Risk Management Risk management consists mainly of dealing with transactions that are reversed after the product of service has been delivered. For merchants this means that revenue is lost so it is important to keep control over this process. This whitepaper describes Adyen’s innovative way to deal with fraud and risk management. The most important question to answer is how to minimize fraud costs while maximising revenues. MANAGING CONVERSION AND RISK Adyen’s payment system is built to optimise conversion for its merchants — the hosted payment pages offer a high degree of customisation and have been thoroughly tested to make it as easy as possible to pay. However, accepting payments also means accepting the risk for transactions that will be reversed later on. These chargebacks can occur for both credit cards and debit payment methods. Possible reasons for chargebacks are:
ADVANTAGES:
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Fraud, where a credit card or bank account of someone else is used by a fraudster
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FULLY MANAGED RISK SYSTEM
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GET REAL-TIME INSIGHT
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HIGHLY CUSTOMIZABLE
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BLOCK FRAUD EFFECTIVELY
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OPTIMIZE FALSE POSITIVES
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WHAT-IF ANALYSIS TOOLS
Therefore, a risk management system is needed that can detect
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CHARGEBACK-LEVEL MONITORING
transactions that are viable to be reversed in a later stage.
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INTEGRATED WITH PAYMENT
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Not enough balance on a bank account (especially with direct debits)
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The transaction is not recognised by the cardholder who made the payment
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There has been a problem in the delivery or return of the product
Although not all chargebacks can be detected beforehand, it is
PROCESSING
still possible to detect and avert most of the fraudulent transaction attempts.
The risk management system calculates the final score based on many checks that are performed on a transaction. We will discuss some of the individual checks further on in this whitepaper. Every check can, if triggered, add a score to the total fraud score. This means that merchants can experiment with the settings to find the optimum between blocking too many transactions and letting too many transactions pass through. During setup of the merchant account with Adyen, the account manager at Adyen will assist and advise on a good starting point. But it is also part of our standard operations to keep monitoring performance of individual, industry-specific and global risk management settings within Adyen. There are several classes of real-time checks Adyen
MANAGING FALSE POSITIVES For every blocked transaction, there is a chance that it would have been a legitimate transaction. So a fraud protection tool that is setup too rightly will block many genuine transactions, and therefore have a negative impact on revenues. These transactions are called false positives: transactions that a fraud system triggered as potentially fraudulent (therefore having a ’positive’ result of the
performs on each transaction: 1. Referral list checking of card numbers, email addresses, ip addresses: the comparison of data points against a variety of databases. 2. Consistency checks like comparing countries of the card issuer, card holder and merchant: the comparison of data points against each other. 3. Frequency/Velocity checks (e.g. how often did
fraud check and subsequently blocked) but which
the shopper make a payment attempt in the last
actually would have been normal transactions not
hour).
resulting in a chargeback. CHARGEBACK LEVEL MONITORING The card schemes’ Chargeback Programs are designed to reduce excessive chargebacks and fraud. These programs are activated if the CTR (Chargeback-to-Transaction) ratio rises above a certain level, for instance 1% which would mean that more than 1% of your transactions result in a chargeback. If you are in such a program (for a certain period), then fines may be levied. Depending on card scheme, the exact rules may vary. Adyen’s account managers can bring merchants up-to-date regarding these regulations. The Adyen backoffice contains a real-time monitor per merchant account of the current CTR levels. Of course, chargebacks can still occur after a long time, so the value for last month can still increase in subsequent months.
Risk management settings can be used from different
Adyen’s risk management system contains many
levels:
advanced features, of which the most appealing ones
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Global Adyen settings — Settings that are applied to all merchants. Example: cards reported stolen.
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are:
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change your risk settings with our advanced
Industry-specific settings — Settings applicable to
“what-if” risk scenario explorer.
a group of merchants in the same industry, for instance travel or gaming. Merchants share
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(anonymously) a selection of risk settings with merchants in the same industry.
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Dynamic 3D Secure — Apply 3D Secure selectively for high-risk transactions.
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Autodefense — Technical chargebacks, for
Company-specific settings — Settings that are
instance on refunded or 3D transactions are
shared among two or more merchant accounts
defended automatically by Adyen.
under the same company account.
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Scenario Explorer — Check what happens if you
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Device fingerprinting — A better technique to
Merchant-specific settings — Settings that are
repeatedly get the right identification of the
specific to one merchant account only.
device that the shopper is using.
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Manual review queue — The possibility to put suspicious transactions in a queue for manual review.
•
Country- and Industry-specific checks — Risk checks that are specific to one country or to one industry, such as travel or telecom.
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“Oil Splash Search” — The special search functionality where all orders and payments from a suspect shopper can be found back quickly. Specifically tailored to investigate fraudulent transactions.
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Risk Reporting and Chargeback Level Monitoring — Specific real-time reporting on risk management performance. Automated monitoring of chargeback levels.
For detailed information on how these features work and what they can do for you, please contact your Adyen sales or account manager.
RISK REPORTING AND MONITORING Adyen offers several reports on the performance of the Risk system that gives merchants feedback. Statistical information is gathered over the transactions processed over the various sales channels of one merchant. With this analysis the risk system can be adjusted by the merchant. Not only can the weight of a score can be varied, checks can also be deactivated and activated by merchants. With the reports providing progressive insight, checks need to be periodically adjusted to the best values. The nature of fraud also has proven to change over time, requiring further adjustments. When a coordinated fraud attack occurs, often the refusal rate of a merchant drastically increases and people can be alerted immediately to take proper action. ABOUT ADYEN Adyen is a global multichannel payment company offering businesses a fully outsourced payment solution, built on over 15 years of industry experience, which enables merchants to accept payments from anywhere in the world. Adyen supports all relevant sales channels, including online, mobile and Point-of-Sale (POS), and can process over 225 different payment methods, 187 transaction currencies and 14 settlement currencies used across six continents. The Adyen solution is highly scalable and can be completely customized to meet any merchant requirements.
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