DirectPayNet

Category: PAYMENT PROCESSING

  • Social Media Management Software Owners Are Leaving Money On The Table

    Social Media Management Software Owners Are Leaving Money On The Table

    It’s a battle for supremacy between social media management software solutions.

    You know Buffer, Hootsuite and others big brands offer simple platforms to better manage many social media profiles.

    New startups are fighting for a share of the market. This is in part due to the rising power of social media in influencing business decisions.

    It also means competitive advantages, and a main one is payment collection processes.

    What do payment processing and the competitiveness of social media management tools have in common? Well, payment processing is a crucial element for the success of the big guys in the industry. To compete, selling your platform internationally is imperative.

    So, is your company competing against or learning from those like Hootsuite and Buffer? Then, you need to enhance your payment channels.

    At DirectPayNet, we stay up to date on everything that affects our clients in the social media market.

    We want to help you understand the challenges this industry faces. And, we want to ensure you have the right tools to collect payments in all your target markets. Let’s look at how you can boost your payment channels, lower your risk, and widen your user base for bigger profits.

     

    So, what does the future look like for social media management software?

    The future for social media management platforms is bright!

    The growing number of online influencers are behind this movement. Bloggers, vloggers and celebrities earn a living through apps like Instagram and Facebook. This is also tied into the consumer base who consume their output.

    Users of Twitter, Facebook and the like must engage with their audience. They need to manage their social media presence to capture attention.

    That’s where your software comes in.

    You sell tools to manage online interactions and collect data to help users enhance their content. But, influencers and creators work in a very competitive market.

    Consumers get inundated with images and videos. Social media platforms are now pushing user-generated content. For example, Facebook wants users to depend more on customer reviews. Plus, “pay to play” is a huge part of managing an online presence and getting in front of buyers.

    Likewise, recruiting influencers and content creators to use your brand is competitive. They are running a business. They need social media tools to better manage ads, posts, images, and other content, all in a timely fashion.

    So, how do you capture their attention?

     

    Increase your competitive advantage through your payment channels

    Your social media platform allows users to manage several social media channels. Similarly, your payment solution should allow you to manage various payment methods.

    One obvious option is credit card processing – using a merchant account. Whether it’s a celebrity, a small company or a corporate brand using your services, they will most certainly be using credit cards to pay for your service. Even regular consumers who prefer to manage their social media through one platform may like using their credit card to pay for a solution.

    In the merchant processing world, some merchants get desperate. They sign up to an easy platform like PayPal or Stripe. Alternatively, they may go to an obscure processor with half-rate features. The fees might be cheap, but so is the software and the customer support.

    Also, having recurring monthly billing increases your fraud and risk. It’s important to work with a payment processor who can help weather the storm when risk gets higher than usual.

     

    High-risk merchant accounts are better suited for social media management software providers

    A merchant’s risk and fraud levels may be high or stray from normal ratios. When working with brands like Stripe or PayPal this can result in closure. It is not uncommon to end up on a TMF or MATCH list if they believe you violated their terms and conditions.

    Visa rules state that if you offer a trial (whether free or discounted), you need expressed authorization from your customer. This applies to when the first rebilling cycle occurs. This may lead to customer drop offs, because they forget or can’t be reached to get consent. To prevent this, try different pricing strategies.

    Some merchants use a smart strategy to stabilize high conversions after the first month subscription. They keep the amount of the subscription the same every month. This will ensure voluntary consent from customers. And, you can to continue to charge them for their monthly subscription.

    You won’t be under pressure to make contact with customers. Yet, it’s important to provide customers with an easy path to cancellation. They may not want to use your social media platform forever.

     

    Implement anti-fraud tools and measures

    It’s important to also assess whether the technology of your payment processor gives you tools to fight fraud and stop orders that may be risky. This is an important balance as you should have the liberty to add fraud mitigation steps without jeopardizing your conversions or creating false negatives. A flexible gateway that understands the nature of your social media platform business is very important and can make a huge difference in your conversions and fraud ratios.

