Voice of the Industry

Empowering data driven payment and fraud prevention teams

Thursday 5 December 2019 08:40 CET | Editor: Simona Negru | Voice of the industry

Nicolas Vedrenne, CEO and founder of STRATGranat discussed with The Paypers what needs to be done for data driven payments and fraud prevention teams to be empowered

 

Many companies initiate their payment and fraud efforts under Finance, with a fast-start, easy-to-use solution to enable ongoing focus on their core business. However, this methodology often leads to big inefficiencies whether you are large or small.

Fast-start in itself can be a false economy, especially for fast-growing businesses:

  • Payment costs are substantial and should be managed and reviewed on a regular basis, to take advantage of evolving business model and volumes;  
  • Payment page optimisation means more revenue; and  
  • Fraud costs can quickly get out of control, whether driven by a fraud attack or the increasing platform and people costs as your business grows.

Making the best decision

Firstly, senior leaders need to decide a budget and reporting line for the new team.

The travel sector, for instance, has very small margins and therefore the focus is usually on fraud prevention, which has the highest risk to profitability. Other sectors such as digital goods will prefer to focus on the payment function including options to optimise checkout and quickly grow revenues.

Setting the budget

Studies show that regardless the business model, for a fast-growing company, the investment in a payment and fraud function will have one of the highest ROIs:

  • Reducing fraud by a few basis points translates into an increase in profits of over 10%; 
  • Optimising payment costs can easily reduce the company cost base by hundreds of thousands of Euros; and  
  • Adapting payment options acceptance can uplift revenues by 10%. 

Fraud and payments will have an increasing impact on your revenue and profitability, especially if you are growing fast. You should plan the structure of this team acknowledging that hiring an experienced candidate takes around nine months, or training someone internally will take longer.

Average sized merchants can avoid up to EUR 500k a year in payment costs if they would have a payment expert in place at an early stage in their development. Payment and fraud managers are therefore highly rated in the market, with salaries over EUR 100k/year in some countries. 

A fast-growing airline travel agent where the margin was few euros per transaction with a EUR 1,000 fraudulent airline ticket purchase would hit fully the company profits.

These factors highlight that budget should not be an issue regardless the business model, but it should be based on revenue and margin impacts. The function could even be a profit centre to ensure ongoing positive returns and clear performance metrics.

Reporting line and independence

The initial rationale for being part of Finance is that costs usually translate into a few PSP invoices and some chargeback costs booked under ‘other finance costs’. This means, instead of getting attention from senior leaders, this function is ‘lost’ somewhere in the company. Our organisational recommendations when planning this function are:

  • Dedicated team. Payment and fraud prevention is a dedicated function, headed by appropriate seniority to give an impact on the business model of the company, including access to critical data to achieve the best results.  
  • Functional reporting line. Here you need to consider your model, culture and the entrepreneurship of your company. If payment is a heavy cost for you, it should report to the CFO or, if the focus is on international expansion and optimising revenues through better acceptance rates and payment options, then it should sit with a CCO or COO.

Payment and fraud team in action

The most common initial action is changing or having several payment providers, given the quick wins and fast ROI obtained. However, these quick wins are often delayed or jeopardised by assignment of low priority within the IT department. We recommend you ring-fence some IT resources to enable this new function. For example, a delay of 6 months in implementing a new PSP that leads to a EUR 400k cost saving means a EUR 200k loss for the company.

Mitigating risks whilst focusing on growth

Managing and reducing fraud is a balance of people and technology. Two key success factors are:

  • Outsourcing. There is no one-size solution. Outsourcing the manual review or fraud prevention systems will allow the team to focus on growing revenues, but this is counter-balanced by losing granularity and customisation of the solution. Having the function in-house implies effort to recruit and train, balanced by an increased win of a few basis points in Fraud losses. 
  • Awareness across your business. Apart from the obvious impact on the IT and finance functions, you should also engage commercials (promotions can distort payment analysis), call centres and customer service (refund and goodwill abuse), and logistics (delivery and returns fraud).

Empowering the payment and fraud team

Many companies still monitor the payment department staff performance with counterproductive KPIs. There must be a deeper understanding of the function so as to derive and translate data into metrics. A large part of fraud prevention teams is still incentivised with the fraud rate as unique criteria. If you have a high fraud attack rate, this can quickly become a disincentive, or significantly impact growth with knee-jerk fraud processes. 

Poor data access leads to bad decisions. As with IT resources, access to data science will improve accuracy and performance, especially if working alongside the wider business functions. Run well, you will find additional business benefits are derived from the analysis performed by this team. 

Payment and fraud teams are often a hidden asset. Their results are a subset of other functions in the organisation, but without proper attention, can mean the competition steams ahead.

This editorial was first published in the Fraud Prevention and Online Authentication Report 2019/2020. The Guide covers some of the security challenges encountered in the ecommerce and banking, and financial services ecosystems. Moreover, it provides payment and fraud and risk management professionals with a series of insightful perspectives on key aspects, such as fraud management, identity verification, online authentication, and regulation.

About Nicolas Vedrenne

Nicolas Vedrenne is CEO and founder of STRATGranat. Accredited company Director, specialising in managing complex organisations in international environment, he launched and managed the MRC Europe for over 5 years. Other payment experiences include leadership positions at Experian, Safecharge, Société Générale.


About STRATGranat

STRATGranat aims to be the Payment sector service company. It supports fast growing Payment sector companies with a very horizontal portfolio of 100 packaged services, Strategic, Operational or HR related. Its credibility is based on 25 experts with more than 15 years of experience in their fields, who have worked for 100 tier-1 companies.


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Keywords: Nicolas Vedrenne, STRATGranat, fraud, payments, attacks, PSPs, invoices, management, risks, fraud teams, data, fraud reduction, fraud prevention
Categories: Securing Transactions | Digital Identity, Security & Online Fraud
Countries: World
This article is part of category

Securing Transactions