Managing refunds exposure & merchant creditworthiness during COVID-19

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COVID-19 continues to spread rapidly and the economic crisis escalates globally every day in the face of the pandemic. The humanitarian cost and stress on health systems and infrastructure induces fear and uncertainty, affecting lives and livelihoods on a daily basis. Lockdowns across the globe brought a massive economic shock to a majority of consumer experience businesses such as hospitality and travel, but sport and retail are also suffering more than 70% drops in sales. Companies that must manage physical interaction with consumers and those with production staff working in limited space have been unable to trade. At the same time, massive uplift in online and digital businesses (such as online conferencing) and most other virtual or online businesses have experienced their best months ever in terms of sales growth.

Facing the online growth and the “shift” in spending, coupled with sector difficulties for some, requires adopting solutions that demonstrate great agility in mitigating risks. Even in tough times, the goal we share with merchants and the payment companies who serve them is to enable higher conversion and profits. During COVID-19, businesses became especially vulnerable to sharp increases in credit risk. Their rapidly declining sales and sky-rocketing refunds levels were clearly visible in the data collected for the purposes of Fraud Prevention, but also paint a business impact picture.

One area of great significance is the threat of illiquidity among partners and cashflow crises that damage or destroy once stable businesses. Cybertonica is building a new feature for Acquirers that predicts cash flow impacts and liquidity problems Merchants may face so that the payments operator can react appropriately, maybe vary conditions or seek to terminate a relationship if there is a risk of bankruptcy or fraud.

Immediate factors impacting the liquidity risk and creditworthiness of merchants: 

  1. Sharp rise in refunds due to Covid-19
  2. Sales volume decrease due to lockdown
  3. Balancing incoming cash flow through sales with outgoing cash flow done through refunds 

Both our acquiring and ecommerce merchants have experienced a sharp rise in refunds as they are unable to deliver products or services purchased earlier by consumers. Sales volumes have also declined up to 65% due to the coronavirus pandemic. Should refunds become a large proportion of the sales, this would indicate a potential financial risk both for the merchant and their acquirer. Further, this naturally puts merchants in a tight spot as they need to balance cash flow with outgoings done through refunds.

The early warning from Cybertonica may enable an adaptation and a negotiation with the payments platform used or provide analytics about the Company’s “path back to stability’.

How much would a data breach cost your business?

According to IBM Security’s Cost of a Data Breach Report 2019 where they examined 507 companies and interviewed over 3,000 individuals, the odds of experiencing a data breach grew 37% over the past two years and the global average cost of a data breach increased to $3.92 Million. In addition, the coronavirus pandemic caused significant increase in the total losses related to fraud (see our blog post on COVID-19 Frauds, Scams and Hacks for more information).

Data breaches cost organisations immediate financial losses. The businesses that deploy automated security solutions that reduce the need for direct human intervention – including the use of artificial intelligence and machine learning – experience 95% less costs associated to data breaches than organisations that do not utilise such technologies.

Integrating cybersecurity defences with real-time capabilities will not only minimise risk exposure but increase customer satisfaction by providing a frictionless customer experience.

Application Cases of Cybertonica’s New Solution

The COVID stress factors vigorously test companies’ liquidity and solvency in the face of the economic shock, and those companies that utilise advanced KYC and proper monitoring technology will navigate their way to post-pandemic world with minimum risk.

Real time monitoring

Building on top of our merchant portfolio dashboard {merchants | GoFrictionless}, our platform has been monitoring the daily levels of sales and refunds of merchants for all clients. We are able to monitor all incoming and outgoing cash flow to track the cash balance of each merchant in real time, using our custom data pipeline and data warehouse. They both were built from the ground up to allow us to analyse and report on payment transactions live as they happen. This has helped our clients to preempt potential negative cash balances and put together a plan of action to avoid such situations.

This module will be made available for free to our existing clients in the coming weeks, as we prepare for the reality that the COVID impacts will not disappear with the virus, but linger on behind for months.

Our largest customers also benefited from an additional level of custom reporting delivered through both ad hoc automated reports and real-time dashboards on their respective accounts/instances. Cybertonica provides free of charge additional consulting delivered by our data science and risk experts across the organisation.

Loyalty Programs

Our integration with loyalty programs is also worthy of note. Having recently partnered with a number of loyalty providers, we have been able to leverage additional data points in our analysis. This has helped us to create average profiles of card owners on our platform and detect any abnormal patterns in refunds. For example, using our transactional fraud engine we are able to stop the processing of refunds as they happen, which helps a leading high street clothing retail merchant to protect its cash and catch potential fraudsters in their store.

The Business Risk Platform

Our GoFrictionless platform is easily extendable and customisable to suit the needs of any merchant or payments institution in any industry vertical.  The GoFrictionless Business Impact dashboard enables operators to manage fraud and risk of each customer or merchant through the intuitive user interface. Internal displays and CRM can be built specifically to our clients’ requirements and adjust risk appetite. The dashboard allows to maintain business rules and lists, manage day-to-day risk and fraud, access business risk reporting, view daily performance alerts and monitor product portfolio and overall business risk performance.

By monitoring all types of payments including Bank, PISP or card/alternative payments in real time GoFrictionless helps to:

  • Monitor risk limits and automate alert generation, reporting and analysis
  • Quickly identify riskier segments where you may be able to safely tailor your offering
  • Cut potential fraud in credit applications, onboarding verifications and KYC monitoring 
  • Manage PSD2-related PISP limits and reporting across all channels
  • Automatically expose bad actors in real-time and avoid Mastercard and Visa high-risk penalties

In the end, the economy will have a more digital and more robust credit and fraud monitoring environment post-COVID.  The scams, fraud and data smash and grabs taking place while people worry about the health crisis are going to be a wakeup call to many. Even major players succumbing to internal and merchant fraud.

The new use of advanced data science platforms is good for all players, but in the meantime, some who face difficulties will be best managed by early detection, just like the virus. Business partners must work together based on good data and early warning to avoid an epidemic of their own: lost data, lost customers, lost funds and especially lost reputation and operating capacity.

Cybertonica are in the business of helping businesses trade with Trust in Transaction and the new liquidity monitor will help limit damage to relationships, business performance and long-term viability.

About Cybertonica 

Cybertonica is an award-winning platform for the management of risk, AML, compliance and fraud detection. Through continuous authentication, friction is eliminated for legitimate users and payment agents while automation delivers huge efficiencies in managing fraud prevention. Cybertonica means no compromises on inclusion, risk, privacy or security.

Cybertonica has won numerous distinctions and awards since its product came to market, including the “Best Use of Payments Data Award” at Payments Association Awards 2018 and the “Best Data Analytics and Science Award” at Merchant Payments Ecosystem Awards 2018. Visit to join us and build the future of Trust in Transaction™.

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