Hayden: Welcome to this episode of Cents Chat with Jason and Hayden. Let's jump right in and make payments make sense. Jason, welcome back to the studio for another Wednesday recording session. It was a fun Memorial Day weekend. I assume you had an amazing time out in Newport.

Jason: Beaches were beautiful, and it was super nice to have some bars and restaurants open. It's nice to see the world getting back to some semblance of normalcy.

Hayden: Yeah, I was not in California, but out in Arizona, the restaurants and bars were also opening up. So that's a great sign that the United States is finally reopening.

Jason: Yeah, definitely great for our retail merchants. And I was excited to hear that the state of California allowed salons to open back up yesterday. So maybe you can do something with that obnoxious head of hair you have going on now.

Hayden: Yeah, God knows I need a haircut. Let's jump into today's stories. Freezing fraud follow-up. You asked for more ideas, and we're happy to oblige. Followed by real-time remittance, a trend that's here to stay. And last, portfolio optimization with our guest Jim Battista, who explains how MAPP Advisors is helping combat the COVID crunch.

On our May 13th episode, we talked about the delicate balance between preventing consumer inconvenience while protecting against fraudulent transactions as the everyday consumer rapidly shifted to an online environment to fulfill their shopping needs. We received several requests from ISVs to go into more detail on how they can better protect their merchants.

Jason: Yeah, Hayden, it was actually super awesome to see how concerned some of the ISVs were about their merchants, especially the ones that had to make a rapid transition to e-commerce and card-not-present to support their retail merchants in a COVID world. I think they all realized that preventable fraudulent chargebacks hit merchants even harder now than they did before.

And with omnichannel officially here to stay, even for traditionally retail merchants, they're looking for ways to enhance their solutions to better protect their merchants.

Hayden: Well, in the first quarter of this year, nearly 25% of all transactions around the world were fraud attempts. So, Jason, why don't you give these ISVs some more ammo to protect their merchants?

Jason: I would love to, Hayden. I'll cover four topics that I think are very easy to implement, solutions that any ISV can build regardless of their payment processing partner.

The first one is super simple, and it's protecting against dual accounts. Most fraudulent transactions utilize multiple accounts that have the same types of credentials. In other words, they're using the same email address, the same mobile number. Or one of the most common themes I see is that they're utilizing a free email service that has a really cool feature that fraudsters often exploit. That feature is that you can add a plus to the end of your email address and put anything you want. So for example, jasonker+test@gmail.com, and that email will actually land in my inbox. Filtering that out will stop a ton of fraud.

Second, preventing card testing. This doesn't necessarily hit the merchant with fraud directly, but it results in an authorization charge and allows fraudsters to test cards to see if they're good. The way this most commonly is performed is when a payment page provides an option to store the credit card before the transaction is completed. In most cases, the ISV will do an account verification on the card to see if the card is good. This basically tells the fraudster whether or not they have a live card number. The solution is don't attempt to tokenize the card until after the final transaction has been completed for the full purchase amount.

Third, monitor for account takeovers. We've talked in many episodes about how so many people use the same passwords for multiple websites. When these passwords are leaked, it allows fraudsters to use those stolen password databases to log into merchants' websites as a consumer. If that consumer has a tokenized card, they'll often change the shipping address, use that card on file, and make fraudulent purchases for products and services. The solution is anytime you see somebody logging into an account that hasn't been used frequently, send them an email or an SMS to confirm that it's actually the user you think it is.

And lastly, if your payment processor or payment partner supports 3D Secure or SecureCode, use it. It's a tool that allows you to send the transactional details to the issuing bank prior to the transaction being completed. And if the issuing bank participates in these programs, not only does it help prevent fraud, but the merchant actually gets a liability shift where the transaction can't be charged back for fraud.

Hayden: One ISV in particular talked about experiencing a fraud challenge with merchants that are offering contactless delivery. But how can a merchant protect themselves when they're just dropping a package at a door while having absolutely no contact with the consumer?

Jason: Hayden, this is a new use case that we haven't seen pop up as prevalently in the past. And I think there are a couple things that ISVs can do.

First, a common thing that fraudsters will do is have packages shipped to construction sites, new home developments, or vacant buildings. So if you're showing up to drop off a package and it doesn't look like the residence is inhabited, don't leave it.

Secondly, if it is an apartment building or an office building, make sure the suite number or apartment number is clearly listed in the address line two field of the transaction.

And lastly, take photos of the packages that you leave. So if it is charged back for the product wasn't delivered, you have proof that the driver actually dropped the package off to the consumer.

Hayden: Well, Jason, on the topic of delivery, it seems that real-time remittance platforms are gaining a ton of ground due to the COVID crisis. And based on a recent survey of the working class that Visa conducted, 44% had less than $500 saved for unexpected expenses. With more and more workers scrambling for jobs, waiting two weeks to get paid prevents them from putting gas in their car or potentially groceries on the tables for their families.

