Kount's Friendly Fraud Prevention Solution

Kount’s Friendly Fraud Prevention Solution featuring an integration to VMPI protects against chargebacks, increases revenue, and improves customer experience.

1. Identify Criminal Fraud with Kount 

• Kount’s AI-driven digital payments fraud prevention solution provides the most complete criminal and friendly fraud protection. For criminal fraud, it helps businesses prevent false positives and reduces customer friction. Built to recognize patterns, anomalies, and linked associations, Kount’s AI learns from historical outcomes, and detects complex and common fraud in milliseconds. Using both supervised and unsupervised machine learning in parallel, along with additional calculations, Kount’s AI weighs the risk and safety of the transaction to make a decision based on each businesses’ risk tolerance. The resulting transaction safety rating, Omniscore, allows businesses to decide what fraud thresholds they’re comfortable with, and then align Omniscore with desired business outcomes. 

• Kount’s VMPI integration allows Kount merchants to turn on the VMPI service without additional integration. This enables Visa issuing banks to request more information from a business in real-time to help cardholders recognize a purchase. Once set up, Kount will receive VMPI inquiries for participating businesses and respond with customer and transaction details which most businesses already provide as part of their fraud prevention program. Customers can be reminded in real time about the purchase, and chargeback losses and fees are avoided. Businesses can start receiving the benefits of VMPI within days to begin deflecting chargebacks.

   Datamart Advanced Data Analytics

• Kount’s intelligence and advanced data analytics can help businesses identify criminal versus friendly fraud. Other fraud prevention companies may be able to identify the criminal fraud, but they lack the depth of data to help sort out the criminal fraud from the friendly fraud.
• Kount’s intelligence and advanced data analytics can also help businesses pinpoint areas for improvement to enhance operational efficiencies, such as customer experience, margins and revenue.

• Immediate fraud alerts from banks to businesses are available for cases of confirmed fraud, reducing the fraudulent transaction processing timeline from 4-6 weeks to as little as a few minutes. With this immediate alert, businesses are able to stop or redirect the shipment of physical goods, reduce the cost of fraud, prevent a chargeback, and shorten the chargeback cycle.  
• Should a disputed transaction occur, full chargeback management and chargeback retrieval services are offered through Chargebacks911. Chargebacks911 will represent and dispute chargebacks due to merchant error and 1st party or “friendly fraud” cases to recover lost revenue without additional work for businesses.

3. Improve Operations to Address Legitimate Disputes

• Kount’s solution enables businesses to look beyond chargebacks and pinpoint how to improve the customer experience, margins, and revenue. 

Benefits

• Gain a single platform for all fraud prevention that accurately detects and protects against both criminal and friendly fraud through a single fraud-prevention platform 
• Save the sale by helping customers recognize legitimate purchases, therefore deflecting chargebacks 
• Gain insights from Datamart, Kount’s advanced analytics, to identify criminal versus friendly fraud and pinpoint ways to enhance operational efficiencies such as customer experience, margins, and revenue 
• Reduce dispute timeframes from weeks down to minutes by communicating with issuers in real-time
• Reduce revenues losses by preventing chargebacks, loss of goods, or loss of services
• Stop double refunds by communicating the status of refunds already in-flight (Fraud pVp only in 10/2019)
• Improve customer experience and satisfaction to gain customer loyalty with improved communication and faster resolution 

BACKGROUND

What is friendly fraud?  

Friendly Fraud occurs when a consumer makes a purchase with their credit card and then disputes the charges with the issuing bank rather than requesting exchanges or refunds or inquiring about unrecognized charges on their statements. 

In some cases, the customer has malicious intent to dispute the payment and keep the goods or services, but more often, there may be a misunderstanding, such as a confusing or cryptic billing descriptor, a forgotten spontaneous purchase, or a purchase made by a family member. 

In addition, friendly fraud chargebacks are often classified under the same reason codes as criminal fraud which makes friendly fraud difficult to identify. For a business with a strong criminal fraud prevention program, as much as 80% of their chargebacks can be from legitimate customers but come through with a “Fraud” chargeback reason code. 

Impacts of friendly fraud 

• Chargebacks - the merchant receives an automatic chargeback from the issuing bank
• Chargeback fees - penalties posed by the acquirer when a chargeback occurs
• Increase in chargeback ratio, which could result in placement in Visa’s chargeback monitoring programs if transactions with chargebacks exceed 0.9% of transactions
• Cost of lost goods when consumers keep their goods and say they were never received 
• Double refunds when a refund hasn’t arrived fast enough for the consumer and it is refunded twice
• Time spent in dispute resolution takes focus away from growing the business

What is VISA Merchant Purchase Inquiry (VMPI)?  

Visa created VMPI, a component of their existing Visa Claims Resolution process, to help issuers and businesses streamline the dispute process and avoid unnecessary payment disputes. VMPI is a platform that allows issuers to communicate directly with merchants and exchange detailed transaction data in real time.

The details provided by the business to the issuer can include information such as customer name, email, shipping address, mobile phone, shopping cart information, and device used. This subtle friction is typically enough to provide the cardholder with enough context to recognize an authorized purchase, or sway them from any malicious or exploitative intent, as they can see their own personal data, beyond just the payment information associated with the purchase. 

The VMPI platform allows merchants to integrate directly to Visa but that requires an upfront and ongoing investment in people to maintain the integration which has led to lower merchant adoption. To increase merchant adoption of VMPI, Visa has designated certain third parties as “Visa Facilitators” who can act on the behalf of a merchant to respond to VMPI inquiries with data provided by the merchant. Working with various third parties, Kount allows its merchants access to VMPI with no additional integration.

