Fraud continues to be a hot topic across all industries. As businesses expand and technology becomes more prevalent, each new addition is a potential entry point for fraud. Payments orchestration platforms can be an incredibly effective tool for counteracting certain kinds of fraud, particularly chargeback or transaction fraud.
To learn more about how fraud prevention programs can be supported by payments orchestration, PaymentsJournal sat down with Andy McHale, Sr. Director of Product at Spreedly, and Don Apgar, Director of Merchant Services Advisory Practice at Mercator Advisory Group.
How payments orchestration works
Payments orchestration is, an approach that leverages data and connections to multiple payment services in order to deliver the best possible payment experience to customers and the optimal revenue to the merchant.. Even though all businesses involve payments of some kind, most businesses are not themselves players in the payments industry. As a result, many will focus their resources on the core of their business and look for a partner who will help them solve pain points, lower costs, and reduce complexity as it relates to the payments that the companies make and receive.
What those external partners provide is payments orchestration platforms. “Payments orchestration can do a lot of different things,” said McHale. “It starts with connecting you to multiple different payment providers or gateways. It can also add things like smart routing and additional fraud services.” Significantly, payments orchestration can help businesses manage all those aspects of payments without requiring in-house engineers, analysts, or business teams.
Perhaps most importantly, payments orchestration allows merchants optimization across the board, letting them mix and match the most suitable vendors as well as channeling their specific services efficiently towards only the scenarios where those solutions are required. “The whole payments orchestration approach lets the merchant curate the tech stack and pick the best of the best,” said Apgar. Businesses will often utilize multiple gateways and providers, and payments orchestration fits those gateways and providers to each merchant’s particular needs.
One of the most pressing needs of any retail business is bringing as many good transactions as possible through the “funnel” – wherever the point of sale occurs, and through whichever payment platform is in use. “You want your authorization rates to be high, your chargeback rates to be low, and your false positive rates to be low,” McHale explained. But payments orchestration isn’t always just about optimization of the funnel; it is also about ensuring that the correct funnel is being used, and that it is being used correctly.
This is where smart routing comes in: not only optimizing the authorization rate of a given gateway, but also providing resiliency in the event of any issues. “If your primary payment provider goes down, you can immediately failover to your secondary, so you don’t have any disruption,” McHale said of payment orchestration’s benefits. “It can also serve as a retry – if you get a soft decline from a particular gateway, you can switch to a different one and retry to see if you can actually capture that transaction.”
The need to combat rising fraud
There are many kinds of fraud, including identity fraud, account registration fraud, mitigating bot attacks, and more. Payments orchestration layers can help with some of that, but orchestration tools are primarily effective against chargeback or transaction fraud, either occurring because a financial instrument has been stolen, or because a consumer account has been compromised on the merchant side.
Fraudsters have gotten incredibly sophisticated over the past several years, according to McHale. “The prevalence of automated tools that fraudsters have access to has gone up, the cost of those have gone down, and there has been an increase in data breaches,” he said. “All of this comes together to create a lot of incoming pressure on businesses.” Not only are chargebacks expensive due to the cost of reversing a transaction, but there is also operational overhead and even the potential for additional fines and fees. Businesses must keep an eye on fraud prevention, and the good news is that while fraudsters have indeed become more sophisticated, fraud prevention vendors offer a rising level of sophistication to match the threat.
Payments orchestration as a fraud prevention tool
When confronted with the risk for fraud, businesses may feel a knee-jerk impulse to apply vigorous fraud prevention to every transaction. However, universal application is less effective than a more systematic approach led by payments orchestration. “The best practice is not to make every consumer go through that same process, but only to apply it to transactions that fit the risk profile where that tool would be helpful,” explained Apgar. “Different processors and gateways require a set of different tools.”
Making smart selections about how and where to add friction points for the purposes of fraud prevention can help to improve customer satisfaction. There is an unfortunate perception among consumers that if a payment is unduly declined, the fault falls with the person in the room, typically the merchant. “We’ve all experienced a false decline, where sometimes you’re standing at the store and you swipe your card and it’s declined,” said McHale. “And even if it’s not the merchant’s fault – if it’s declined by the issuers or the fraud vendor – there’s still a perception from consumers that that’s on the merchant.”
Detractor sentiment is a real concern among e-commerce sites as well. Apgar cited a Stripe study that found 95% of the top hundred e-commerce sites have flaws in the checkout process, and that 17% of consumers said they would not go back to an e-commerce site with an overly frictional checkout process. “Loss prevention is key, but at the same time, you also have to keep an eye on not inconveniencing the customer anymore than is necessary to secure that transaction,” clarified Apgar. “Because once they leave, they won’t come back.”
Spreedly, the network effect, and AI
In order to balance robust fraud prevention with smooth CX and cost-effective strategy, fraud prevention vendors use something called the network effect. “Vendors, orchestration layers, the gateways – they have visibility to transactions and traffic across multiple different industries, different merchants, different countries,” said McHale. “What that allows them to do is observe different trends.” Payments orchestration platforms let various entities share what they have learned from different transaction points. “That’s how the systems all work together to mitigate some of the false positives and try to maintain the friction at the right place, right time mentality, but still allowing authorization rates to be as high as they can.”
Added Apgar,“Payments orchestration platforms like Spreedly work with their clients to use smart writing tools on the back end that give companies more lift, while also reducing losses through not just chargebacks but unrecoverable merchandise.”
At the end of the day, payments orchestration is about finding the right tool for the right job. With such broad selection of fraud prevention tools, vendor selection can lead to a kind of analysis paralysis for merchants. Stocking up on vendors can have diminishing returns; partnering with ten vendors can lead to management issues that would not occur if the two or three best options were chosen instead. “Different fraud vendors have different core competencies,” said McHale. “We have different plugins with different solutions, and through our support teams we can help you find the right fit for your business.”
Spreedly and other payments orchestration platforms take advantage of all available data sources to help companies pull together the specific combination of vendors that suit their needs. “Having the right payments orchestration partner is not only about multiple connectivity,” concluded Apgar. “It’s also about some of the expertise that says here are the ones we think are a best fit for your use case.”