PaymentsSource: Kount and Ethoca's Fraud Alarm Digs into the Past


Seeking online merchants that are angry about fraud-related chargeback expense, Kount and Ethoca are partnering to tip off businesses about payment cards that have a track record of suspect transactions.

Ethoca Alerts warn card issuers and online merchants using Kount fraud prevention services when a particular card has been involved in previous fraud or chargeback disputes.

To dig for fraud, Ethoca relies on a global network of 27 card issuers and more than 500 credit unions that send reports of confirmed fraud and customer disputes. Ethoca sends this data to merchants with near real-time alerts that occur in hours, rather than weeks, after authorization.

Merchants have long complained that they do not learn about a fraudulent card until long after paying chargeback fees.

"Merchants using Ethoca Alerts benefit from both stopping the shipment of goods as well as avoiding the chargeback," said Keith Briscoe, chief marketing officer at Toronto-based Ethoca.

In most cases, Ethoca Alerts will arrive within 24 hours, with some just in a few hours after authorization, Briscoe said.

Ethoca is providing a valuable service because it is another way to leverage intelligence from other institutions to lower merchant fraud expense, a growing problem in e-commerce, said Al Pascual, senior analyst for Javelin Strategy & Research.

"Whether it is a case of true identity fraud, or an issue with friendly fraud, the merchant is still dealing with a loss regardless of the cause," Pascual said.

Merchants have never done a good job in the past of sharing information with each other about potential card fraud, making the Kount and Ethoca partnership "incredibly valuable," Pascual added.

Depending on the merchant's business model for product shipping times, the alerts allow enough time to cancel an order and avoid chargebacks.

Ethoca notifies the merchants through e-mail, prompting the merchant to log into the Ethoca portal to determine whether to stop a shipment, provide a refund to the fraud victim or take other actions.

Some merchants process alerts through an application programming interface, allowing them to pull alerts into anti-fraud platforms for automated processing, Briscoe said.

Boise, Idaho-based Kount provides the initial fraud screening and scoring of a transaction, eliminating a majority of suspected fraudulent transactions, Briscoe added.

"Because merchants are trying to accept as many transactions as possible, some may be comfortable letting more potential fraud through, and that's where Ethoca kicks in," Briscoe said. "We provide the confirmation of fraud that is confirmed post-authorization with the cardholder. We catch any fraud that other platforms or tools fail to catch."

The compliance rules that can result in a chargeback fee against a merchant can be "fairly complex" and any e-commerce merchants are likely to embrace any service that helps avoid that process, said Scott Strumello of New York- and London-based Auriemma Consulting Group.

"It's not always a clear-cut case that the merchant has to eat the chargeback costs," Strumello said. "Still, it is something more merchants are experiencing for a variety of reasons."

Online retailers don't always make a top priority of establishing security against identity or friendly fraud, but a service that does that heavy lifting for them should help decrease costs and increase sales, Strumello added.

Ethoca's fee structure is based on the merchant business model and what types of products they sell. Generally, the company charges a per-alert flat fee for those selling digital goods and online services, while those shipping physical goods may opt for a value-based pricing model that represents a percentage of the ticket price of recovered goods, Briscoe said.

"Merchants like this model because they pay Ethoca only when the alert is successful in helping them stop fraud and recover the associated losses," Briscoe added.