    If you sell higher ticket packages for enterprise level or feature rich social media platform packages, it is all the more important to work with a high-risk payment processor that can help navigate the complexities of high-priced packages. Charging over $500 per month for an enterprise level customer can be very profitable. But, pricing like this creates big risk on the payment processors’ side. Best to be prepared and get a merchant account that can handle these types of scenarios as you scale your social media management software.

    Also, offer ACH payments to US customers buying bigger corporate packages. Some companies prefer monthly debits directly from their bank account instead of using credit.

    Payment processing is not just about credit card fees. Technology and working with someone who understands your business will avoid bottlenecks and merchant account shutdowns that wreak havoc on your business. Be aware of pricing and ensure to work with someone fair who can accommodate your business and scale with you as you need. Learn more about payment processing fees here. Plus, there are many options for credit card processors for SaaS.

    So, how do you choose the right solution? We suggest working with a company that knows your market such as DirectPayNet. We help merchants in high-risk industries such as social media software services find solutions that work for recurring billing, subscriptions, and risk challenges faced by them.

     

    Ways to widen the customer base for your social media software

    Look at your payment processing options. While developing your software or once it is up and running, it is important to have a plan to go to market or add new markets. Once that is done, inform your current payment processor or look for a payment processor who can help you serve this market.

    For example, a US payment processor may not fare well accepting debit cards from European customers, that means loss of revenue for you if Europe is in your sights. Once you reach a sizable amount of revenue from a market it is important to study your conversions and transaction declines. Make sure you adapt to the way that market pays for products and services.

    Finding a payment processor that accommodates a maximum number of cards will only help you convert. For example, some US customers may prefer to sign up to a social media platform that accepts Discover as their Discover card gives them the most points. Although they have other credit cards they may decide to choose another product or service simply based on the payment options available.

    Ensure technology is seamless for all customers. Potential buyers should not see or feel friction in your checkout. Just as your social media management software is mobile friendly so too should your checkout page. It should be clear and simple for users buying on mobile.

     

    Before you expand overseas to widen your consumer base

    When entering a new market, it’s important to understand the size and growth of the opportunity. Also, if you’re expanding to new markets, ensure your software is translated to make it easier for your customers to use it. They will be more engaged and subscribe longer to your service if they find it easy to navigate and use. Prior to setting up offshore, in Europe or other locations, test out your product with your current payment solution and determine the cause for low conversions, if it is at checkout then you have a clue that new payment modes need to be added to scale in that market.

    Offer support in multiple languages if possible, to the very least, ensure your support hours match the regular hours of operation in your market. This will reduce chargebacks and ensure your customers don’t get frustrated trying to reach out to you. Block countries you cannot support or would not be able to use your social media platform with ease. A gateway with good fraud scrubs will have the tools you need to limit your risk and fraud exposure.

    At DirectPayNet, we pay attention to trends in various industries. Our team ensures our merchants are informed of new regulations that may affect their business.

    An ounce of preparation can relieve major headaches down the road. With a trusted professional on your side, navigating payments in various markets will be a breeze.

    Let’s grow your social media manager software company together. Get in touch today.

  • Bad Merchant Services Horror Stories – And How to Avoid Them…

    Bad Merchant Services Horror Stories – And How to Avoid Them…

    In our 10 years of operation, DirectPayNet has heard its share of horror stories about bad merchant services and the companies that promise unrealistic solutions.

    Merchants in high-risk verticals can be so desperate or eager to scale, they forget to conduct due diligence on their merchant account or payment solution provider. Unfortunately, they resort to signing with merchant account providers who lack credibility and are straight up fraudsters. Yet many entrepreneurs fall into the trap.

    Sometimes news headlines often focus on scams by merchants. But there are plenty of stories about bad merchant account providers.