Visa’s top five card issuers, and hundreds more are participating in the program which is the most significant innovation benefiting merchants and the digital payments ecosystem in 20 years.

FAQs

Q. Why do I need a solution for VMPI?

In 2016, Visa tracked more than 2.9 million disputes that were initiated because cardholders did not recognize the transactions. In addition, 20% of all chargebacks were tied to purchases of digital goods, which include electronic movie downloads, music, and phone application purchases, which often don’t have easily identifiable purchase details and are therefore frequently disputed. 

Friendly fraud has historically been a difficult challenge to solve because only 14% of cardholders contact the business when they do not recognize a transaction on their statement. Instead they call their issuing bank to dispute the charge. When customers go through the bank, this does not give the business the opportunity to explain the charge and remind the customer of a legitimate purchase if in fact it wasn’t fraud.

Visa recognized that there was a gap and that there was an opportunity to assist the customer on the call before the purchase automatically became a chargeback. Visa launched the VMPI program to address the opportunity. Visa has found that often, when cardholders are given more information about a purchase such as the purchase date and time, or what was purchased, they can recognize the charge and as a result, a costly chargeback is avoided.

The cost of solving a dispute is expensive, and in the case of digital goods in particular, it can be far greater than the purchase itself. Deflecting a dispute from becoming a chargeback will yield significant cost savings for merchants and issuers because when issuers refund charges to the consumer, it results in a chargeback for the merchant and the merchant must pay fines, fees and penalties associated with the chargeback, in addition to the cost of goods that were shipped and cannot be recovered. In addition, Visa tracks the ratio of chargebacks to transactions incurred by merchants. If the merchant is considered “high risk”, their acquiring bank may take various actions, including restricting their monthly processing volume, holding funds in reserve, as well as closing their merchant account and listing them in a Terminated Merchant File (TMF). 

• Visa Fraud Monitoring Program - Visa uses this program to monitor merchants that have an excessive amount of fraud. Merchants will find themselves on this list if they meet or exceed the following: 
  • USD $75,000 fraud amount
  • 0.9% fraud-dollar-to-sales-dollar ratio
• Visa Chargeback Monitoring Program - Visa uses this program to monitor merchants that have an excessive amount of disputes. Merchants will find themselves on this list if they meet or exceed both of the following:
  • 100 dispute count
  • 0.9% ratio of disputes-to-sales transaction count

A 0.9% chargeback rate is currently the industry standard maximum. That equates to one chargeback per 90 successful orders. Proving additional order details to cardholders upon inquiry can help reduce the number of chargebacks by talking through purchases with customers before chargebacks occur. 

Q: What are the possible outcomes of VMPI?

1. Deflection:
   1.  Save a Sale:
      1. The cardholder contacts their issuer because they do not recognize a transaction. 
      2. The issuer performs a VMPI inquiry and provides the cardholder with the additional information the merchant provided about the transaction. 
      3. With this additional context, the cardholder is able to recognize the purchase. 
      4. As a result, a chargeback is deflected, the cardholder is satisfied, and the merchant keeps their revenue.

2. Refund: Example scenarios:

1. Refund in process, chargeback avoided
   1. Cardholder first contacts the merchant about an unsatisfactory purchase or a potential fraudulent transaction
   2. The merchant begins the process to issue a refund.
   3. Later, the cardholder contacts their issuing bank about the transaction. 
   4. The issuer performs a VMPI inquiry and provides the cardholder with additional information provided by the merchant, including the fact that a refund is being processed. 
   5. Satisfied that a refund is in fact pending, the cardholder agrees to wait.
   6. As a result, a chargeback is avoided, the cardholder is satisfied, and the merchant does not have to pay a chargeback fee. 
2. Potential Future State: 
   1. Cardholder contacts the issuer because they do not recognize a transaction or are unsatisfied with a purchase. 
   2. The issuer performs a VMPI inquiry and provides the cardholder with the additional information the merchant provided about the transaction. 
   3. The cardholder persists with a request for a chargeback. 
   4. The issuer starts the chargeback process, but VMPI blocks the chargeback for 24 hours.
   5. The merchant is notified about the pending chargeback and preemptively issues a refund.
   6. As a result, a chargeback is avoided. 
3. Dispute Alert: 
   1. The cardholder contacts their issuer because they do not recognize a transaction. 
   2. The issuer performs a VMPI inquiry and provides the cardholder with the additional information the merchant provided about the transaction. 
   3. The customer indicates that a charge is in fact fraud.
   4. Through VMPI, the merchant is notified of the dispute alert within hours to days (instead of weeks) and is able to leverage this information to adjust their fraud strategy or to stop related fraud.

Q. How does VMPI work?
On a regular basis (currently daily), Kount sends all details for a merchant’s new Visa transactions to a third party. In addition, Kount also sends updated information to a third party for all Visa transactions marked as “refunded” by the merchant.

• The third party stores this transaction data for up to 12 months (as required by Visa) in order to respond to VMPI inquiries.
• When a cardholder calls customer service at their issuing bank with an inquiry about a purchase, the customer service agent for the bank initiates a VMPI inquiry. This generates an API call to a third party. 
• When the third party receives a VMPI inquiry it matches the inquiry to a historical transaction and responds with the relevant transaction details, including an indication that a refund has been initiated by the merchant, if appropriate. The customer service agent then presents these details to the cardholder to help identify whether or not the unrecognized transaction was legitimate or truly fraudulent. If the cardholder believes the transaction is fraudulent then additional API calls will be made to a third party.
• The third party then listens for additional API calls indicating that the inquiry has resulted in a chargeback or dispute. The result of these API calls determines the ultimate outcome of the VMPI Inquiry.
• When a transaction is marked as a refund by the merchant, an update is sent to a third party indicating that a refund is being processed by the merchant.