18 April 2019

Experts Warn: New Fraud and Chargeback Thresholds Require Revision of Risk Management Strategies

See all newsroom posts

From October 1st, 2019, online merchants accepting Visa cards will have to comply with stricter anti-fraud regulations. All monthly compliance thresholds (including the ones established by VCMP Standard program) will be lowered from 1% to 0.9%, which will affect all entities accepting cards issued under Visa brands, especially companies from high-risk industries. Michał Jędraszak, CEO of Straal and Hubert Rachwalski, CEO of Nethone join forces to explain what consequences the new regulations might bring for merchants and how to get ready for the upcoming changes.

The new fraud and chargeback monitoring policy poses challenges especially for merchants operating in industries such as travel (OTAs, Airlines), online video games, betting and gambling, nutraceuticals, pharmaceuticals, dating or adult entertainment as well as those offering digital goods – often balancing on the brink of the threshold even under the current, more forgiving regulations.

At the moment, the VFMP’s (Visa Fraud Monitoring Program) monthly compliance thresholds are set up to a 1% fraud-dollar-to-sales-dollar ratio. Similarly, the VCMP’s (Visa Chargeback Monitoring Program) ones are established to a 1% ratio of disputes-to-sales-transaction count. These figures relate to MATCH (Member Alert to Control High-Risk Merchants) – a system designed by Visa to monitor businesses experiencing excessive fraud attacks as well as encourage them to incorporate measures targeted at preventing fraudulent transactions. Merchants get listed on MATCH after exceeding the thresholds consecutively for several months.

Merchants who are currently dangerously close to the 1% threshold, after the changes will fall into chargeback monitoring programmes with a danger of joining the high-risk merchant category. Hubert Rachwalski, CEO of Nethone, explains how to minimize this threat.

“The new, stricter thresholds do pose a challenge to merchants but there is a way to overcome this problem. The starting point is redefining one’s risk management strategy: the updated one might make use of deep profiling of users, which aims at understanding fully customers in digital channels, based on accurate fraudster identification. Only KYU performed in real time combined with innovative PSP’s processing that use this kind of sophisticated analytics will enable high-risk entities to continue growing” – comments Mr. Rachwalski.

The tightened threshold will increase the number of penalties for merchants who unsuccessfully set their risk management strategies. Straal’s CEO Michał Jędraszak translates the threat into specific numbers.

“These fees range from $50 per chargeback up to $75.000 of a monthly non-compliance fee, depending on the threshold exceeded and non-compliance severity. For, for instance, a digital goods merchant processing high volume of low-value transactions or a company selling high-value digital or semi-digital services such a situation might lead even to bankruptcy” – explains Mr. Jędraszak.

Both experts emphasize that merchants should now work closely with PSPs to develop effective risk management strategies, capable of matching the tightened monitoring thresholds. Moreover, the new regulations will also affect acquiring banks as their fraud thresholds will be lowered, too. As a result, this party will also get involved in working on more effective fraud prevention.

“First of all, the key question is about the responsibility for effective fraud prevention. Is this burden on the merchant’s shoulders or maybe on the PSP’s? Should a merchant search for third party providers of FDP solutions on their own or expect such support from their payment gateway? At Straal, we believe that in most cases the latter makes more sense” – explains Michał Jędraszak. “While in low-risk industries a set of simple anti-fraud rules should do the job, in industries balancing on the brink of the threshold detection of fraudulent behaviour requires more sophisticated tools and smooth cooperation between the gateway provider and the anti-fraud solution” – adds Mr. Jędraszak.

Efficient fraud detection and prevention relies on collecting and crunching huge amounts of meaningful data.

“To protect a business against fraud, one has to establish effective data gathering processes. It’s crucial to collect quality, meaningful data that will help to understand the context of fraudulent transactions” – explains Mr. Rachwalski. – “It is recommended to gather detailed user data as well as rich information about transactions processed by the PSP. Joining forces at this stage translates into better fraud prevention results, meaning more accurate detections and fewer false positives.”

As Machine Learning (ML) is the most efficient way to spot differences between legitimate users and fraudsters with high accuracy and in real time, collecting big amounts of meaningful data and providing its smooth flow between systems is paramount. The key principle of ML is the more data it gets, the more accurate predictions it gives.

“The more data a model receives, the better results Machine Learning it generates. In this context, it means better fraud prevention thanks to more accurate predictions. However, training a model takes time – it is worth commencing the process now so that it is perfectly ready when the new regulations take effect” – says Michał Jędraszak.

Both experts agree that a merchant approaching the current 1% fraud threshold should instantly contact their PSP and ask what is going to change once the new regulations come into force. It may be also necessary to agree on a new risk management strategy or just find a PSP cooperating closely with a quality fraud-fighting partner.

