Kill Bill, one of the ten winners of the Money20/20 Hackathon

Kill Bill, one of the ten winners of the Money20/20 Hackathon

We just came back from Vegas and we’re pleased to announce that we were one of the ten winners of the Money20/20 Hackathon!

As you may recall, we were quite excited about all the proposed challenges, since the Kill Bill platform was a great fit for pretty much all of them. We finally decided to go with Feedzai, and work on fraud detection. Antonio, who flew from Lisbon for the event, was very helpful in explaining how Feedzai’s machine learning algorithms work behind the scenes, and how they leverage data from the entire ecosystem, from banks to merchants, to fight the bad guys.

For our hackathon project, we decided to tell the story about Pedro, a Yerba Maté enthusiast, who runs a subscription-based online forum on the topic. He is quickly facing fraud though, as people are using his sign-up flow to test stolen credit cards. Fraudsters, who have databases of credit cards and want to sell them to other fraud rings, need to determine which ones are still valid: these sell at a much higher price on the black market. One way to do it is to sign-up to online services, which authorize then void the credit card before storing it for recurring payments. This is quite costly for him, because he has to pay for each authorization as well as potential chargebacks down the line (because fraudsters don’t bother canceling the subscription when it goes through).

In our demo, we show how we can leverage both Feedzai and cash-based payment methods on top of the Kill Bill platform, to prevent fraud, while mitigating the risk of blocking legitimate users. And because of the predominance of such alternative payment methods today, the proposed changes in the checkout flow add only an acceptable amount of friction.

Of the five global regions, Latin America has the fastest growing internet population, increasing 12 percent in the past year to more than 147 million unique visitors in March 2013. Demand for online payments is huge. Support for local debit and credit cards is poor however and because of the high proportion of under- and unbanked (35% unbanked in Colombia), most shoppers in LatAm have to rely on cash-based payment methods, such as the Boleto. These payment methods became quite sophisticated over the years and even attractive: costs and risks for merchants are reduced (no chargeback) and shoppers have the ability to pay at any time, in their own neighborhood: one simply has to print a barcode from the website and go to the corner shop next door to pay with cash at the register. The merchant is notified behind the scenes of the payment, and the receipt from the shop becomes the proof of entitlement (e.g. bus ticket).

Because fraud is still predominant in credit card transactions, simply using a risk management provider, such as Feedzai, to block sign-ups for online subscription services can potentially lead to a loss in revenue because of false positive transactions. Instead, when Kill Bill receives a suspicious score from Feedzai (before attempting the authorization), we change the checkout flow on the fly and prompt the user for a cash-based payment method (Boleto, Bitcoin, etc.). This payment method will be used for the first month of the subscription and Kill Bill will revert to the credit card for subsequent billing periods. This will essentially prevent fraudsters from abusing the website (the cost of using an alternative payment method is too high).

This technique works well in LatAm because people are already used to this way of paying. Would it work in the US or would it add too much friction? We assume the latter, Pedro would simply absorb the cost of fraud instead (Amazon model, which doesn’t require CVV). Even though 25% of US households (30 millions) are underbanked and don’t have a credit or debit card, cash-based payment methods never took off. However, with the rise of mobile payments, maybe Bitcoin could be used one day the same way as a fraud mitigation tool?

In a nutshell, we had a blast at the Money20/20 Hackathon, kudos to the organizers and the Feedzai team to sponsor it! And going beyond the scope of our demo, Feedzai is now natively supported in Kill Bill, via the Kill Bill Feedzai plugin. Go get it to fight the bad guys!

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