Fraud is a hot topic within DCB. Its effects are being felt up and down the value chain. Following the Telemedia8.1 panel discussion on the subject last year, James Macfarlane, CEO of PM Connect, outlines his wish list for the ecosystem can come together to better address the issue in 2021 and beyond.
Let’s not downplay this – fraud exists within DCB payments. However, we are not alone in fighting it.
Just like every other payment method, DCB provides fraudsters the opportunity to exploit it for short term gain. What’s more, just like every other payment industry – we need to come together as a collective and pragmatically look at how to solve it.
When fraud is rife, end users unknowingly lose money, Mobile Network Operators (MNOs) see toxic revenue increase that incurs extra hidden costs and user churn, merchants lose brand reputation, aggregators risk market erosion and anti-fraud companies will ultimately lose clients as a result of merchants and MNOs suffering.
It’s a conundrum that is only going to become more acute as our sector grows. The proliferation of mobile is not stopping. However, unless we tackle the issue effectively as an ecosystem, DCB as a frictionless, transparent and effective payment method, may be stifled.
If we do not deal with this problem now we will see regulators and MNOs unwittingly undermine everything that makes DCB unique. This will see it demoted to a second tier mobile payment that uses outdated two factor authentication, such as text pin loops, to try and fix an issue that isn’t properly understood.
Where I stand
Firstly, I want to be clear in my own interests and perspective. My business PM Connect has a simple proposition: we pair multi-billion-dollar brands with MNOs – connecting them to new audiences. We do this by taking a multi-channel approach that includes DCB payments, digital marketing and data.
We operate in multiple areas of the value chain – often simultaneously, with over 70+ MNO partners globally across 40 territories and have direct relationships with global names including the NBA and WWE.
Why am I highlighting this? To demonstrate that we have a profitable business model that includes deploying anti-fraud. We buy clean traffic directly from source – and we see around a 3% block rate on Google traffic from our anti-fraud partners. Putting in an effective anti-fraud does not kill our business – and nor should it. We are happy to ensure the quality of our traffic, which in turn benefits everyone we do business with.
Conversely, businesses that either seek to dismiss fraud or profit off the back of it are not the businesses we want in our ecosystem.
Let’s take a look at the main stakeholders within the value chain…
Merchants often argue that they are a victim of fraud. However, if a merchant has not taken steps to put in the right technology to block fraud the argument starts to wear thin.
Put simply, you are responsible for the traffic you buy. If there is a chance that the traffic is fraudulent, you need to implement the best processes and tools to stop it.
This responsibility should sit squarely at the merchant’s door – as if this accountability gets pushed down the value chain to the traffic partners, it can become lost as many traffic partners are anonymous.
Merchants typically push back against anti fraud being implemented on their traffic because they are worried about a large percentage of it being throttled. However, this will only be the case if they’re generating bad traffic. Any merchant that pushes back in this way, should set a red flag for MNOs and all stakeholders across the piece.
This issue can often stem from affiliates that are not properly vetted – resulting in advertising malpractice that leads to consumer issues that ultimately undermine DCB.
Merchants need to accept that anti-fraud tech is here to stay – while ensuring the necessary due diligence before entering working relationships with affiliate partners.
Anti-fraud suppliers remain an essential cog within the machine that is the DCB ecosystem. Technical solutions play a critical role in fighting anti-fraud, alongside industry regulation and self-regulation.
From my perspective, anti-fraud partners should fulfil three key areas:
- They should be technically proficient at blocking real fraud and not generating false positives.
- They should have the ability to demonstrate scalability on their platforms – handling large scale levels of payments volume that can go up and down. Having the ability to scale quickly the amount of requests they can process is incredibly important.
- They should be able to demonstrate no conflict of interest with other areas of the value chain. A merchant should not be running their own in house anti-fraud and an anti-fraud partner should never receive a revenue share from transactions flowing through their system.
MNOs are hugely influential in how we successfully tackle fraud within DCB, and need to take a lead in solving this. The first step is for them to recognise that, like any other payment method, fraud is inevitably going to exist – but that it is manageable.
The second is to be clear that any preventative measures that are introduced don’t harm what makes DCB a great frictionless payment method. If that happens and transactions decline, it can significantly impact the scalability of DCB if big commercial partners no longer see the benefit – which ultimately negatively impacts MNOs’ bottom line and hurts the whole value chain.
Thirdly, MNOs need to introduce a clear RFP process that evaluates their anti-fraud partners and importantly each MNO should have a selection of certified suppliers on their books at any one time. No anti-fraud supplier should have a monopoly with a carrier. This means that each supplier can be chosen on merit for that particular job – ensuring there is no conflict of interest.
Finally, to maintain effectiveness within the value chain MNOs need to routinely monitor and evaluate their merchant and anti-fraud partners to ensure that they are fit for purpose. If you implement an anti-fraud partner that blocks 70% plus traffic from merchants you have two options. One is to change your merchants, because they are generating high volumes of fraudulent traffic. The other is to pick a new anti fraud provider, as they are not working as they should and could be generating false positives.
Regulators play a key role in policing fraud. They see that fraud occurs and are committed to solving it. However, with the speed fraud technology evolves it can be challenging for them to keep up with the best solutions to stop it. This often results in draconian reactive measures that attempt to wave a magic wand at the issue in the hope it will stop fraud in one fell swoop.
As mentioned earlier, a good example of this is the implementation of text pin loops – an outdated and misguided notion using old technology susceptible to fraud itself. In many markets we see that regulators fundamentally misunderstand fraud and enforce ineffective policies such as this.
It’s the equivalent of reintroducing the ‘Red Flag Laws’ that were used in the late 19th Century to help curb speeding motor vehicles, rather than using modern cameras. Ultimately it’s antiquated, adds an ineffective additional process and completely undermines the very essence of the new technology.
Regulators need to recognise that they are technically under-resourced to deal with fraud types. Instead they should be working with the stakeholders in the industry – especially the anti-fraud partners – to understand how the issues can be addressed with proper processes, the accompanying technology – with them then overseeing this.
At the point the regulator starts mandating payment flow types they are giving up on fixing the issue, and simply killing DCB as a payment mechanism.
Inherently, the DCB value chain coming together is complex – but ultimately if we want to combat fraud successfully, that is what we need. In summary of my proposed wishlist is:
- Anti-fraud to be led by the MNO – with multiple certified independent anti-fraud suppliers to choose from.
- Merchants to be held accountable for the mobile traffic they generate.
- Oversight and policing from the regulator, with technical solutions implemented following close working with the industry.
- All working collaboratively to provide a robust solution that combats mobile fraud.
I firmly believe that by following this approach and with the right governance, we can build consumer confidence, increase revenue for all parties and see DCB flourish as the transparent, effective and convenient payment solution it should be.
James Macfarlane is Group CEO of PM Connect