Operational Providers have the capacity to become the hub of a risk architecture. They are very diverse in terms of the various operational processes where they are applicable and provide value. They are equally, if not more, diverse in terms of the specific point tools and fraud prevention techniques that are supported through their operational platforms.
Operational Providers enable organizations to carryout manual tasks with greater efficiency ultimately resulting in less employee hours required to handle the same volume while receiving equal, if not improved, results. Most Operational Providers offer tools and services designed to improve one or more of the following operational areas:
Business Rule Management, Manual Transaction Screening, Chargeback Reconciliation and Representment, and Point Tool Integrations.
The value of these services is to help organizations lower operational costs, and there are multiple ways these results can be achieved, depending on the operational areas being affected and the types of tools being utilized. While many Operational Providers offer services intended to improve fraud detection others may be focused on post-transaction processes such as chargeback reconciliation and representment.
Often organizations tend to overlook the true financial cost, resource allocation and time spent on these operational requirements. All organizations are performing these tasks, and most have built home grown solutions, or are using other systems, such as CRM and merchant accounting systems to perform these tasks.
Merchants may also turn to Operational Providers because they offer a single hub or the basis of a risk architecture to manage the many tools, applied techniques and returned signals available when screening transactions. Merchants still need to decide how to interpret these signals in the context of how they affect risk and decisioning, but Operational
Providers will streamline and organize the application of tools and techniques to help merchants make the most efficient use of these signals. Many Operational Providers also offer Managed Services to assist with this and other areas where merchants may want more guidance.
"Gotchas" with Operational Providers:
A number of service providers provide a basic CSR interface, but many of these interfaces lack real business process optimization capabilities and would not be considered a core
Operational Provider.
These solutions are typically purchased in addition to other fraud prevention services and tools, and often don’t represent a complete solution in and of themselves (meaning you will have to use some other third party data source, which may be integrated into their solutions, but still required to achieve optimal use and performance).
THE FRAUD PRACTICE
KEY NOTES
Alternative Solutions - None
Building this In-House - It is possible to build manual review and case management platforms in-house, as well as building systems for managing chargeback reconciliation and representment. However, this requires significant investment and it would be difficult to match the features and functionalities that third party vendors are able to provide. Many merchants have successfully built internal rules engines and systems while bringing in data points and signals from a variety of point tool providers.
Estimated Cost - Typically these services are offered on a subscription basis with per transaction fees tiered to volume.
Sample Venders - Kount, Accertify, CyberSource, LexisNexis, ACI Worldwide
OPERATIONAL PROVIDERS TECHNIQUE OVERVIEW
The term Operational Provider refers to vendors offering tools, solutions and services that are intended to streamline, automate and improve manual operational procedures. This may include services that are intended to improve the operational efficiency of manual reviews, chargeback reconciliation, chargeback representment and other manual tasks, as well as fraud detection in general. These systems are very sticky, and have the capacity to become the hub of a risk architecture. There is a high degree of differentiation amongst Operational Providers in today's market in terms of the various tools they offer or have integrated with their Operational Solutions. These tools can be offered from the vendor directly, through partnerships with vendors offering point tools, or a combination of both.
Key considerations when implementing or buying this functionality include:
For which operational procedures are the tools or services applicable? Does the vendor focus on one operational area (i.e. manual review, or chargeback management), or do they offer services for multiple operational areas? Consider the vendor's strengths in relation to your organization's needs.
Organizations should determine the current operational costs and annual full time employee hours required to handle current manual operational workloads, then work with the vendor(s) to make reasonable expectations of how this time and cost will improve with operational tools to estimate an accurate ROI.
The services offered by Operational Providers are typically purchased in addition to other fraud prevention tools and services. Does the provider support third party integrations?
Consider the tools (Device ID, Geolocation, Authentication checks, etc.) and techniques (Velocities, Link Analysis, etc.) that are offered through the Operational Provider's platform in the context of what tools and signals will provide the most uplift as well as comparing the costs and time to implement various tools or vendors individually.
HOW DOES IT WORK?
Operational Providers enable organizations to carry out manual tasks with greater efficiency, ultimately resulting in less employee hours required to handle the same volume while receiving equal, if not improved, results. Most Operational Providers offer tools and services designed to improve one or more of the following operational areas:
Business Rule Management
Although Rules Engines run in an automated fashion, organizations that maintain Internal Rules must regularly optimize and tune their rules engines while continuing to add new rules and remove old ones in response to changing fraud and transactional patterns. Many vendors that offer customizable rules engines also provide operational tools for managing the rule repositories, creating new rules and measuring the performance of existing rules. This can include the ability to run rule reports including the number of times each rule fired, resulted in a declined transaction or review and the outcome of reviews. They may also offer the ability to perform shadow testing where new rules can be tested without running live to see how they will affect review queues and the number of declines.