    If you sense you aren’t getting what you need from your current payment facilitator, there’s a good chance something is off.

     

    Horror stories emerge detailing the practices of bad merchant services

    There have been increasing instances of poor – and in some cases illegal – practices when it comes to providing merchant services. One of the most common practices is pretending to be a licensed partner with an acquiring bank or credit card company.

    By offering cheaper rates than what merchants currently pay, many business owners are convinced to sign up.

    But often there is an overflow of undisclosed rates and fees. Merchants unknowingly commit to 12, 24, and sometimes even 72-month long contracts. It’s only after they start processing do merchants realize they’ve signed up for a bad deal. Then, they are charged severe early termination fees (e.g. $600) to get out of them.

    These providers deliver skeleton services for astronomical prices. A lack of attention paid to chargeback management leaves victims high and dry with too much risk.

    Signing up with some of these quick-fix credit card processors can be a one-way ticket to a MATCH-listing too.

    In worst-case scenarios, bad merchant service providers can literally disappear overnight. Taking a merchant’s money with them. It’s not usual for them to then appear with a new name a few months later.

    With such possibly disastrous results, it’s crucial that you look for the telltale signs of a payment processor worth their salt.

     

    Do you realize that there are several ways merchant rates can spike above the ones advertised when you first signed up? Click here if you want to learn from our expert team on how to find the best rates for your business!

     

    The Telltale Signs of a Good Merchant Services Provider

    It pays to do your due diligence before signing up with any service providers of this nature.

    Here are five telltale signs that your payment processor provides what they claim they do:

     

    1. Merchant Portal Login

    This is something that should be provided by the acquiring bank behind the merchant account. Once inside the portal you should be able to view real-time reporting of transactions. Without the ability to do so, you have no way to manage your chargeback and fraud ratios.

     

    2. Monthly Processing Statements

    All reputable processors provide at least weekly or monthly processing statements. If they don’t, you won’t have any processing history to fall back on should the worst happen and you need another merchant account fast.

     

    3. Frequent Payments

    One of the best signs of a good processor is frequent payments. You should receive them at least weekly if you’ve got decent processing volumes. The worst providers are notoriously slow at handing over money. In some cases, they never do and disappear with your money in the process.

     

    4. Good Public Reputation

    In the current world of fake news and reviews, you need dig a little deeper into the provider in question. Head to a trusted resource such as the Better Business Bureau. Reputable business with have a profile and good rating with them. Devious providers registered with these types of agencies can’t keep their noses clean for very long.

     

    5. Dedicated Customer Service

    Another huge indicator of a payment processor’s credentials is their customer service. Do you have a real, local telephone number that you can call and speak to a real person? Does their company exist? Do they respond to emails? If you can’t get in contact with customer services, it’s probably a good idea to steer clear.

     

    Merchants can protect their business from poor merchant service providers

    In some instances, merchant account providers can pass your initial checks. Yet you still feel something isn’t right. If this is the case then here are some strategic steps to protect your business.

    Firstly, constant communication is key. Pick up the phone once a week to check in. It will give you peace of mind that your provider isn’t going away anytime soon. It’s also helpful for them to be kept abreast of any changes that may be taking place within the business. When rocky times hit, you need your service provider to get in the trenches with you. If they’re never available, find a new supplier.

    Next, consider diversifying your bank relationships. Don’t throw all your “eggs” in one basket. By having a back up or a few back up merchant accounts to support your offers, you prevent bottlenecks caused by a being suspended or shut down.

    Fraud and chargebacks are your worst enemy when it comes to keeping merchant accounts healthy. Leading banks and card networks are working with merchant service providers to provide state-of-the-art anti-fraud tools.

    If your provider can’t facilitate these tools, it could be a sign that you don’t have good support.

