Verifi, a payments gateway and risk management provider for online merchants, intends to reduce the friendly-fraud chargebacks these merchants face by using Jumio Inc.'s payment card scanning technology.
Friendly fraud occurs when a consumer makes a payment, and then challenges that payment after the fact. It is a particular issue for card-not-present transactions, since it is more difficult to prove the card user's identity.
Los Angeles-based Verifi plans to integrate Jumio's Netswipe and Netverify software as part of its risk management offerings, the companies announced Sept. 13. The partnership marks the first time a company will deploy Jumio's two security services to combat friendly fraud, says Jumio CEO Daniel Mattes.
Jumio advertises its technology primarily as a way for consumers to make online payments by scanning a credit or debit card with a webcam or a smartphone's camera. In this way Jumio's technology resembles that of PayPal's Card.io, which allows the PayPal Here mobile app to accept card payments without an add-on reader.
Jumio's technology can also scan other types of cards, such as a driver's license.
"Previously … Netverify was mostly used to confirm the identity of a candidate applying for job, or other instances when a positive identification is needed," Mattes says.
Verifi provides payment gateway and security services to online merchants or companies that set up recurring payment systems. The Jumio technology will be available to Verifi clients in the fourth quarter of this year, Mattes says.
Verifi has a strong risk management platform with multiple ways to combat fraud through blacklists, consumer behavior analyses, and a manual process in which the company may request an ID or copy of a credit card, Mattes says.
"Unfortunately, those methods can lead to a lot of customer churn and lost transactions," Mattes says. "Customers and merchants want fast transactions when purchasing online."
Verifi hopes to win more chargeback disputes for its clients while reducing overall fraud exposure, Matthew Katz, president and chairman of Verifi, stated in a press release.
"Verifi has always delivered our clients the most sophisticated fraud control and payment solutions and our partnership with Jumio continues on in that tradition," Katz said. "It helps ensure that users are who they say they are."
Verifi's timing for adding an extra layer of security couldn't be better. In the past two years, first-party fraud has risen significantly, says Julie Conroy McNelley, senior analyst and fraud expert with Boston-based Aite Group.
"Usually, first-party fraud goes down after the first two years of a recession, but this time it hit a plateau and did not come down," McNelley says.
The jobless economic recovery and the fact that consumers see friendly fraud as an "easy way to get free stuff" likely contributed to the fraud levels staying high, McNelley says.
In addition to not getting paid for a product that was shipped, merchants also pay a $20 to $35 fee to the card networks for each chargeback. Merchants with chargeback occurrences of more than 1% of total transactions could be "shut down from being able to accept credit cards," by the card networks, Mattes says.
Another form of fraud occurs with "account hijacking" in which a fraudster simply takes over an account and continues to order products or services that use a recurring payment system, Mattes adds.
Pal Alto, Calif.-based Jumio continues to work on developing technology that would allow merchants to complete card-not-present transactions as card-present transactions, similar to the 3-D Secure technology card brands currently support.