Simplifying Complex Fraud & Risk Issues for Businesses

As digital transformation continues to proliferate across world markets, agility, flexibility, and choice are becoming increasingly important.

With the online market space now more dynamic than ever, consumers are demanding expanded options for commerce, such as purchasing methods beyond traditional credit cards - payments that leverage digital wallets, PayPal’s Buy Now Pay Later, for example. Merchants are answering the call and providing broadened opportunity for engagement, and therefore profit, yet are also finding that with expanded cyber activity and options comes increased risk for fraud.

I​​​ recently had the opportunity to sit down with PayPal’s senior director, GM, Risk as a Service, Jayan Tharayil, to discuss this and a variety of other related topics. A seasoned risk operation strategist, Jayan joined PayPal in 2018 after holding key security positions at both Google and Simility, acquired by PayPal. His passion for the discipline was evident as he shared insights into current trends in the online payment space.

Jayan stated unequivocally that every business that engages in business online must have both proactive and reactive fraud mitigation strategies in place. He explained that anti-fraud technologies built into programs from the ground up is the optimal way for organizations to approach the challenge, from both financial and time management perspectives. Failure to plan appropriately from the get-go will often strain already limited budgets and resources by having to rely on manual mitigation and down-time, which in turn signals fraudsters who sit and wait for such vulnerable opportunities.

Interestingly, Jayan also highlighted how fraud threatens virtually every phase of engagement between merchant and consumer – from pre-transaction, when a customer first signs on and begins to provide basic personal information to create an account, to the transaction itself, when payment is received and processed, and finally to the post-transaction phase to address any transaction that may have slipped through the cracks, and provide recourse for the merchants who have been defrauded.

Effectively managing fraud: Balancing risk with customer expectations

To most effectively mitigate fraud attempts at each of these levels, both proactively, such as catching attempts as they are being made in real-time, as well as reactively, collaboration between operations and security within an organization is essential.

Furthermore, a successful organization will ensure that they weigh risk against potential benefits from both monetary and consumer friction standpoints. “There really is no ‘one size fits all,’” he noted.

To further outline his point, Jayan identified three main categories of merchant, and shared how organization age, size, ecommerce engagement history, and level of sophistication all inform the respective priorities and areas of focus a company will hone in on.

• A young and modest start-up may encounter a chargeback for the first time and will also recognize that they do not have the expertise to appropriately handle their security needs alone and will thus be best off engaging a third party.
• A mid-level organization may acquire some of the tools to manage their security themselves, along with some assistance from the outside.
• A more sophisticated organization that has been around and enjoyed online business success for some time, may have the luxury of tweaking its security optimization strategies internally, based on seasons, and other considerations.

Jayan pointed to PayPal’s twenty plus years of two-sided data harnessed from over 15 billion merchant and consumer transactions giving them the ability to decisively combat fraud in real time. He also cited the company’s merchant-facing risk offerings as yielding tremendous success and growth across the ecommerce arena.

Automation and Machine Learning

No matter the level, every business will always have to take into account the costs involved, not just of technology and expertise but of potential losses, including hits to reputation in the event of chargebacks and false declines. A balance between automation and manual checks and balances – machine and human collaboration – is prudent and most effective for any and every organization, no matter where they rank on their respective journeys.

And with AI and machine learning having emerged as the hottest topics in tech circles, Jayan pointed out that while important, automation and machines are only as good and useful as the people behind them. The understanding, emotion, and ability to pivot that humans possess are invaluable in the battle against fraud.

Today, fraudsters are sophisticated, often more so than the merchants they seek to exploit. They are poised to attack at multiple levels, often simultaneously and in overwhelming numbers. The threat is real, and it is great. Large Enterprises must remain one step ahead and adopt an array of payment tools – whether it be fuzzy device fingerprinting, location verification signals, purchase patterns, behavioral biometrics. Keeping these risks top of mind will help stop malevolent attempts before they can wreak havoc on their intended targets. The frequency of attempts is dizzying, and organizations cannot afford to let their guard down as “it is no longer a question of if (an attack will occur) but when,” concluded Jayan.

What is clear is that the realm of online payments is a complex one and is constantly in flux. PayPal has helped lead the charge and continues to play a key role in the ongoing digital payment revolution. It is a company deserving of its reputation for trust and security, among both merchants and consumers alike.

Article sponsored by PayPal