Subscribe
Share
Share
Embed
Payments fraud doesn't begin and end with stolen credit cards. There are sophisticated international networks of criminals who dedicate their entire lives to scheming and scamming merchants and consumers for every cent that they can extract. But there are also experts in the payments fraud field who are actively fighting back. True Fraud features real-life stories of the battles that are raging across the world, one transaction at a time.
Hi. Welcome to True Fraud. This is Pablo Torres, your host. Today, we're gonna talk about, some of the new products. Well, not so new products that are kind of gaining momentum in the payment industry.
Pablo Torres:Given where things are going with the new type of websites or the new type of, I guess, I should say, maybe ecommerce or online businesses that we're seeing, I think it's it's super important, and it's so relevant to to just stay on top of these things. Specifically, I'm talking about Verifi and Ethoca. Both of these products have been around for a number of years. Actually, I think they were both created around the same time in 2005 and then kind of around the same time, they were also acquired by the credit card schemes, around 2019. Verifi being acquired by Visa and then Ethoca being acquired by Mastercard.
Pablo Torres:Yeah. So, basically, Ethoca, what it does is they whenever a merchant or a website is enrolled with Ethoca or Verifi for that matter, If there is a chargeback that's being filed and the chargeback meets the criteria Ethoca was set up with for for that specific account, then the merchant will receive an alert saying somebody's filing a chargeback on the following payment. You have basically 24 hours to issue a refund. If you don't wanna issue a refund, then that's fine. You can just wait for the chargeback to be completely, like, to be filed fully, and then you go you'll receive the the chargeback notification, at which point then you can represent it and and submit all the evidence.
Pablo Torres:A lot of this now, of course, there's there's third party service providers that have automated some of this flow, especially the the communication part. They have set it up so that maybe the merchant doesn't wanna get bombarded with all of these alerts, and they just say, you know what? Anything that's less than $100 with the following currency, just do an automatic refund. But in the end, there's still somewhat a bit of a manual process. And some of these, service providers then will issue the refunds.
Pablo Torres:With Verifi, basically you do all of that already through them. And again, remember, Verifi is a Visa company. They offer RDR and CDRN. So RDR is basically a rapid dispute resolution. It's very similar as the Ethoca product.
Pablo Torres:The only difference, I guess, it's the part of the automation where you just say, I want RDR. You can basically set up the rules. You can say anything that's less than $50, and the chargeback recent code is under the fraud category and the currency is, you know, HKD or whatever you want it to be. And then those will basically instead of the refunds coming through the 3rd party service provider or Verifi, the refunds are issued in the at the acquiring level. So basically, when you get an RDR, it's just an informational notification letting you know, you know what?
Pablo Torres:Because you're enrolled with RDR, this is just to notify you that rapid dispute resolution kicked in for the following payment. And that's it. And then CDRN is pretty much exactly the same as Ethoca, but with the focus on the Visa volume. So why are these products important nowadays? Well, they're we're kind of moving into a bit of, what I think it's kind of a scary time of ecommerce where there's a lot of dropshippers.
Pablo Torres:There's a lot of people that are kind of moving in this direction build your own website, how to build your own website, how to build your own marketplace, and, you know, increase your sales and become a millionaire in half an hour. You know, this this is so scary because there's a lot of people that don't really have the experience. They don't even know what a chargeback is, for example. And so when when whenever they enroll for or let's say whenever they start their websites or their businesses, they go in a little blindfolded. They don't understand the impact of something like a chargeback or and not I'm not talking about just financially.
Pablo Torres:I'm talking about reputationally where if you have a website that is gonna start getting a lot of chargebacks because the customer service that you're providing is not sustaining really the product that you're selling, then it's not the people that are wrong, it's your website that's wrong. And I think that whenever you start seeing people moving in this direction with all of these websites that have very little experience in the in the, payment industry and in ecommerce, and they're selling, you know, maybe questionable products or maybe, like I said, you know, maybe the customer service is is just horrible. Maybe it's your payment service provider that's just making everything super confusing. It's so important that when you're moving into the ecommerce world you're able to identify all of these pain points, I guess, or headaches so that you can fix them. Right now in the direction that we're moving there's this trend of all of these dropshippers who are, you know, marking things up by 200, 300%.