     

    Merchant services providers don’t always deliver on their promises

    High-risk merchants are often swayed by the promises of less expensive fees to process debit and credit card transactions. However, they can often sign themselves into hidden prices, deceptive contract terms, and a skeleton service that leaves their business open to huge risks including account termination.

    It always pays to undertake due diligence. Focusing on customer support levels, public reputation, and access to key real-time information. Similarly, if a provider is beginning to hold on to payments for lengthier periods of time, it could be a telltale sign of what’s to come. You need to take action before the worst happens.

    DirectPayNet uses it’s expertise to create strategies for clients with merchant accounts that are on the brink of a shutdown.

    We are also experts in securing more affordable merchant processing rates for your business that you can trust.

     

    Call us now to improve your payment processing before it’s too late!

  • Top Sneaky Ways Most Banks Jack Up Your Merchant Processing Fees (Without You Ever Realizing It)

    Top Sneaky Ways Most Banks Jack Up Your Merchant Processing Fees (Without You Ever Realizing It)

    So you got pre-approved to accept online credit card orders and are considering the merchant processing fees in your contract. One payment processor is offering you 1.95% and the other is offering 3.95%. Which one should you choose?

    The first processing statement often comes as a shock to most merchants that start accepting credit card orders. When they sign an agreement they think only a small percentage of sales will be shared if they opt for a 1.95% rate. It turns out it’s more complicated than that.

    We’ve seen this with a lot with our newer clients. A lack of knowledge about fees and charges can impact profit margin. This is especially true when merchants sell price-sensitive items or have lower margins such as Forex or crypto exchanges. Part of the issue stems from only focusing on the percentages.

    For example, merchants look at the rates of 1.95% versus 3.95%. Because the latter is higher, they assume that monthly fees will be more costly. But that’s not always the case.

    Also, there’s more fees applied to a merchant account besides credit card rates. So, to help you understand all the fees you should consider, this post will cover:

    • Why merchant pricing varies;
    • The models for merchant rates;
    • The extra fees in your merchant account; and
    • How you can lower those credit card processing rates

    Before we get started, a note about predatory merchant services providers.

     

    High-risk merchants will face higher fees

    Businesses classified as high risk operate in industries that tend to have higher-than-average fraud or chargeback rates. Alternatively, they might be in an industry with reputational risk like adult dating or cam sites, or biz op. As such, merchant service providers are taking on extra liabilities by allowing you to accept card payments. The fees charged help them offset the costs and risks of doing do so. Your payment processor is on the hook for refunds and chargebacks if you cannot fund them or you go out of business.

    These fees can at times amount to double what low-risk businesses pay. But being in a high-risk industry doesn’t mean you should be treated unfairly. And that’s what some merchant service providers (MSPs) do.

    Some MSPs know it’s difficult for you to get a merchant account. As such, they often offer unreasonable terms that make it difficult for you to turn a reasonable profit after all their fees are considered.

    Alternatively, some merchants believe they are getting a merchant account, but what they really are getting is a gateway. In the end, they have no portal to log into and no access to daily performance stats. Real-time data is crucial for keeping abreast of chargebacks and fraud.

    Unfortunately, you don’t know this until after you’ve accepted their quick sign-up, no questions asked application. Several weeks later, they review your business model. And after reviewing your sales activity, they often terminate your merchant account. Or, instead of shutting down your account they allow you to keep processing while you pay inflated fees and rates.

    You may choose to take the road of opening an account with PayPal or Stripe. These options offer reasonable rates and terms, plus they are quick to open the accounts. But, when a business sells risque products (like supplements, business education, fitness downloads) and attempts to scale, these low-risk processors shut down or freeze accounts overnight. Furthermore, they hold funds while they assess business activity, which sometimes take months.

    So, merchants need to understand the fee structures and merchant pricing models to make better choices.

     

    The costs of doing business with credit card processing

    Credit card processing fees are a necessity. After all, the various companies involved in the process must make money to justify the cost of helping merchants like yourself get payment facilities.

