The problems with the fraud Proof of Concept and a possible solution

Liam Castagna from Insparx reveals the best ways businesses can integrate and run a Proof of Concept (POC) and why they should consider a payment orchestration provider

Evaluating a new fraud solution provider can be difficult. No two merchants are exactly the same; what you sell, how you sell it, who your good customers are, what fraud challenges you have, and your risk appetite – all play a part in making your challenges unique. As part of the evaluation, you will want to know how the solution performs on your data. This means integrating and running a Proof of Concept (POC).

The testing part

Testing a fraud provider on your system is expensive. Every ROI is compelling, every new technology is sparkling with possibility and every hosted dinner is flavoured with success stories, but merchants don’t have endless integration budgets. We would all like to test the newest and greatest providers against our incumbent, but usually, resource constraints mean our wish list is reduced to a (very) shortlist of solutions we can try. Where there is no tangible risk to the business, often resource constraints reduce the list to zero.

Usually, when testing a new fraud solution, there is already an incumbent in place. The challenger solution is integrated in silent mode and both run side-by-side. Solution providers set the integration bar as low as they dare, knowing that once integrated, the scales are heavily weighted in their favour. Even if they don’t live up to expectation, as long as they outperform the incumbent solution, they can be confident they will be adopted. A merchant is unlikely to have the resources to repeat the process to achieve further efficiencies in performance or price. These bare-bones integrations can cause problems. When performance is not as expected, the limitation of the integration can be cited as the problem. This leaves the merchant having to evaluate the solution on unproven future performance expectations.

Running a strong Proof of Concept test goes a long way to mitigating these problems. Once it has been agreed to do a Proof of Concept, discuss again with the fraud solution provider what they will need in order to be confident of their performance, how deep an integration is needed, and for how long it should run. A more generous POC will give more accurate results. However, it will take more resources, so now the merchant has even less resources to test multiple providers.

Considering a payment orchestration provider

The industry has proposed a different solution and it shows a lot of promise. The orchestration provider is a fairly new concept in the world of payment services. The orchestration layer is the infrastructure in a merchant or an agnostic third party that connects a range of different solution providers to the merchants’ system. It is sometimes hard to argue they currently provide a little more than the old style ‘full stack’ or ‘full service’ PSPs, where a payment gateway will offer all the basic services required for processing payments. However, the potential (and the marketing literature) looks good, and in the area of fraud, this could be a game-changer. With all the fraud solution providers available through one standardised API, a merchant with limited resources has the ability to make sure it always has the best solution.

When integration fees and integration effort are removed from the Proof of Concept, merchants rush to regularly testing the market to see what new and innovative providers can offer. I personally look forward to the day when we can report to our bosses: we ‘know’ we have the best the industry can offer because we run continuous back-to-back tests of incumbent vs challenger.

With the barriers to switching between solution providers reduced to an experience similar to switching acquiring banks, we can expect a more accurate market valuation of the fraud service. Why would a merchant pay more when a new disrupter fraud service provider can achieve the same performance for less? This environment will benefit to market solution providers and encourage innovation. Via the orchestration provider, new providers can easily access a large number of merchants. Instead of investing in large marketing budgets to raise their profile and gaining visibility (and perceived respectability) in the industry, they will be able to connect with merchants via the orchestration layer and let the results speak for themselves. The merchants are able to try the newest and innovative solutions and the provider gains direct access to the market to prove their product.

These fraud orchestration layers have some hurdles to overcome. Standardising data between the merchant and the solution provider is challenging. A wrong implementation will limit how a solution provider can tailor a service to an individual merchant. The business model needs to be sold to both the solution providers as well as the merchants. The benefit to merchants is clear but the solution provider needs to recognise the growth potential. My assumption is that it will be adopted by those who are confident their product is the best performing for some merchants as well as by new solution providers looking to get into the game. The barriers to changing providers may be considered by the solution providers as a benefit to their business model; it will be interesting to see which route the big players take.

This editorial was published in the Fraud Prevention in Ecommerce Report 2020/2021, the go-to source in securing transactions while offering a frictionless customer journey.

About Liam Castagna

Liam Castagna is Head of Payment at Insparx GmbH. He is responsible for their Payment and Fraud vision and works tirelessly to optimise the payment flow. As a committed dataphile, he believes leveraging your own data is the most effective way to build business performance. 

About Insparx

Based in Munich Germany, Insparx GmbH is a leading global online dating merchant in over 40 different countries. With a fully subscription business model they are experts in customer retention and managing an extended payment lifecycle.