Visa Inc. and Ethoca Ltd. have partnered in an effort to thwart online payment fraud attempts, which they expect to increase as the U.S. shifts to the EMV-chip card standard at the point of sale.
"As the U.S. moves towards EMV chip we are looking at the many ways we can reduce fraud in the e-commerce channel," says Mark Nelsen, Visa's head of global risk and authentication product development.
Cards with EMV chips are harder to counterfeit than plain magnetic-stripe cards, and "when you start to stop counterfeit fraud the fraudsters go after the next easiest channel, and e-commerce is one of those channels," he says.
Ethoca's service notifies online merchants of fraudulent activity found by issuers before the merchant ships its product, allowing the fulfillment process to be quickly halted. The service is meant to reduce merchant losses associated with charge backs.
Visa's technology allows for near real-time information on fraudulent transactions, enabling Ethoca to send merchants alerts quicker. Transactions from Ethoca's merchant customer base are compared against Visa and participating issuers' fraud data.
Fraud has already flocked to the Web in other EMV countries, especially in Europe. The card networks set a U.S. deadline for most merchants to start accepting EMV chip cards by October 2015. Other companies are also moving towards EMV acceptance. Acquirer processors had a deadline of April 1, and most met it, according to Visa.
If all merchants used Ethoca, the technology could prevent approximately $300 million in fraud annually, says Darryl Green, cofounder of Ethoca. Up to 73% of transactions that are authorized by issuers but later confirmed by consumers as fraud are caught by Ethoca's platform, he says.
The relationship with Visa "is hugely important in the context that there are two opportunities to increase participation domestically and internationally and a partner like Visa is invaluable in that effort," says Green. "The other opportunity is [having] the alerts flowing in one direction from issuer to merchant; Visa's access, credibility and technology can help us increase what goes through those communication lines."
The Visa-enhanced service is available through Ethoca and Visa's CyberSource unit in the U.S. and Brazil.
Through this partnership, when fraud is confirmed by an issuer not working with Ethoca, Visa checks to see if the affected merchant is an Ethoca client and then promptly sends the alert to Ethoca so the merchant can be notified.
"It's a way to get the entire U.S. community involved with the interaction without Ethoca having to do each individual integration effort," Nelsen says.
The Visa partnership also allows merchants to receive more relevant fraud reporting data. For example, fraud under a certain dollar amount is not charged back to the merchant by the issuer, so "merchants don't have visibility" into that transaction, Nelsen says. By working with Visa, Ethoca can alert merchants every time fraud is detected and will be able to use that data to build better risk models, he says.
"Visa has been very forward thinking with respect to this, supporting us both reputationally and operationally," Green says.
Ethoca was founded in 2005 and began its alerts program three years ago. Merchants can receive alerts through an online portal or integrated application programming interface. The company works with nine of the top ten e-commerce retailers and three of the top four U.S. issuers, Green says. Plus the company, based in Toronto, is fairly well established in Canada and the U.K., he says.
The cost of using the platform depends on the type of merchant. Ethoca takes a percentage of the dollar amount of the transaction alerted as fraudulent.