    Some fees are one-time fees, such as set-up or technical integration fees during the onboarding process. The bank’s underwriters, risk and technical integrations staff need to be paid for the upfront work they do for you. Other costs are recurring and payable either monthly or annually.

     

    So, who needs to get paid?

    As a business, you’ll pay to three separate fees and entities each time you accept a credit card payment:

    1. Interchange fees – paid to the bank that issued the customer’s card
    2. Assessment fees – paid to the card association, e.g., Mastercard, Visa. These companies set the rules for accepting payments with their cards.
    3. Processor markup – the fee paid to the merchant services provider that manages your credit card processing

    The interchange and assessment fees are classified as the discount rate and are generally standard. The processor markup fee is variable. So, the aim is to find the company that offers the lowest markup. It is also important to work with a partner that understands your industry and can be flexible if there are a few bumps on the road such as a few high chargeback months or delays in obtaining PCI compliance. Pricing is important although, if you are operating a supplement business for example, having a flexible and understanding payment processor may be worth a higher fee. As a general rule, if the bank is making a nice margin to cover their liability in the event of affiliate or other fraud with your business, the more likely they are to be understanding if an issue arises.

    How are you being charged?

    There are three pricing models available for merchant accounts. These are different ways of calculating credit card rates for banks and payment providers.

    • Interchange Merchant Pricing

    Interchange plus is essentially a pass-through pricing model. A payment sales office will charge interchange fees at cost and then add their markup separately for their margin.

    The fees do vary based on whether the customer makes purchases online or over the phone. They also vary based on the type of card used. So, the interchange and assessment rates will differ month to month based on the type of transaction and a variety of other factors. Domestic debit cards carry much lower fees than say a foreign business card. As such, if you’re selling mainly consumer products, this type of pricing may be most beneficial for cost savings as your interchange cost for debit and low rewards consumer cards will typically be under or close to 1%.

     

    • Flat Rate Merchant Pricing

    This is the simplest of the models to understand. You are charged one flat rate for the interchange and assessment fees.
    So, for example, you may see a rate of 3.75% + $0.15. The percent covers the credit card interchange and assessment fees. The $0.15 is a fee per transaction, some can charge a lower fee for declined transactions vs approved.
    However, you may end up paying more on a flat rate than the interchange plus model if most of your transactions are consumer credit or debit. Some transactions attract lower fees than others. If you’re paying a flat rate for all transactions, you do not get the benefit of the lower rates.

     

    • Tiered Merchant Pricing

    This model bundles all costs and categorizes credit card transactions in 3 tiers.
    The processor pays the assessment and interchange fees on your behalf and then charges your business based on levels it creates. The levels are labeled as qualified, mid-qualified, and non-qualified. Qualified tier offers the lowest charge and the non-qualified the highest. The merchant service provider typically categorizes low reward and debit cards as qualified, higher reward or cash back cards as mid-qualified and business or foreign cards as non-qualified.

    Want to slash your merchant processing fees by up to 3%? Email DirectPayNet today and find out how much you can save!

    You aren’t paying attention to these other credit card processing fees and costs

    There are other costs associated with accepting card payments besides the discount rate and the MSP markup. Below are five types of fees added to your processing statement each month.

    1. NABU & APF

    NABU and APF are part of the assessment fees. Mastercard’s Network Access Brand Usage (NABU) fee is a charge for credit card processing through Mastercard’s network. APF is Visa’s Acquirer Processing Fee, also known as the Visa Authorization Processing Fee. These fees are usually passed to merchant and are a few cents per transaction.

     

    2. Chargeback Fee

    This is the fee paid to your payment provider if a customer dispute results in a chargeback.Keep in mind that your customer’s bank has already charged your payment provider a fee for a chargeback. Your provider refunds the customer’s funds on your behalf and charges a fee for this. It ranges between $20 – $40 depending on your risk level. Note that only low risk merchants get the luxury of paying $20 per chargeback.

