Merchant consortia are often tough to assemble and manage. But not when there’s a common enemy like fraud to fight, says Chris Uriarte, Chief Strategy and Payments Officer, Vesta Corporation. Uriarte tells PYMNTS how consortium data holds the keys to helping all merchants improve their fraud detection capabilities.
Here’s a reality check for you.
Last year, merchants lost an average of 1.32 percent of revenue to fraud and fraud-related costs. Sound too small to be relevant? Not when you see that it represents a massive 94 percent jump over 2014.
Though many merchants are taking advantage of newer ways to fight fraud – such as utilizing knowledge sharing and employing advanced fraud solutions – more may be needed to help them truly outsmart the fraudsters.
Interestingly enough, the power of data may just be the secret weapon merchants are looking for – but not just any data set will do. There can be challenges (and concerns) with sharing data with competitors, and sometimes a single source of data just isn’t enough.
Chris Uriarte, Chief Strategy and Payments Officer for Vesta Corporation, explained that in order to truly combat fraud, merchants can’t rely on the data accessed from their own proprietary experiential database alone. That only provides a single, limited view of attacks and behaviors, creating a vulnerability to threats they have not seen yet. Instead, the fraud-prevention systems they use should also be leveraging a breadth of data garnered from multiple verticals if they want to stop fraud before it has a chance to strike.
“Merchants may believe they already have enough data within their own databases to identify and prevent fraud, but without a broader diversity of consumer data across industries and channels, they really don’t have the full picture to take preventative measures, which can lead to less effective fraud prevention decisions,” Uriarte explained.
Tapping into consortium data – a collection of transaction data shared amongst a group of similar merchants – Uriarte says might just be what advanced merchant fraud systems need to enhance the detection of fraudulent transactions while still supplying meaningful insights into the good payments taking place.
Uriarte used the example of a consumer shopping across multiple online stores that all represent merchants in a single consortium. The resulting “cross-over data” provided to those merchants can be instrumental in decision-making about transactions.
The transaction data captured from that consumer is then entered into a database that all merchants participating in the specific consortium may access.
“This data can also help merchants to identify a good payment device no matter the user, especially where a new device had not been previously seen by a merchant,” Uriarte said.
Another unique aspect of the consortium is that negative experiences are shared, which helps to prevent excessive losses to all members. As the consortium supports positive shared transaction experiences, more transactions that may have otherwise been deemed as suspect may also be validated and converted to good sales.
This can help to ensure, as Uriarte explained, that good customers can still be approved when their previous data and/or behaviors may have been considered suspicious.
Not only can access to consortium databases provide merchants with a higher level of confidence when approving or denying transactions, but the data can also help improve the detection of fraud rings and help prevent systemic, widespread attacks.
Uriarte noted that the benefits of consortium data doesn’t end with the retailers themselves. Consumers may also experience an improvement in their shopping experiences by reducing checkout friction when purchases are made at merchants that participate in consortiums.
When merchants are able to utilize relevant consortium data, it can result in more accurate decisioning. Being able to decrease the instances of false positives taking place can also help merchants to increase customer loyalty and maintain a favorable brand reputation among its shoppers.
These are just some of the benefits Uriarte said are persuading many merchants to participate in consortium sharing, overcoming the concerns that may occur with sharing information with competitors.
When it comes to finding value in consortium databases, the more transactions taking place across a broad diversity of merchants or channels will typically result in “the greatest net value from a fraud prevention and sales conversion perspective,” Uriarte explained.
He believes that it makes sense that if retailers have access to more comprehensive data to use when making fraud decisions, they’ll be empowered to increase the conversion of legitimate transactions they receive.
“The data gives merchants access to a more comprehensive view of transactions and adds an additional layer of knowledge to make better, more informed fraud prevention decisions, Uriarte said, “tapping into a principal known as the network effect.”
The network effect results in the value of a product and service improving as an increased number of users participate over time. As more people join and the network becomes even more valuable, it can create a resulting bandwagon effect. Uriarte pointed out that this principle is true for consortium databases – they become more valuable as the number of merchants contributing their experiential data grows.
At the end of the day, consortium databases can give merchants the ability to create “larger, richer and more diverse data sets of previous good and bad transactions,” which helps to facilitate faster and more accurate approvals, Uriarte stated.
Though this extra layer of security can be quite beneficial on its own, Uriarte said that it can also be used to greatly improve existing fraud prevention solutions.
“The most successful fraud prevention systems layer a number of different strategies to ensure the best decisions are made in real-time,” Uriarte explained. “Consortium data enhances a merchant’s fraud prevention strategy by providing a broader view of customers, devices and payments across a variety of different channels.”
The cross-over data garnered through the efforts of merchants participating in a consortium allows for better fraud-prevention modeling and decisioning, he added.
But the challenge of managing and analyzing consortium data in-house over a long-period of time can prove to be too resource-intensive for many merchants.
Instead, third-party vendors offer a cost-effective option to accessing the value consortium data and maintaining an effective fraud prevention solution, Uriarte noted.
“As fraud continues to rise across channels and fraudsters become more sophisticated, access to consortium data allows merchants to add an additional layer of insight to their fraud prevention systems, ultimately allowing merchants to decrease their risk of fraud and the costs associated with managing it.”