Payment gateways and acquirers now offer fraud detection. But there can also be a conflict of interest there…
In the early days of the Internet and ecommerce, payment gateways were essentially online payment terminals. But instead of competing with the big name processors, they decided to focus on merchant and consumer technologies instead.
It proved to be a smart move. These days, payment gateways are more essential than ever, and offer increasingly powerful features for online businesses – and not just online stores.
One way this becomes evident is the rise of what some call the “one-stop shop”, or the “all-in-one” e-till, which include fraud prevention along a whole host of other services.
How Built-In Fraud Tools Work With One-Stop-Shops
On paper, built-in fraud tools work a lot like those offered by third party providers:
- They look at user card and transaction data
- Feed the data through rules
- Automatically approve, decline or send the transaction into manual review
The key advantage here is the amount of historical card data they possess. Stripe Radar, for instance, claims there’s an 89% chance that a card has been seen on their network before, even if it’s the first time someone uses it on your site.
Easiest Solution for SMEs
Another advantage here, this one from the perspective of the user: no integration needed, and no extra resources spent comparing fraud prevention tools. This is ideal for companies without a risk team, or those who lack a technical understanding of how fraud works.
You can usually deploy the built-in fraud prevention feature directly from your standard dashboard, whether it’s with Stripe Radar, Worldpay’s FraudSight, or even Shopify’s Fraud Filter app.
Moreover, the pricing structure is usually based on the amount of processed transactions, which makes sense for smaller operations and companies with fluctuating amounts of transactions, for instance online stores whose traffic spikes during certain season sales.
Locked Into an Ecosystem
Now the first disadvantage should be evident to everyone: the built-in fraud prevention works with your payment gateway only. This creates a few challenges because:
- Your custom rules can’t be moved to another payment gateway’s fraud tool.
- You need to ensure all your payment gateway’s fraud tools offer the same level of sophistication, as they can’t be synchronized between different providers.
- Relying too much on built-in tools makes it harder to change payment gateways to expand to new markets later, or to benefit from more advantageous transaction fees with competitors.
In short, you are always looking at a compromise between ease of use versus business flexibility and agility.
Often Limited Features
Moreover, you might find that built-in fraud tools aren’t as sophisticated as dedicated third party solutions.
This is particularly apparent for fraud teams and businesses who need to dig deeper into the custom rules:
- Basic data enrichment: these tools usually work with data such as card number, transaction amount, currency and IP address, for instance. You won’t get the same level of investigation as with a full digital footprint analysis, which can include email address, social media profiling and device fingerprinting.
- Rigid, general rules: The rules you will be given are based on transaction and cards more than user behaviour. You won’t get specific preset rules for your vertical, and programming new ones can be challenging.
- Blackbox machine learning: if you do get machine learning at all, it will be hard to control or understand how it works. Which means fewer insights into how fraud detection works in the long run.
An Inherent Conflict of Interest
Last but not least, you’ll have to understand that payment gateways and acquirers will always err on the side of processing payments. Their entire business model is built on charging transaction fees, so declining them goes against their purpose.
In fact, one of our clients, a leading crypto exchange, came to us because their all-in-one payment company and fraud tool still facilitated too many chargebacks.
The incentive for these companies will always be weighed towards accepting the payment, and you’ll end up being the one having to pay for the consequences, namely in the form of dispute and chargeback fees.
Agnostic Fraud Prevention Vs Built-In
To recap, let’s compare three fraud prevention tools, including our own, to see when it makes sense to stick with the built-in gateway and acquirer solutions.
One-Stop-Shops: Good For Basic Fraud Needs, With Caveats
In conclusion, we can see that built-in fraud tools offered by payment gateways and acquirers have their use. They require little maintenance, no integration, and can help reduce the most evident cases of transaction fraud.
But for companies with more pressing fraud challenges, they might simply not be enough. A lack of customization options, data enrichment features, and the fact that you can’t transfer rules between different systems means you are locked into a basic service.
Worst of all, they’ll never let you adjust your risk threshold to operate with the safest settings, as it would eventually damage their bottom line.
But the good news is that SEON can even work on top of your existing all-in-one e-till, thanks to our powerful data enrichment plugin and modular approach to fraud prevention.
Whether you use our full end-to-end solution or only select one of our modules as part of a multi-layered approach, we can’t wait to help you start reducing chargebacks and boosting transactions for legitimate users.