     

    3. Representment Fee

    When a merchant receives a customer dispute for a transaction, they have the choice of challenging it. If you fight or dispute a chargeback, you are required to pay a representment fee.

     

    4. PCI Non-Compliance Fee

    Card companies set the Payment Card Industry Data Security Standards (PCI DSS). Some processors charge a PCI fee to cover the cost of maintaining compliance or if you fail to adhere to the standards.

    With a bundled fee, you might miss that you’re paying for this. Check your statements to verify. You only need to pay this fee if not PCI-compliant. If you are compliant, then this is one of the fees you can get rid of. Contact your MSP to ask about getting your PCI non-compliance fee removed.

     

    5. Merchant Reserves

    As a high-risk business, it’s more than likely that your payment provider will hold a merchant reserve. This occurs when a share of your sales are set aside to pay for unexpected expenses. It can be useful if you go out of business or if chargeback and refund requests surface (as the bank does not want to pay for that liability).

     

    We’ve provided a cheat sheet on lowering merchant account reserves. Take a read.

     

    The reserve requirements may decrease over time. But, if badly managed in the initial stages of your business, you might face cashflow problems. Thus, budget for at least a 10% reserve from some platforms. Others may hold your funds for 6 months, while some processors keep funds for 3 months. Asking your provider to cap the amount of the reserve will ensure to free up your cashflow as you scale.

     

    Lowering your merchant fees

    You cannot escape from paying merchant processing fees. But you should understand what they are, why they exist, and how you can lower them.

    Flat rates are generally more costly if you accept local payments via your domestic merchant account. But, you will have room for negotiating card processing fees with an interchange model or tiered pricing.

    Remember that banks and payment service providers must get a percentage of your revenue to operate their business. They must also cover liability for allowing you to use their payment platform. So, don’t be unrealistic in your expectations of the discount you can receive.

    Prevent non-compliance fees by becoming and staying PCI compliant. Steps you can take include integrating 3DS to reduce chargeback and chargeback representment fees. A tool like 3DS is a great option, especially if your price points are extremely low. For example, $4.99 on an initial trial subscription offer requires an anti-fraud measure, because you don’t want to pay $35 for a chargeback on this transaction.

    Also, consider getting offshore merchant accounts. When it comes to Interchange fees, territories will differ. For example, on average, EU interchange fees are lower than North America’s. But in North America, Canada is higher than in the USA. These are some of the little nuances that a merchant account support services company can help you with.

    Other ways you can look to reduce your risks and thereby lower your fees include:

    • Outsourcing to chargeback management companies to reduce chargeback and fraud rates;
    • Using machine learning by adding anti-fraud tools to the backend of your website; and
    • Beefing up your refund policies to give customers freedom to get their funds back if they are unsatisfied with your product or service. This is especially important for high-risk merchants such as those selling supplements, business opportunities or high-ticket luxury items.

     

    Where do you go from here?

    Merchant processing fees are quite complicated. So, make sure you understand the costs associated with accepting credit card payments so you can budget for these added expenses.

    With careful management and favorable fraud ratios, you can lower them over time. Plus, you can start on the right foot when you choose the right payment processor. Pay attention to the terms in the contracts and read the fine print. Understand the pricing model and payment structure before you sign an agreement.

    Getting cheap pricing is possible, but ask yourself this question: “What you’re getting for that money?” Take advantage of companies like DirectPayNet that operate in the high-risk community. They understand your struggles and know how to help you find the best solutions.

    DirectPayNet provides payment strategies that can help you maximize your conversions globally all at an efficient rate. We also help our clients with merchant accounts that are on the brink of a shutdown. We can help you avoid bottlenecks that occur by relying on one solution for your business.

    If you are ready to get more affordable merchant processing rates for your business, now is the time to contact our sales team.

    Email DirectPayNet today to see how much money we can save you. 