Pablo Torres:And it's 1 or 2 people running the show with the amount of inquiries that they're getting for customer service, just providing more information as to who are you, what do you do, why do you charge me the following amount, sometimes it's hard to keep up with all of that stuff. And so if you're a 2 person show running the whole thing, it is it is easy to to kind of start seeing things just, you know, kind of falling off off the side. And then of course that's going to translate into getting more chargebacks, which in the end when you have a product or a service like Ethoca and Verify behind you, then number 1, you're not gonna be dealing with a lot of these chargebacks. You're not gonna be dealing with, having to submit the evidence and any of that. You may not even be notified depending on who you're setting up the service with.
Pablo Torres:You may even ask them, you know what? If it if this is gonna be a refund, I don't even wanna know about it because, you know, this is gonna just fill out my inbox on a daily basis. And and that's basically just wanting to to turn a blind eye to to issues that are happening internally in in your company or in your business. The reason why this is this is scary is because, you know, we have all of these big websites or I guess you can call them corporations where they're trying to to address these issues from the root. Where they're trying to identify why am I getting this chargeback.
Pablo Torres:Is it because of my descriptor? Is it my fulfillment center that's just, you know, getting delayed because of whatever? Like, maybe one of my supply chains is is kind of delaying everything. Is the communication that I that I am providing to my customers enough? Am I over communicating?
Pablo Torres:You know, there's there's so many questions that as a business you can ask yourself and then address those issues so that can so that you can minimize the the the charge back or the impact of the charge backs on your account. Remember that as an ecommerce business you have to keep a certain ratio of chargebacks on a monthly basis before Visa or Mastercard come to you under one of their monitoring programs. And the reason why this is is important to keep in mind is because if you or if you don't do so or you're failing to do so will probably result in either fines from the card schemes for each one of the chargebacks. You know, there's review fees. And if you're go using a some sort of payment facilitator or something like that, then they might just say, you know what?
Pablo Torres:We're not gonna provide any more services for your business because you guys are not taking the steps necessary to minimize the impact of these chargebacks. Now with RDR and and CDRN or as a lot of people just call CDRN, they just call it verify, or Ethoca, you're not gonna see any of that. So how do you know that you're sick when you can't see the disease? Right? But if you're not seeing the chargebacks, how are you supposed to improve as a business, and how are you supposed to grow?
Pablo Torres:I think it's super important that we that we address this. Now the credit card the the card schemes are are moving in a direction where they're identifying this. They're they're seeing it and and, you know, they're not being stupid about it. They need to also generate that revenue to to keep that going. And so Visa is actually moving in the in that direction where initially, you know, like, when I started, in the payment industry 12, 13 years ago, Ethoca was around.
Pablo Torres:Verifi, I had I to be honest, I heard about them a few years ago, and neither of these products were gaining that much momentum. And the the reason for that is because a lot of the people that I talked to, they were more more focused on the the part of, well, why do I need to pay, you know, $35 for an alert when I can just focus on just not getting the charge back at all, which should be really the the attitude towards how to deal with this. Right? Ethoca and Verifi should not be used as, like a fraud strategy or like a chargeback mitigation strategy. It should used as a way to mitigate and give you a little bit of a break while you figure it out in case that you get, you know, heavily attacked or maybe you got a bunch of your orders mixed up and people are filing chargebacks before you even identified what the issue was.
Pablo Torres:So this just gives you a little bit of of a break to to be able to to handle that. And then you again, you address the root issue and then you move forward. But right now there's all of these these new, you know, types of businesses that are just kind of moving in the in this direction. And and this is why I say that it's that it's kind of scary. And so because of that, it it almost seems like Visa has been put a little bit on in a corner where we're seeing a very rapid increase in the chargeback activity.
