MELANIE FULLER: Hi, everyone. We are very excited to be talking to you today and having a conversation about our Ethoca and Stripe partnership to help you avoid disputes and chargebacks. I lead product as the chief product officer for Ethoca. And Ishan, who are you? 

ISHAN VIRK: I am the PM for all of our disputes products here at Stripe, and I think many of you may have seen we’re investing quite a bit in trying to improve our disputes experience for our users. But for those who don’t know what a dispute is, sometimes called a chargeback, it happens when a cardholder questions a charge on their bank statement, they call their bank, and the bank immediately pulls the funds from the merchant’s account, which can often feel like digital shoplifting to a lot of our users. So it’s one of the fastest-growing pain points for our users, which is why we’re pretty excited to partner with Ethoca and Mastercard today to try to solve that problem. 

MELANIE FULLER: Awesome. So let me start by telling you a little bit about the state of chargebacks from Mastercard’s perspective. You know, I’ve been in this industry a long time, and I have heard many predictions about disputes and chargebacks disappearing. You know, tokenization came and everyone said, “Oh my gosh, there’s never going to be any more chargebacks.” What we actually see is that chargebacks continue to increase, and disputes continue to increase. 

And that’s really driven by a few things. One, ecommerce is increasing. And COVID was one of the main drivers of that, of course. That really tipped that even further than it already was trending. But also, the subscription economy is really having quite an impact on chargebacks. Globally, about 25% of all chargebacks are related to recurring transactions. And this is driven by the subscription economy. 

You know, here in the United States, the average US consumer has 10 subscriptions, which is, you know, really quite incredible. And you know, it’s funny if you ask somebody how many subscriptions they have, they typically can’t even name them all, right, at this point. I was just in Dubai, and an interesting statistic was quoted to me there by some of the banks, which is 97% of merchants there either have a subscription or are planning to launch a subscription in the next year. And this makes a lot of sense, right? If you’re a merchant, you want that recurring revenue stream. 

But subscriptions and recurring payments do overindex in chargebacks and disputes, right? When a customer either struggles to remember how they signed up, or where they signed up, or can’t cancel that. So chargebacks are here to stay. No matter how well we authenticate, no matter how much tokenization there is, there will be chargebacks. 

And first-party fraud is therefore here to stay. You know, customers are confused about what they’ve purchased. And, you know, I love the statistic that’s up on the screen that one in eight Americans admit to doing first-party fraud. I kind of hate sometimes that we call it fraud. There obviously are people with malintent out there who do fraud. However, I myself have filed a dispute that I later realized was not appropriate. 

I have two 20-something daughters. They do a lot of online shopping on my cards at times without my permission. And, you know, I have my group chat. I send them a text and say, “Hey, I don’t recognize this. What is this?” And they have insisted to me before that it definitely wasn’t them, only to find, you know, a week or two later, there’s a package on my front step from that very merchant. And so customers are confused. And we, frankly, in this ecosystem, haven’t done a lot to help them to recognize their transactions. And so customers are confused. Chargebacks are growing. 

And just a little bit more to put a fine point on this for you. You know, as much as I know merchants want to create loyalty and you want customers to visit your sites, the truth is they spend a lot more time in their digital banking app than on a typical merchant site. You know, that’s where they go to manage their finances, to see all of their different transactions. And so over half of consumers say that they’re going to go to the bank first when they have a problem. And oftentimes they’re not calling the merchant. And they find that to be more convenient. 

And again, it’s not because, you know, as a merchant, you’re not providing a good experience. It’s just that’s where they’re used to going. I came from, you know, the banking industry, and there, we would quote that a typical consumer goes into their banking app or gets an alert or engages with their banking app in some way 14 times a month. I mean, that’s a lot of engagement. So, that’s where they are.

ISHAN VIRK: Yeah. I mean, look, I don’t think disputes are inherently a bad thing. They create a lot of trust in the economy. They allow consumers to buy things online, sight unseen, and that obviously benefits merchants quite a bit, too. But where they get frustrating is when cardholders start to abuse that protection. This is because disputes are very expensive. But a part of the reason we’re seeing such a big rise in disputes today is because it’s become so easy to file one. 