Download this article as:


Download pictures:



You might also like...
Straal launches real-time payouts to cards
8 September 2020

__Straal__ is an international provider of payment, optimization and fraud prevention solutions for future-minded businesses. The company offers a comprehensive suite of products that make accepting digital payments easier, as well as more effective and secure. Straal enables accepting one-off and recurring payments carried out by customers with credit and debit cards of all major organizations, initiating SEPA Direct Debit cycles and more. Thanks to Straal, customers can pay in currencies of their choice (over 200 options), using their preferred desktop and mobile platforms, while merchants can effectively maximise their transaction approval rate and mitigate risk. Founded in 2017, the company is headquartered in Warsaw, Poland. www.straal.com

Read more
Nutridome Selects Straal Payments and Develops Subscription Business
3 March 2020

Straal – an international provider of effective payment, optimization and fraud prevention solutions for digital commerce – announced that Nutridome.pl has integrated its online card payment system. Straal provides Nutridome.pl with a next-gen payment gateway, a set of proprietary optimization logics designed to maximize the effectiveness of recurring transactions, and access to Straal Kompas – a powerful and intuitive analytics and management panel.

Read more
Straal Raises Over EUR 1 Million in First External Funding Round and Launches New Payment Method Based on Open Banking
11 December 2019

Straal – an international provider of payment, optimization and fraud prevention solutions for digital commerce – secured over EUR 1 million in its first external funding round. The money will propel product development, help the company to become a licenced financial institution, and speed up its international expansion. The third to be fostered by the new, PSD2-enabled payment method – Straal Direct – which the company is launching in December on selected markets. The raised sum equips Straal to conduct a larger round (Series A) in the 2nd half of 2020.

Read more
Re.volt to Revolutionize Czech Vehicle Sharing with Straal Payments On Board
14 October 2019

Re.volt – a new vehicle sharing company from Prague – selects Straal for the exclusive provider of payment, optimization and fraud prevention solutions. Re.volt users can now pay for their rides by credit and debit cards of all major organisations, while the system administrator keeps full control over the company’s financial condition.

Read more
Straal Hires Payment Industry Veterans to Power Its Global Expansion. Stephen Buechner and Thomas Pinter take key C-level positions.
10 September 2019

Straal – an international provider of payment, optimization and fraud prevention solutions for digital commerce – announced today that two senior managers joined its executive leadership team. Stephen Buechner was appointed Chief Risk & Compliance Officer, whereas Thomas Pinter is now Chief Commercial Officer.

Read more
Electric Scooters “Quick” Launch with Straal Payments
22 May 2019

Quick – a new player on the Polish market of shared electric scooters – selects payment and optimization solutions from Straal. Quick users can now pay securely for their rides using credit and debit cards of all major organizations (card-on-file).

Read more
Nearly 70% of citizens in large Polish cities are familiar with car sharing. Mobility as a Service Report publication.
19 October 2018

Nearly 70% of citizens in large Polish cities are familiar with car sharing, yet few of them have actually used it. Bike sharing, taxi apps and ride hailing are in the lead. Plenty of challenges for MaaS companies, but even more room for growth.

Read more
Place your order in 15 seconds, grab your lunch in 15 minutes. Rocket Luncher rolls out one-tap payments from Straal.
24 September 2018

Straal – an everything-payments one-stop-shop for online and omnichannel merchants – announced today that Rocket Luncher – a go-to lunch ordering app for busy white-collar workers – selected its one-tap payments and the comprehensive suite of optimization, analytical and fraud prevention tools to fuel the innovative food-at-work experience. As a result of implementing Straal solutions, Rocket Luncher has reduced the ordering process down to 15 seconds.

Read more
Blinkee.city Electric Scooters are Conquering Europe with Straal Payments
25 July 2018

Straal – an everything-payments one-stop-shop for online and omnichannel merchants – has announced today that Blinkee.city – the first Polish network of shared electric scooters – selected its comprehensive suite of payment, optimization and analytical tools. In accordance with the newly-signed contract, Straal provides Blinkee.city with its smart payment gateway and a set of business performance enhancement tools: Straal Kompas Management & Analytics, and custom optimization algorithms.

Read more
Straal Bolsters Its Executive Leadership Team
19 July 2018

Straal - an everything-payments one-stop shop for online and omnichannel merchants – has welcomed two top-class executives with significant experience earned in the fintech sector to its executive leadership team. Tomasz Otto was appointed Chief Operating Officer in early June, whereas Tomasz Kobylarz joined Straal as the VP of Engineering at the beginning of July. The strengthening of the leadership team was prompted by Straal’s ambitious development plans.

Read more
Straal launches payment solution for online and omnichannel merchants
23 October 2017

Straal is a Polish start-up specialized in smart payment gateway services. The company is officially launching its comprehensive suite of solutions for e-commerce and multichannel businesses. It consists of a secure payment gateway, set of smart subscription management tools, Machine-Learning-based performance optimization system, powerful analytical dashboard, and top-grade anti-fraud system. Straal aims to become an everything-payments …

Read more
Show more releases