SCA threatens conversion rates
Cost of payment fraud growing 50% faster than the amount transacted through online payments. Behaviour based solutions, which enable additional authorisation of payments, are the answer to this. With the introduction of PSD2 and strong customer authentication soon more companies will have to take advantage of new technological solutions. Not only are these solutions often costly, but may also hurt conversion rates. That is why it is important to choose solutions present on the market with behavioural analytics at the heart of their product.
Online payment fraud is the phenomenon of criminals using stolen credit card numbers to purchase goods or services online. For card-not-present transactions the cost of criminal behaviour is always carried by merchants. Their businesses carry the burden of chargebacks: repayment of funds stolen by fraudsters to legitimate cardholders.
The issue of payment fraud is old, what is new once you bring SCA into the picture?
First off, a short word on PSD2; a directive from the European Union which came into vigor in 2019. Part of this directive is SCA (Strong Customer Authentication) - we are going to focus on the costs of SCA in terms of conversion rates and how merchants might be able to mitigate them.
In short, SCA will obligate the PSP operating the transaction to authenticate every transaction coming from European issuing banks. Although there are some exceptions which some merchants will be able to exploit - the vast majority of transactions will have to go through this process. Strong authentication enforces the application of at least two out of three independent elements so that the breach of one does not compromise the reliability of the others:
Knowledge (something only the user knows), i.e. password;
Possession (something only the user possesses), i.e. mobile phone, token;
Inherence (something the user is), i.e. fingerprint.
As you can imagine these measures will have a very strong impact on the conversion rates that merchants will see on their transactions. In fact, when measures similar to these were introduced in India, there was a drop in conversion rates of over 25%!
What is Behavioural Analytics?
Solutions like Nethone are capable of gathering over 5 000 data points about any user which lands on a website or uses a mobile application. Although this data includes hardware, network, browser and behavioural data, they can be used to constitute a behavioural signature in the form of a vector which includes all of these data points.
Machine Learning can then be applied to predict a certain flag or outcome using these signatures.
How do Behavioral Analytics help when it comes to conversion rates?
The inclusion of Behavioural Analytics in the screening of transactions can help on two fronts:
Increase the accuracy for flagging fraudulent transactions
Calculation of the chance of a client churning due to SCA
The combinations of these two data points will allow merchants to take educated decisions on what to do with a certain transaction: push for an SCA exception, block the transaction or impose SCA.
Following this type of logic, merchants should be able to optimize conversion rates by pushing only the right traffic through SCA.
Rodrigo Camacho, CCO of Nethone is a strategy-oriented professional, consultant and facilitator with broad experience in the launch of new products and brand management in international markets. With a highly diverse background, Rodrigo has a keen ability to adapt the offer of a product to different cultures. Prior to joining Nethone, he did both product and brand management in different markets for L'Oréal. As native-level speaker of French, Spanish and English, he is passionate about languages, culture, religion, and philosophy.
At Nethone, Rodrigo is in charge of developing the commercial strategy as well as identifying and seizing business opportunities to sustain Nethone's rapid growth. He holds a bachelor’s degree in economics and a Master’s degree in Strategy earned at HEC Paris.
Nethone is a global provider of KYU (Know Your User) solutions based on artificial intelligence which helps enterprises transform threats and challenges into accurate, profitable business decisions. Nethone's solutions allow companies to simultaneously protect themselves against losses and increase profits. Such solutions include i.e. top-class security against fraud, real-time tools for adaptive segmentation and customer retention, and behavioral analysis in banking systems to prevent account takeover.