as seen on financialit.net

Financial IT: Keith, could you please tell us more about Ethoca and your background?

Keith: Ethoca was founded in 2005. We recognised there was a role for a ‘network’ between issuers and merchants because the current system of communication, in terms of customer disputes and fraud (i.e. the chargeback process), is fundamentally broken. At present, when fraud is detected by a cardholder or their issuer, it can take anywhere from four to six weeks for the merchant to actually hear about it through the chargeback process.

In terms of physical goods, this notification delay means not only will fraud be detected late, but the merchant’s products will likely have already been sent. This leaves no way for the merchant to take effective action to provide a refund directly to the cardholder and resolve the reason for the dispute.

Ethoca recognised the opportunity for an intermediary to play a communication role between the card issuer and the merchant, so fraud and customer dispute issues could be more effectively remediated. We started with Ethoca Alerts, our flagship product, and the way the network grew was with one very large U.S. issuer and one very large merchant. Over time, as we got more data, more merchants came on board. This increasing adoption powered the network effect, where we accumulated a critical mass of both merchants and card issuers sharing critical intelligence about fraud and chargebacks to fight fraud across the ecosystem. Today we have more than 8,000 merchants and 5,075 issuers in more than 70+ countries.

Financial IT: Please tell us more about your Ethoca Eliminator and Ethoca Alerts products. How do they work? If you can, please give us a real-life case example of applying your solution.

Keith: Alerts has been running for over 10 years, whereas Eliminator was launched about 18 months ago. Alerts works by creating an opportunity for improving communication between cardholders, card issuers and merchants – without the need for chargebacks. For example, if a card issuer identifies a suspicious looking transaction, they can ask the customer: “Is this transaction you? Did you actually perform it or is it fraud?” Right away the cardholder can identify a transaction as fraudulent or legitimate, and instead of going through the chargeback process, the card issuer sends Ethoca data in real-time that is then transmitted on to the merchant in the form of an alert. After that, the merchant typically does one of two things:

Refund the customer to avoid the chargeback
Or, if they're shipping physical goods, they can actually stop the product from shipping because they've received a warning about the fraud within a day, hour or matter of minutes – instead of weeks later.

Financial IT: Recently, Ethoca announced a partnership with Microsoft that will bring Microsoft customers simple access to their digital purchase receipts through their banks’ mobile applications, can you please tell us more about this collaboration and what we should expect?

Keith: Our Digital Receipt service – which is part of the Eliminator suite – aims to decrease transaction confusion and reduce chargebacks. In a friendly fraud situation, for example, what will often happen is a cardholder will be reviewing their statement and they'll see a transaction that they don't recognise. This could be a case of simple customer confusion, so they decide to initiate a chargeback. However, it could be buyer’s remorse. In any case, the customer ends up calling their bank and disputing a transaction that is actually legitimate.

Part of the current challenge with friendly fraud is that sometimes it is a genuine mistake – for example, the merchant descriptor may be very unclear on the banking statement and the customer doesn’t recognise it, or the purchase is made by the main cardholder’s child or spouse without them realising, so they’re not aware of the transaction which they then claim is fraud.

So, what we've enabled with the Eliminator product suite is to supply consumers with more information, giving them a better opportunity to identify legitimate transactions.

So how does it work with Microsoft? Microsoft has integrated our Eliminator API – allowing Microsoft purchases from every bank enabled with the service to access a digital receipt in one click. So, if a customer clicks on their transaction they will see a linked receipt – which they can pull up to review an itemised description of everything they bought. For most cardholders, that would hopefully be enough to jog their memory and help them understand that that was their transaction. There's also the potential for other information, such as the IP address, device used and other data elements to help remind cardholder’s that the purchase was made via their iPhone, for example.

Microsoft digital receipts are currently available through one large U.S. card issuer and will grow throughout the course of 2020, with other issuers across the globe looking to participate. The goal is to expand Eliminator across the ecosystem to combat friendly fraud and chargebacks even further.

Financial IT: What’s next for Ethoca?

Keith: At present, we’re focusing on building up the critical scale for Eliminator. The goal is to get more issuers integrated into the platform, making those receipts available to their cardholders.  

Beyond that, we're also seeing what can be done from a customer experience standpoint. For example, if I can see a Microsoft digital receipt in my banking app, what other opportunities could Microsoft or any merchant be making available through that digital receipt to drive things like marketing up-sell offers? It could also include things like warranty information and other additional services that could be provided to the cardholder. This is beneficial for merchants and banks alike, with banks being provided with a more direct relationship to their customer in the mobile app.

This range of features that we're introducing to the market, which includes things like business logos for easy company identification, maps to help a customer understand where and when they made a purchase, all provide increased clarity and create a better cardholder experience for every customer.

Financial IT: Like most industries in the world, the fintech industry is not immune from the impacts of the coronavirus crisis. What are the main problems facing companies now due to Covid-19?

Keith: The travel and entertainment sector has been hit really hard by the Coronavirus crisis. Currently, we are in a situation where airlines, hotels and other ticketing or entertainment providers are struggling with the demands of having to supply refunds to multitudes of cardholders for cancelled events, flights and the likes. This is creating a lot of chargeback volume for some of those providers because consumers, some with job uncertainty, are requesting their money back. So, rather than get something like a voucher or a credit for a future purchase, holders are now demanding full refunds making it a challenging environment to navigate.

We’re seeing increased demand for some of our products and services as a result – because we can help eliminate those chargebacks which aren’t legitimate. Part of the challenge that we face is that customers will often call their bank instead of calling the merchant when looking for a refund. In some cases, they may have worked with the merchant to try to resolve the issue and regain cash, but upon this not being fulfilled, they call their bank to see if they can file a chargeback and get their money back that way.

We expect that there will be a wave of chargebacks in the airline and ticketing and entertainment sectors initially. But, as COVID-19 progresses, and there are other disputing type behaviours, we may see those move to other merchant verticals. We know that a lot of consumers are shopping from home right now, so as online spending is going up, we would expect to see other disputes increasing in other emerging sectors and categories.

There are many different things that will play out, but chargebacks are most certainly going to increase. It's going to be interesting because although online spending is increasing, there will be an overall decline to transaction volume – people are not making a lot of discretionary purchases they otherwise might, they're focusing on things that are essential. It'll be very interesting to see how this shifts.

A service like ours can be very effective in an environment where disputes are increasing. We certainly see the opportunity to help out all parties - cardholders, issuers and merchants - through our services.