t sit in the high risk, or simple … they’re kind of in this gray area.” There’s a little bit of everything in his merchant portfolio, said Kasdon, with some clients simply showing too much in the way of chargebacks, for, say, Bank of America’s taste, so now they work with T1. There are T1 clients who sell diet pills, he added, that are “straight sale … I won’t let them do recurring. They have to deliver. If they don’t deliver,” T1 will not handle them.
“High risk to me is anything that First Data, Wells Fargo, Bank of America doesn’t want,” he said. “It just takes one person, somewhere, at one of the big boys not to like them, and voila, they’re a client of mine. This is good, because then I have my choice.”