  • Machine Learning – The Best Defense Against Chargebacks

    Machine Learning – The Best Defense Against Chargebacks

    Machine learning has become an excellent line of defense for high-risk merchants tackling fraud and chargebacks. It was once reserved for the worlds of academia and supercomputing. Presently, its broad range of applications are gradually realized considering the operational costs of high-performance computing has decreased. This is particularly true in the payments world.

    Today, payment processors already take advantage of its capabilities every day. This includes activities like monitoring credit card transactions, using machine learning algorithms that assess up to 50 data points to authorize payments in real-time.

    As a high-risk merchant, machine learning and artificial intelligence (AI) provides an opportunity to fight back against your ever-increasing credit card fraud losses. Damages are set to exceed $30 billion globally by 2020. Using machine learning to reduce fraud and chargebacks can help build up processing history. It can also open the door to new payment options and improved operating capacities.

     

    What is machine learning?

    Machine learning is an evolving subcategory within the broader category of AI. Traditional algorithms operate on rules-based systems developed by their human programmers. Machine-learning algorithms are designed to learn from their experiences. Therefore, its performance improves over time without external human input.

    The banking and payment industry has used this technology as a weapon against online criminals attempting to commit fraud through e-commerce merchants. This is particularly the case for card-not-present fraud, which has soared in recent years after the increased security of EMV technology.

    Machine learning in e-commerce payment processing terms is the ability to establish behaviors and patterns that indicate a transaction is likely to be fraudulent. By analyzing dozens of data points on an on-going basis, algorithms can gradually increase their potency when it comes to spotting irregularities. They help to develop a so-called “eDNA” of each buyer, which spots anomalies quickly, and marks a transaction as fraudulent before payment is taken. This development has also led to advancements of authentication technology, by prompting customers for more data before completing their transactions.

     

    PSD2 and 3DS2 are forms of fraud prevention

    The two most commonly used authentication tools are PSD2 and 3DS2, since usernames and passwords are becoming increasingly insecure.

    PSD2 requires customers to provide information from two of three categories which are knowledge, possession, and inherence. In other words, shoppers need to provide the following:

    • something only they have (credit card or cell phone);
    • something only the customer knows (answer to a secret security question); or
    • something they are (fingerprint or facial scan).

    The second version of 3D-secure is 3DS2. The original 3D-secure had growing pains. Website redirection and a requirement for original card issuer details to be entered were formerly considered a conversion killer. The new 3DS2 streamlines the process by operating a SMS two-factor authentication process. At the same time, it sends the remaining data points surrounding the transaction to the bank or issuing provider. They then use their own machine learning algorithms to detect whether it’s fraudulent or legitimate, shifting the liability away from you, the merchant.

     

    What kind of fraud can machine learning help prevent?

    Machine learning can prevent fraud in a multitude of ways, giving extra protection to merchants across the globe. Below are the five most common frauds and how machine learning is instrumental is detecting and preventing them:

    1. Duplicate Transactions

    Duplicate transactions are a common issue whereby a customer enters payment information and authorization takes quite long, so the user refreshes the order. The result is two orders and a chargeback for the merchant down the road for one of the payments. Through AI, human errors can be instantly discovered and reliably distinguished (e.g. double-clicking a button). In turn, it can block duplicate transactions and decrease crucial chargeback ratios.

    2. Identity/Credit Card Theft

    Identity theft occurs when a scammer sets up a user account with someone else’s information (usually after stealing their credit card). The fraudster extracts money or goods from an e-commerce merchant using that stolen information. Smart algorithms use behavior analytics to search and uncover those inconsistencies in personal data sets and block the transaction.

    3. Friendly Fraud

    Friendly fraud is the result of a customer issuing a chargeback rather than asking for a refund. This is usually because they didn’t understand what they were signing up for or don’t recognize your company name on their credit card statement. Machine learning can benefit the dispute process by proving a purchase was intentional through detecting data-like fingerprints. It also assists in automating responses to friendly fraud chargebacks. Since the reasons behind these frauds are often similar, AI improves turnaround times on disputes as it learns the most common responses and how to deal with them appropriately.