Jason: Yeah, Hayden, it's super exciting to see how some of the direct-to-card programs are being adapted to solve this modern-day crisis. Products like Visa Direct and Mastercard Send have been around for years. In fact, they're popular in many peer-to-peer payment applications like Venmo and micro-merchant solutions like Square, where you can instantly transfer the funds you have in your Venmo account or Square account to your bank account using your Visa or Mastercard debit card.

Uber actually built this into their application some time ago so that drivers could cash out daily and have the money deposited into their account in real time. It's nice to see that more of the remittance industry is starting to move in this direction and enable workers to get their funds in real time.

Hayden: Jason, on top of that, according to Visa studies, if a worker is distracted by personal stressors, personal finance being the largest stressor, it also affects the business itself. In that same study, it showed that roughly 33% of workers spend more than four hours a week thinking about their personal finances, and that will dramatically affect the flow of a workplace.

Jason: Yeah, Hayden, let's be honest. Finances are a big part of quality of life. And if employers can do things that enhance the quality of life of their employees, the business is going to benefit from that drastically. It's kind of like the saying, happy wife, happy life. If you have happy employees, you're going to have happier customers.

Visa's earned wage access solution is helping bring this traditional service to payroll. Companies like DailyPay, FlexWage, and Payactiv are allowing traditional W-2 employees to get access to their wages in real time between payroll periods. As the payments landscape continues to evolve and there are more and more gig workers and marketplace-type solutions, I think how quickly the worker can get their money is going to be a key differentiator in who the winners in those industries are.

ISVs that are building tech solutions that support micro-merchants need to make sure they're working with a payments partner that not only has a rich payments acceptance solution, but is also focusing on the latest in payments remittance solutions.

Hayden: All right, Jason, taking this conversation all the way to the top of the payments ecosystem, it is not just the frontline workers that have to adjust, but also the third-party payment providers and ISOs. We are very excited to have Jim Battista from MAPP Advisors joining us today.

Jason: Hayden, that's absolutely right. And it's an honor and privilege to have Jim on with us. Jim is probably one of the most knowledgeable people I know in the industry and somebody that I've had the privilege and honor of collaborating with on several projects. Jim, why don't you tell us a little bit about yourself, MAPP Advisors, and your experience in the industry?

Jim Battista: Well, thanks, Hayden, and thanks, Jason. It's great to be on with you, and thank you for the opportunity.

I've been in the payments industry for a long time, about 25 years. On the founding side for about 15 years, I created two companies: one e-commerce company and one gift loyalty card company. Both did very well and grew to over 25,000 clients each. After the second exit, I started to work on the consulting side.

I have owned my own boutique consulting firm for a number of years and then founded MAPP Advisors in 2014. This will be our seventh year. We are very, very knowledgeable about what's going on in payments. We've seen it evolve a lot, obviously, over the last five years with SaaS and fintech and all the new technology that's come about. And then, of course, COVID-19 came along here three months ago and really threw payments for a loop.

So it's been an interesting time in payments. It always has been, but it's more interesting now than it's ever been.

Hayden: Yeah, of course. So, Jim, I understand that as a result of COVID-19, portfolio optimization projects are on the rise. What is portfolio optimization? And as an expert in the space, why is it more important than ever?

Jim Battista: Yeah, thanks, Hayden. Let me answer that by first going back to recap what's happened, because there's a lot of misinformation and a lot of different experiences of what's happened to a lot of the payments providers here in the last 90 days.

Obviously, transactions are down for most. We've probably looked at over about 50 portfolios in the last 30 to 45 days. I would say only three or four portfolios out of those 50 have shown an increase. Those portfolios are more e-commerce and well-balanced, not typically in one vertical, as some of the verticals out there have been hit hard.

If you look at payments as a whole, just in April, I think the average portfolio that we calculated was down somewhere around 55%. In the payments industry, residuals have become one of the things that you could always depend on. And no one ever contemplated that their residuals would take a significant hit of more than 5% or 10%, let alone 55%.

So what COVID-19 has done really is have every business re-examine their business model. Payments is no different outside of the things that people are doing as it relates to trying to serve their merchants.

A lot of the payments providers are trying to find ways to improve their profitability. One of the ways to do that is portfolio optimization. In simplest terms, portfolio optimization is not a price increase. It's not adding any additional cost to the merchants. In today's world, one of the things that we all have to be conscious of is making sure that the merchants, if you can, reduce their cost or certainly don't increase the cost. Help the merchants be successful.

What we do with portfolio optimization is really work with our clients to help them make sure that their transactions, their processing, their contracts, and everything related to what comprises their residual dollars is as efficient as possible. From their perspective, they can make the most money out of it and have the most transparency and control of it.

It's become very, very common because of the growth that's happened over the last number of years that there hasn't been a tremendous amount of research and focus put on making sure that every payment processor is reviewing every cost, making sure transactions are routed most effectively, tying out all the bottom lines, looking at their contracts, looking at how they route all the transactions, and making sure it is as efficient as possible so they can keep their cost to a minimum while still providing the best service they can to the merchants.