Manual Transaction Screening
Manual Reviews are generally one of the largest operational costs for online merchants, and many operational providers focus on increasing review efficiency. This goes beyond a basic CSR interface and includes many features for optimizing manual review both in terms of queue management and performing individual reviews. Operational services may offer the ability to prioritize review queues (such as based on order values), or assign transactions to certain review agents based on order characteristics. When it comes to an individual agent performing a manual review, Operational Providers offer a streamlined case management system that can include link analysis tools and call-outs to other third party tools or services that are used for performing reviews, enabling agents to more quickly use secondary checks and lookups within one system or window.
Chargeback Reconciliation and Representment
Not every chargeback should be disputed, but each one should be reconciled to see if that customer should be blocked from future business or to determine if there are other issues causing chargebacks which could range from payment system errors to customer service or fulfillment issues. Operational Providers may offer tools and platforms to streamline the reconciliation processes increasing efficiency. Some chargebacks, however, are not warranted and should be represented. Operational Providers that offer or specialize in Chargeback Representment may offer a platform for reviewing chargebacks, gathering and submitting the required dispute evidence, or may offer chargeback representment directly through a managed service offering.
Point Tool Integrations
Many Operational Providers offer various point tools that aid in fraud detection and provide various signals for assessing risk. The individual tools offered vary greatly from vendor to vendor and may be offered directly from the Operational Provider or through partnerships they have formed with point tool vendors. Depending on the vendor and specific point tool, the use of these tools may be included in the cost of using the Operational Provider or be considered an add-on service. The point tools incorporated with Operational Providers can range from your more basic tools (BIN Checks, Freight Forwarder Checks, etc.) to more sophisticated ones (Device Identification, IP Proxy Detection, Fraud Scoring, etc.). In addition to the point tools already integrated into the operational platform, the vendor may also offer third party data integrations where merchants can incorporate other tools or signals they may already be using or want to use.
HOW DO YOU USE THE RESULTS?
The purchase sequence can be broken down into five stages, first the consumer goes through the check-out procedure, the same way they do today, providing the same data fields they do today. When the buy button is pressed on their system, using the commercially available software on the market, it sends a message to MasterCard and card issuer, to find out if the consumer is participating in the SecureCode authentication program. If the consumer is participating in the program, the service will send a pop-up window to the consumer. The pop-up looks like it is coming from the consumer’s issuing bank. The pop-up asks the consumer to enter their password, OTP or PIN. The issuing bank then validates this password or PIN and returns the results to the merchant.
The benefits to merchants are that transactions covered by SecureCode shift the liability of fraud losses from the merchant to the card issuer. However, the requirements for eligible transactions can differ by region or country. In the United States, MasterCard SecureCode provides the liability shift not only for transactions where the consumer successfully authenticates, but also for transactions where merchant attempts SecureCode authentication but the consumer is not enrolled. The liability coverage expanded in October, 2011 to include transactions where the consumer is not enrolled, but this is only for U.S. domestic transactions, meaning the merchant is U.S. based and the card used was issued in the U.S.
Outside of the U.S. market only transactions where the consumer is authenticated with MasterCard SecureCode are eligible for the liability shift. Additionally, only certain chargeback reason codes are covered:
Reason Code 4837 - No Cardholder Authorization
Reason Code 4863 - Cardholder Does Not Recognize/Potential Fraud
Several countries have mandates related to 3-D Secure and MasterCard SecureCode. For all of Europe, merchants that want to be able to accept Maestro debit online must support MasterCard SecureCode to do so. In Singapore, all 3-D Secure implementations must use a dynamic One Time Password (OTP).
HOW DO YOU USE THE RESULTS?
The value of these services is to help organizations lower operational costs, and there are multiple ways these results can be achieved, depending on the operational areas being affected and the types of tools being utilized. While many Operational Providers offer services intended to improve fraud detection others may be focused on post-transaction processes such as chargeback reconciliation and representment. For many aspects of the services Operational Providers offer the results are simply improved efficiency. But when offering a variety of point tools within the operational platform using the results can differ greatly. For a more detailed discussion on using the results as it pertains to a specific point tool within an Operational Platform please the list of Technique Pages featured in our Fraud Library.