    4. Account Hacking

    Account hacking is similar to identity theft and occurs when a customer’s user information is compromised. Therefore, all the information entered into an e-commerce merchant’s site is correct when trying to make fraudulent purchase. Once again AI algorithms analyze dozens of data points. Devices, cookies, IP addresses, time of day, and network to stop transactions that don’t match previous buying behavior are just some examples.

    5. Chargeback Fraud

    Chargeback fraud is almost identical to friendly fraud. It occurs when a user maliciously issues a chargeback knowing they already consumed the product. With the onset of 3DS2 and other data protocols, machine learning algorithms can scan data points for previous malicious activity. This direct action can frequently be associated with a customer’s old credit card number. The direct result is a blocked order from the potential client. Moreover, if the completed transaction does pass all checks, machine learning tools can prove the service or product was used. Therefore, this evidence can support you in the chargeback dispute process. Also things like verifying customer logs and shipping details help combat this type of fraud. Due to AI advancements, the dispute process can also be automated (to an extent).

     

    Combat existing high levels of fraud

    When it comes to implementing machine learning, there are multiple ways to begin reducing risk and chargeback levels that are considered acceptable to payment processors. Firstly, you can request access to your bank’s or gateway’s built-in anti-fraud tools. They should be willing to cooperate since any reduction in your fraud rates are mutually beneficial. Additionally, authentication tools are excellent for stop suspicious transactions in their tracks. PSD2 and 3DS2 checks are set to significantly decrease online fraud rates when they come into effect later this year.

    Furthermore, you can customize in-house shopping carts and CRMs to start collecting as much data (with consent) as possible concerning your customers. The more data you manage to collect, the better machine learning algorithms will be at detecting anomalies or unusual buyer behavior.

    Lastly, several third-party machine learning analytics tools, applications and plugins can be installed on your website to recognize customer behavior patterns. This will help increase sales. Additionally, expect fraud detection rates to rise concurrently as you set rules for algorithms to decline transactions that have followed certain previously suspicious patterns. Start off with a few rules and build more in to avoid any false negatives which can result in sales losses.

     

    Example of how machine learning is effective for high-risk merchants

    Machine learning in the e-commerce industry has many applications that can help high-risk merchants turn their processing history around. Even by setting simple rules, AI helps algorithms to learn and improve their implementation, gradually increasing fraud detection rates and lowering chargebacks.

    For example, you could set up a rule to block any transactions attempted with multiple credit cards bearing the same customer name and IP address. With data collected from your shopping cart, CRM or other sources, the algorithm may work out extra details. This can include finding the type of fraudulent activity most common for female customers aged 18-36 with a Florida address.

    By learning these customer traits, the algorithm can automatically flag suspicious transactions that go far beyond your initial rules of engagement. Thus preventing far more fraudulent transactions than you ever would have, had you programmed the algorithm yourself.

    With the help of algorithms, e-commerce merchants can slash their rates of fraud and chargebacks helping them to apply for increases in monthly payment processing capabilities.

     

    Incorporate machine learning into your business today

    As you can see there are big benefits from harnessing the power of AI and machine learning. From reduced fraud, lower chargeback rates, and improved payment processing history, using machine-learning algorithms is one of the fastest ways to impress payment processors as an e-commerce merchant.

    Although the technology sounds complicated, user interfaces are often simple to operate. You can lower costs by sharing information with mutually beneficial parties, such as your bank. So don’t delay, start experimenting and implementing machine learning today.

    Does your credit card processing strategy need a complete overhaul? Is your e-commerce business drowning in fraud and chargebacks? Then make sure to contact our team at DirectPayNet to regain control over your e-commerce business.