It used to be that you’d have to call your issuer, wait on the phone, and then kind of sheepishly try to file a dispute. But now you just open up your banking app, a couple clicks, and the dispute’s filed. There are new third-party apps where they will cancel your subscriptions for you, but really they’re just filing disputes on your behalf. This causes a real pain to our users. Every dispute comes with a fee. There’s operational expenses on top of it. That’s real lost revenue. And if your dispute rate is too high, you can end up in network monitoring programs. 

So we really wanted to solve this problem. And while Radar does a phenomenal job of helping you prevent real fraud, transaction fraud—until now, it didn’t have much to help you with friendly fraud or even nonfraud disputes, for that matter, which for a lot of our merchants, make up half their dispute volume. 

And solving that problem requires a very different type of solution, where you have to connect the issuer, the merchant, and the cardholder all in real time, which is very much possible with some of the products that Ethoca has. So why don’t you tell us about the two things that you guys have launched in the past? 

MELANIE FULLER: Yeah. So one of the things that I’m most proud of with Ethoca is that we are truly a collaboration network. Our entire goal is to connect financial institutions to merchants to help merchants bring that information to the consumer. 

And if you think about what happens today, right—and we’ve described this a little bit—the purchase happens, the customer sees that transaction as they’re scrolling through their mobile app, they don’t recognize it, they don’t have a lot of information about it. If they call, the call center representative doesn’t have a lot more information than they do, frankly. And so what does the bank do? They file a dispute. They file a chargeback. It’s as simple as that. And at that point, the merchant has a few options. They can take on that risk of the chargeback, or they can dispute that chargeback, represent, and go through that whole very onerous, expensive process. 

So the first thing that Ethoca does is, we help customers recognize their transactions. So that in that situation that I described with my daughters, I would be able to actually know what they purchased. And this is what we do through our product called Consumer Clarity. So Consumer Clarity allows us, when that customer either calls or goes into their digital banking app, to—in real time—send a signal to Stripe and you to say, “Hey, will you give us more information about that transaction?” And we display it to the customer as a digital receipt. And if they call the call center, we would display it to that call center representative. So no matter where they go, they’re able to see what they purchased. 

Now I’ll give you a very tangible, very real example of how this works. So think about if you saw a Microsoft transaction. You think, “What the heck did I buy at Microsoft?” But if—well, you might not—but if you see that it says “Minecoin,” I think that’s what it’s called. 

ISHAN VIRK: Minecraft, actually. I’m sorry, that’s— 

MELANIE FULLER: Well, no, Minecoin bought for Minecraft—

ISHAN VIRK: Yeah.

MELANIE FULLER: —the coins—then you’d say, “Oh, my son is using Minecraft,” right? And that’s like such an obvious and simple example, but you don’t know, necessarily, even that Minecraft is owned by Microsoft if you’re a consumer. We might know that in this room, but the average consumer might not. 

And so being able to say, you know, “What did I actually buy? What is this?” A lot of merchants operate under different names, doing business as. So the more information we can give the consumer, the better. The other thing that’s really great about digital receipts is that we provide all of this information plus some to the call center representative. 

So while we have a really nice design for the consumer in their digital banking app, which is the digital receipt, we provide all of that information plus device name, transaction history—whatever it is that Stripe sends us, we will provide to that call center representative, so they can say things to the customer like, “Well, you know, we see that you’ve done other transactions with this merchant before. We see that you’ve purchased on this iPad before. We see that you purchased, you know, this cute pink top.” And that really automatically has a significant and immediate reduction in disputes. 

So I know you’ve been doing a little bit of piloting with this with your merchants. Tell us what you’ve seen. 

ISHAN VIRK: Yeah, we really saw this as kind of adding a speed bump to the dispute process. And, you know, we had a joint thesis when we started working together, that if you add a little bit of friction earlier in the dispute process, you can save on a lot of big consequences for the merchant later on. And so, in classic Stripe fashion, we tried to test that theory. 

And so we ran a very long pilot—almost a year long; I think it might still be running—where we added a couple hundred merchants into it and tried to send about 40 fields to the issuer. And this was everything from IP address, receipt, product information, merchant information, even the logo of the merchant—anything we could do to try to help the consumer recognize the charge. And what we found was that, on average, if a merchant doesn’t do anything to update their integration with Stripe, they would see about a 1 to 4% reduction in dispute rates. 

