GUARANTEED PAYMENTS TECHNICAL OVERVIEW
Guaranteed payments are the use of a third party to provide a merchant with a guarantee of payment for fraudulent transactions. These include providers of e-commerce insurance, third-party fraud services, and consumer authentication schemes.
Key considerations when implementing or buying this functionality include:
Make sure to take time to understand what level of insult rates you will have with the solution. For example, if they guarantee only when they process the order and say yes, how many of the ones they said no to will actually be good orders.
What channels do they support (e.g., e-commerce, MOTO)?
Does it require anything extra from their consumer to process the order?
What credit cards do they support?
HOW DOES IT WORK?
For all of the guaranteed payment solutions, except e-commerce insurance, merchants will provide the order information to the vendor. The vendor will evaluate the order data, perform screening and provide them with an answer to accept or reject. Depending on the provider they choose, they may not state that the order is guaranteed.
Merchants have to set up processes that follow all of the vendor’s rules to get the orders guaranteed. For example in the consumer authentication techniques the merchant will pass an ID with the order showing they got the authentication, but that alone does not mean they’re covered. They still have to be following all of the other rules with the program. For instance, marking the transaction correctly and no selling of prohibited products or services such as gambling or adult content.
HOW DO YOU USE THE RESULTS?
How you use the results is directly related to the program requirements. Make sure all requirements are being followed exactly as listed and document all of the required elements they ask for. It is their choice to accept or reject with most of these services, but if a merchant does accept when they said no to them, the merchant is on their own.
DID YOU KNOW
Guaranteed Payments ensure merchants will receive payment, even for fraudulent transactions, and includes providers of e-commerce insurance, third-party fraud services, and consumer authentication schemes.
This is the holy grail of solutions: Merchants are guaranteed that the charge-back will be covered, so it works great. Not every charge-back is guaranteed, only fraud charge-backs are covered; merchants still have to deal with customer service charge-backs. These solutions will have the right of refusal, or require you to provide some stringent data requirements for them to guarantee the purchase. This is not a cheap option, and you will pay for the guarantee, but if a merchant’s margins are low and they need to make sure they don’t get hit from fraud, this is one of the best ways to do so.
Note that with guaranteed payments:
Not all charge-backs are guaranteed, only those that are fraud-based, no guarantee on customer service charge-backs.
It usually works only for a specific card type, such as Visa or MasterCard.
It may only work for specific channels, such as e-commerce or MOTO.
Providers reserve right of refusal, so it can adversely impact sales conversion.
THE FRAUD PRACTICE
Alternative Solutions - Using Fraud Scoring Services that offer risk sharing.
Building this In-House - Start with the consumer authentication schemes, they are the cheapest ways to get a guarantee. Then move to the Advanced Address Verification technique. And then finally, if the other techniques are not enough, look for a third party to provide guarantees on goods and services or look for e-commerce insurance.
Estimates Costs - Low to Very Expensive. Typically involves paying basis points on top of the order. The consumer authentication techniques, Verified by Visa and MasterCard SecureCode are very inexpensive.
Sample Vendors - Forter, Signifyd, Riskified, eFraud Security