Pablo Torres:And there's a lot of websites that are moving in this direction of I just wanna go live. I want to start selling my my product, which I'm getting from AliExpress or I'm getting from, you know, whatever it is, but I don't wanna deal with the chargebacks. I'm making enough money from focusing on sales rather than focusing on on the the, you know, maybe the 20 chargebacks that I'm getting a week. And so Visa, what they're doing is actually a few years ago, they moved from dropping the chargeback ratio per month from 1% to 90 basis points. And now for 2025, in I believe it's the beginning of April, they're moving in the direction of dropping it to 0.5 or 50 basis points.
Pablo Torres:Like the focus of this drop in the chargeback rate is a little bit more focused on the acquiring channel, if I'm correct. But there is a little bit more of a of the focus on the payment facilitator just kind of saying sort of like the the credit card scheme saying, well, you're allowing this to happen. You know? You are onboarding this type of of business. And so what Visa is doing now with that drop, they're also saying, okay.
Pablo Torres:You know what? I know that this is a big difference. However, we are offering you a solution, a a plethora of solutions so that even if you get a chargeback, let's say we're gonna refund any of those transactions that we're turning into chargebacks, but also we're giving the giving you the opportunity to refund them through CDRN or even with Ethoca. Right? I'm just talking about CDRN and and RDR here, but there's there's other products that they're offering to to to be able to mitigate this.
Pablo Torres:But Visa's position is more like let's say that you issued the refund, but the chargeback was already kind of on its way. So if you still get that chargeback, but you issued the refund through one of Visa products, then that chargeback doesn't count. So in a way, Visa is saying, you know what? I'm gonna drop all of this, the like, this 40 basis points. But at the same time, I'm I'm offering you a solution to to mitigate all of that.
Pablo Torres:I'm gonna sound so old school or maybe like an old disgruntled man, but I think that it has a lot to do with social media and the impact of this whole "this is the lifestyle that I have, and you can achieve it by doing the following with very little effort". You know? These are gaining a lot of momentum right now just because of the direction that the things are moving. But also Visa making this move basically is asking everyone to enroll for RDR and CDRN. It's you know, as much as you want to stay outside of that threshold, there's at some point, you're gonna you're gonna need something like that.
Pablo Torres:And so might as well set it up so that, you know, you can leverage it. Right? Fifty basis points, as a chargeback rate on a monthly basis gives you ample room to to, you know, make changes and and take decisions that will impact the numbers that you're seeing in in chargebacks on a monthly basis. But every once in a while, things can, you know, they can go a little bit south, and and there's things that you may not be able to recognize in the market that you're going to or that you're dealing with. And so having something in your back pocket like that or, like, in your sleeve, it's it's always super helpful.
Pablo Torres:So it's it's not all bad, you know. It's it's I find it to be a a very handy tool to have. But, again, if that's gonna be kind of like your main strategy to deal with things, then you're gonna feel it in in in your business, I think, in the in the longer run. And historically, to be honest, from what I've learned in in my career in in this industry, a lot of people don't see the value in taking care of of chargebacks. They don't see the, like, all the information that dealing with something like that can can give to you.
Pablo Torres:You know? That's to be honest, ultimately, it's sort of the best feedback that you can have with your clientele, with your market, where they're saying I'm not happy with your product or you're letting payments through that should not be going through. And then for you as a as a consumer, you know, for my for myself to to be to be informed and to to make smart decisions as to how you're going to spend your money. Don't give just your money to just anyone. So whenever you're going to buy something online, go and check the reviews for the site, see what their flow for their checkout is.
Pablo Torres:If it's, you know, if the template of the website looks very similar to the other 20 websites that you saw that sell a very similar product, maybe go somewhere else that has kind of like a a little bit more of a presence. Thanks for listening to True Fraud. Don't miss the next episode, and don't forget to subscribe. Brought to you by the reach network. Visit with reach.com/network for more.