With the rise of data and data-driven insights, businesses have an unprecedented opportunity to streamline operations, optimise margins, and create better consumer experiences. Lack of data leads to cumbersome support processes, low authorisation rates, reduced business insights, and more potential for fraud. In this article, we'll explore the role of data propagation in better-quality transaction processing, as input for fraud prevention, and enhanced consumer experience.
Although it might be clear that having as much data as possible flowing from the cardholder to the merchant to the card issuer is important, it’s still quite common in payments for this data to get dropped between entities and lost in the chain.
A smoother payment process benefits all parties involved in the payment chain: the consumer, the merchant, the payment service provider (PSP), the acquirer, the card network, and the card issuer. However, because of the many parties involved in payments, such a process can be difficult to achieve. Every link in the chain increases the risk of losing data, which can cause lower authorisation rates, dissatisfied customers, missed revenue, and a lack of insight into margins and how to improve the business. Proper data propagation through the entire chain is essential in order to achieve better payments.
From the moment of the transaction submission, all parties need to ensure that all data components of the transaction are properly flagged to issuers to make informed decisions, leading to better approval rates. It is not uncommon for one of these parties to misinterpret the type of transaction from one of the many integrations or even drop some critical data components. This causes poor performance but acquires also receive integrity fees levied by the card networks. It is equally important for as much data to flow back from the issuer to the merchant. Although an issuer might think that sharing the minimum amount of data is the proper way to combat fraud, this is a tricky assumption. According to research by the Baymard Institute, over 70% of carts are abandoned in ecommerce – 6% of these due to declined transactions. What if you could improve the authorisation rates? Next to avoiding declines, we can also actively influence the rates by sharing and propagating all transactional details, including the decline reasons. PSPs and merchants will have the ability to properly identify inefficiencies and optimise operations by interpreting declines. With this, they can determine whether to re-submit transactions with step-up authentication, if a technical tweak is needed, if the card security code was mistyped, or if the used card has just expired.
While research from Statista shows that global ecommerce sales are expected to grow by 10.4% in 2023, it also indicates that the value of ecommerce losses to online payment fraud is expected to increase from USD 42 to USD 48 billion. As the ongoing global surge in ecommerce activity stays the course, we also face increasing fraud. One way to combat this is data. The more data available, the more acquirers, PSPs, merchants, and risk providers can distinguish legitimate versus fraudulent transactions. Some examples could be unusual purchase amounts, high-risk locations, suspicious transaction sequences, or refund behaviour. Rule-based systems can block some instances of fraud, but they are easily outsmarted – and could also unintentionally block good customers. Data analytics, pattern recognition, clustering, and outlier detection should be used to discover fraud and block it before it occurs in real time. The more data you have, the better these techniques will work.
Next to the synchronous fraud prevention flow it’s also important to analyse transaction data after they have been completed. By combining all the transaction events, acquirers and PSPs are able to recognise patterns that might seem harmless, but can reveal patterns of behaviour such as money laundering activities.
So, in order to minimise fraud, data needs to be propagated through all systems in the payment chain while linking together transactions, refunds, fraud notifications, and disputes.
Alexander has experience in payments, implementing global payment connections and product propositions. He joined Adyen in 2016, where he was responsible for the global expansion of the acquiring solution before becoming product lead. He was also involved in setting up Adyen’s Issuing proposition. At Silverflow, he is responsible for expanding and shaping the product proposition across different geographies, payment channels, schemes, and product features.
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