In today's world, even with the reduction in residuals, they don't have to pass on any additional cost to the merchants. And as Jason pointed out earlier in the conversation, we've worked with Jason on a number of engagements. I'm sure Jason can talk about some of the details of it and talk about certain categories that we focus on. It's a very transparent exercise for every client that we engage with.

Hayden: Awesome. Well, Jason, I know as Jim said, you two have worked together on a ton of portfolio optimization projects, but how does this differ from the traditional interchange optimization projects that most ISOs have already heard about?

Jason: Yeah, great question, Hayden. Jim and I have certainly collaborated on a plethora of these. And it was really a breath of fresh air when Jim approached me with his philosophy on how he goes about these portfolio optimization projects.

I've seen way too many groups out there that really focus on interchange optimization, which, like Jim mentioned, is increasing fees to the merchant to make the ISO more profitable, or hurting their sales force and increasing the cost to their agents.

Jim's strategy looks at six key areas: vendors, technology, interchange and network fees, how merchants are billed, how agents are commissioned, and what opportunities there are for new revenue streams.

Where our relationship has been very symbiotic is the amount of experience that our group has on the technical side of things. We've integrated to just about every processor that exists. We've integrated directly to the card networks, and we work with these systems day in and day out.

It's really important to remember that the card networks are the ones who make a lot of the rules responsible for assessing different fees, surcharges, interchange, compliance, and data integrity fees. That's where all of the details lie. For most ISOs or third-party payment providers, those details are masked by the processors. Unless they've gone all the way down the rabbit hole before, they don't know what they don't know.

That's where our group has been able to really work with Jim and help enhance his portfolio optimization product: the deep technical understanding, the vast amount of data that we have aggregated in working on these projects, and having a good semblance for the data points you can turn to make a big impact.

The other big piece of it that we've really been able to add a lot to the process is on new revenue streams. Being at the forefront of technology, working directly with the card networks, we're always seeing new products, new solutions, and new opportunities to create more value for the merchants and the supply chain, and thus produce new revenue streams.

Hayden: Jim, question for you. If you're a bank or an ISO that is looking to optimize their portfolio, what advice do you have for them in engaging a vendor and what should they expect from the process?

Jim Battista: The way I think the process should run, which is the way we run it, is very transparent and educational. We're not trying to keep the secret sauce away from everyone. We engage with our clients, we educate our clients, and we look at this as a long-term relationship.

The information is changing so quickly. It's unfair to think that one or two people in an organization, no matter how well educated they are, can understand all the constantly changing variables out there. We employ a great team that's not only being educated all the time, but also has the experience of seeing all these different projects.

To be at the top of your game in this process and in this product that we offer, you really have to have that experience. If someone is considering this, they should look at a few things.

Number one: will the provider be transparent? When we do an analysis, we take four or six weeks, sometimes up to eight weeks, to go through all the data. Then we will sit down with the client and list everything that we believe can be improved. Again, it's not our decision what to do. It's the client's decision. They make the decision on what they want to move forward with and what they want to focus on.

It's an educational process, and it's all up to the client to make the decision on what they want to focus on, what they want to prioritize, and what they want to implement. I think that alone is different than anyone else in the industry.

Once you have that process take place, there's a real trust that develops between us and the client. Anyone that engages with any bank or any payment processor should have that trust because it's a very sensitive area, and it's got to be done correctly and with a lot of thought to make sure the results you're looking for are achieved and to make sure everyone is educated on what the result is going to be and what the timeliness of that result looks like.

Sometimes people have the misconception that you're going to walk in there for a week or two and have an effect on the residual by early next month. That's not the process, and that's not how it should work. If you're looking for a long-term gain and you're looking for that education and experience, you really have to give it the time and go through the process to achieve the results you want.

The other thing I would say, Hayden, is that there should be a pricing structure that aligns everyone's interests. There is obviously a cost for bringing all these talented people to look at all this information and do that first set of analysis. So there will be a retainer or fees up front to pay for that. But really at the end of the day, everyone should be aligned on success.

When any bank or processor is looking to engage in these types of agreements, they should think in terms of that kind of structure that aligns everyone's interests. I think those are the key important points to think through and demand from their partner when they consider this type of process.

Hayden: Jim, those are some great insights. And thank you for joining us on this episode of Cents Chat. Now, Jason, I think you know what time it is. Give me those takeaways.

Jason: ISVs, it's your time to shine by preventing fraud for your new card-not-present channels. Supply chain, the game is changing. And if you're not developing remittance solutions to complement your acceptance solutions, you're behind the game. ISOs, we've all had to adapt to this new economy, and you need to find a partner to help you optimize your portfolio and maximize your revenue.

Hayden: Thanks for joining us today. And if you've got a topic you would like us to discuss, follow and message us on social media at Cents Chat. And as always, we would love your feedback. Hayden out.