Now, in verticals where purchase confusion is more common, we saw more significant results. If you were willing to actually update your integration and kind of max out those 40 fields, again, you saw higher results. But I think one point that kind of gets lost with merchants is if you make the cardholder recognize a charge, the dispute’s never filed. So you save the dispute fee, no lost revenue, the dispute rate doesn’t go up at all. And I think these tools are just getting stronger and more powerful over time as networks are launching things to help you. 

I think Visa has something called Compelling Evidence 3.0. Mastercard has something called First-Party Trust. And these programs are built into these predispute technologies, where all the merchant has to do is prove that at the time of the lookup, if you can prove that you have a prior relationship with the cardholder, then the issuer actually has to block the dispute, regardless if the consumer recognizes it or not. And it’s almost a form of liability shift. 

And once that becomes a very real thing, then I think this product is kind of a no-brainer for every user at Stripe because there is no downside, only cost savings. 

MELANIE FULLER: Yeah. I like two things that you said that I just want to kind of put a fine point on. What we’re seeing at Ethoca is that the banks that we work with are putting the digital receipt as a speed bump—and you use that word, speed bump—in their digital dispute flow. 

So they’re literally saying to the customer: “Is this you?” And they’re forcing—maybe that’s the wrong word, but they’re having their customer, you know, look at the receipt and say, “No, that wasn’t me.” And we’re seeing an immediate drop-off with customers coming out of that dispute flow at that speed bump. So that’s really powerful. 

The other thing that you said that I want to, you know, kind of put a fine point on is, you know, all of this information is exactly the same information that does help with our First-Party Trust product. So it allows you—you know, you’ve already provided the information for the digital receipt. If it does happen that later they file a dispute, we now at Mastercard and Ethoca have all the information we need to help make the determination that you’ve done everything right. You did all the right authentication. You’ve got that IP address. You’ve done everything you can do. And therefore, we’re able to shift the liability back to the issuer. And so that’s obviously money not coming out of your pocket. 

ISHAN VIRK: So what about when the speed bumps are not enough, and you need the traffic light or something more powerful? 

MELANIE FULLER: Yeah. So that’s a great question. Let’s talk about really where Ethoca started. So Ethoca started with our Alerts product. And that’s exactly right. Sometimes the receipt isn’t enough. And all of that information—you can talk to the customer, you can tell them their device name, you can tell them everything that you know about that transaction, and they’re still going to decide that they want to proceed with a dispute. And that’s where our Alerts product comes in. 

The Alert allows us to take a signal from the bank and send it directly to you through Stripe before that chargeback gets filed. And because of that, you’re able to take action. And so there’s a few actions available to you when this happens. So, the bank sends us that signal. They send it to us very, very early, oftentimes when the transaction’s still pending. Because of that, you have one option you can do, is actually reverse authorization. And then it’s literally like it never happened. You have no dispute, no chargeback. 

The other option you have, is that if you are a physical goods merchant and you’re shipping something to the customer, you can stop the shipment. And then you also have the option to refund. And all of those options allow you to prevent that dispute or chargeback. But it’s really about giving you control. So as the merchant, this then puts the decision-making in your hands. 

So let’s say you provide services to customers. And you’ve already provided that service. And you know that they should be paying that bill. Well, now you can still make the decision to allow that chargeback to go through. You absolutely can make that decision if that’s the right decision for your business. But it gives you optionality, and it allows you to reduce operational expenses on the backend with chargebacks, if you want. It allows you to save the cost of merchandise and goods sold and shipped. And it reduces your dispute and chargeback rate. 

ISHAN VIRK: All right. And I think maybe the three types of users where this is probably the most helpful is, first, anybody for whom the unit economics makes sense. So if you’ve got a low average order value but a high margin, then in many cases, actually fighting the dispute and getting the fee, that doesn’t make sense. It’s much easier for you to just resolve the dispute and refund it much quicker. That saves you on your dispute fees. It makes your customer experience much better. And these usually happen to be subscription merchants or merchants selling digital goods. 

