Why higher payment transparency helps merchants reduce risk exposure

Payment gateways have provided unprecedented access to new markets and business scale-up opportunities for their merchant clientele. However, as customer base regions and payment types diversify risk can increase. 

For merchants that do not have complete control over the financial processes facilitating their business, risk can be more prevalent and damaging. To understand and successfully decrease risk in their business, merchants need to arm themselves with as much knowledge as possible about their financial flows. The issue is that they can only do so if their payment gateway provider can facilitate a highly transparent relationship between gateway, merchant, and customer. 

While payment gateway services have innovated the reach, speed and security of their technologies, transparency throughout the payment-making process has remained an underestimated problem in our sector. Continuing to ignore this common pain point will increase risk and ultimately damage the foundational trust layer between merchant and provider. 

Risk type proliferation

A lack of transparency is not necessarily the catalyst for the increased diversity of risk types. However, championing transparency is a powerful step in reducing the success rates of illegitimate claims and financial activity. In particular, increased transparency can help tackle the following risks merchants aim to prevent. 

Fraud

Fraud in e-commerce accounts for almost £17.5 billion in losses yearly. When the relationships between merchant and gateway provider is transparent, they can work to reduce this figure. When it comes to identifying and preventing fraud types, the complexities of payment making can confuse merchants. After all, they are experts in their own business, not the financial processes that facilitate it.

In contrast, the nuances of transactions are the gateway providers' field of expertise. Providers can not only assist in flagging fraudulent activity but also educate the merchant on why a transaction is categorised as fraud and how it is likely to have occurred. 

Providers have this information through proprietary data on the account or card type, information from banks on payment codes, or anti-fraud systems owned and operated by the provider itself. Whatever the case, the gateway provider must be able to share their expertise with the merchant.

To expedite this process, gateway providers should ensure an easy-to-use, transparent, and flexible interface that puts the merchant in full control of their business activities is available, no matter how granular. 

Friendly fraud

Chargeback claims are consistent disruptors within e-commerce trade, with friendly fraud claims forming as much as 80% of all chargeback requests. These claims usually occur when a consumer does not recognise the merchant provider on bank statements. In their view, a lack of additional information about a charge requires a legitimate request for non-payment. Because many merchants, specifically those with larger operations, act under parent company names the recognition of payments made is often murky for the consumer. 

Tackling these types of claims requires time for consumers and merchants and money for the latter to resolve the issue. While friendly fraud absorbs these resources, illegitimate claims that may require more time and attention are given less attention. However, merchants reported that 65% of all disputes can be prevented from becoming chargebacks when card issuers provide detailed transaction information to their customers. Additionally, when consumers are empowered with clearer information, inquiries into payments made dropped by 25%. 

If payment gateway providers can similarly clarify these payments for their merchant clientele, deciphering incorrect claims from both payment maker and payment receiver sides can be made far more seamless, and less prolific altogether. 

Data breaches

Data breaches are a severe risk type for merchants who require consumer trust to facilitate growth and repeat purchases. Data breaches usually occur via online hacks and often without the knowledge of the merchant or the consumer.

Increased transparency between provider and merchant better informs the latter’s risk prevention strategies, working to lower the likelihood of data breaches occurring. If a merchant has a full and detailed view of their financial flows they can select anti-crime strategies, providers and systems that best suit their business. Much of this comes down to merchant size, cross-region activity, and product type. Essentially, increased transparency helps inform future decision-making and, where risk is concerned, a more thorough awareness of risk activity, which is likely to lead to more effective prevention.

A move toward transparency

The call for better transparency in payment-making doesn’t just lie with merchants, consumers desire more information about their transactions too. Research from Ethoca, which surveyed 1,000 consumers in 2021, indicates increased transparency is a well-founded and popular desire from those utilising digital payments. According to the report, up to 90% of consumers are interested in having more details about their debit card charges – with 63% being “very interested”. What we’re seeing at Transact365 is a move toward better transparency throughout the payment-making funnel, which symbiotically benefits all parties. 

With better transparency for merchants, gateway providers can understand their clients' financial flows better, as well as understand the merchant's concerns, pain points and misunderstandings more comprehensively, inducing a more effective working relationship. 

Improved transparency on the merchant side means they are more informed to make the best business choices, reducing friction when it comes to expansion, scale-up, and customer satisfaction. It also means they are more educated about risk types and can make business decisions that work to lower risk prevalence.

For consumers, increased transparency can promote trust in e-commerce businesses, catalysing increased use in online merchants and helping them in turn provide a faster service, better knowledge of customer bases, and fund innovation into business protocols and products, all of which stand to benefit the customer. 

Gateway providers need to lead the charge on better transparency in the payment landscape to benefit their client relationships and the smooth functioning of the payments industry at large.