But the second type of merchant where it’s very helpful is anybody with a very high dispute rate. So if you have a high dispute rate for a very long time, you’ll end up in a network monitoring program. And these programs have very hefty fines, they have operational constraints, and they can even lead to loss of privileges. So, you can lose liability shift on 3DS. And if your dispute rate stays elevated for too long, you actually are stopped from processing payments anymore on that network. So, for those types of merchants, this product is honestly a bit of a silver bullet, because any dispute you refund doesn’t count towards your dispute rate. 

And the third type of user—and candidly, I didn’t appreciate this was a use case until recently—is anybody selling physical goods. Because if you can get an Alert early enough and you haven’t yet fulfilled your order, you can actually cancel the fulfillment, resolve the dispute, and save on the cost of goods sold. But obviously, this last case is very much dependent on the speed of the Alert. So maybe could you tell us a bit about how fast these come in? 

MELANIE FULLER: Yeah. So this is something we’re really, really proud of, that we think distinguishes Ethoca in the marketplace, is we have literally thousands of banks on all networks that are sending us those Alerts literally the moment the customer even thinks about filing a dispute. So long before it’s even gone into, you know, the chargeback system at any network—so we have American Express, Discover, JCB out of Japan, Visa, Mastercard Alerts—all of those banks, regardless of the network that they’re processing on, they’re sending us those signals very, very quickly. And as a result of that, 15 to 20% of the time, that merchant is able to stop the shipment of goods. And that’s a really, really big deal. 

ISHAN VIRK: Melanie, I guess it’s not just speed. It also matters what kind of issuer coverage you have, so that you know that all of my disputes across my transactions will have them. What’s your current issuer coverage and how is that growing? 

MELANIE FULLER: Well, this is a case where size does matter. So we have significant coverage. I said that to make him laugh. We have significant coverage across 11,000-plus financial institutions globally. So from the smallest community bank and credit union to the largest banks across almost every country on the globe, they’re sending us these signals. 

And it’s because of that coverage that we are able to cover so many different networks and have such strong coverage, and really have, you know, the product really works as strongly as possible. 

ISHAN VIRK: What about auth rates? Anything else there that you can improve? 

MELANIE FULLER: Yeah. So I think sometimes for small businesses and merchants, this can be a little bit of, like, a hard connection to make. But when you use Alerts, you will see your authorization rates increase. And what we typically see is for Alerts customers, merchants, who refund regularly, you’ll see a 2 to 4% increase in authorization rates. That is literally money in your pocket and revenue to your bottom line.

And you might ask, OK, why is that or how does that work? Well, when you’re sitting at the bank, right? Imagine you’re sitting at the bank and you’re trying to make decisions about what transactions to authorize and what transactions to decline. A big part of that is, “Is this a risky merchant? Is this a good merchant? Can I trust this merchant to take care of their customer?” 

And so if you’re a bank, you’re looking at the history of transactions of that merchant, whatever history you have as that bank, and you’re making those decisions. And so if you see a merchant with a high—or even, you know, higher-than-others in their category—dispute rate or chargeback rate, that is one of the things that’s going to go into that equation. 

So over time, really about after 90 days or so of using Alerts, you will see a 2 to 4% increase in authorization rates typically. 

ISHAN VIRK: So even if a merchant’s not in a network monitoring program yet, but they have a high dispute rate close to it, the threshold that these networks define, even then they can be penalized for not having a low enough dispute rate. 

MELANIE FULLER: That’s right. That’s right. Because banks are making the best decision for them and for their customers. Right? If you’re a bank, your job is to protect your customer. And so you’re trying to do the best thing you can do to authorize and decline the appropriate transactions. And the merchant’s chargeback and dispute rate is a piece of that equation. 

ISHAN VIRK: Makes sense. 

MELANIE FULLER: Yeah. 

ISHAN VIRK: Maybe I can tell you how about we’re actually integrating with Ethoca and making this available to all Stripe users. Obviously we’re not the first provider to integrate with Ethoca, but we really wanted our offering to be a little bit different and true to Stripe’s product philosophy, which is, make it dead simple and make it self-serve. And that really started with our onboarding process. 

So very soon, all merchants at Stripe will be able to log in to their Dashboard and pretty much toggle on Deflection and Resolution. There’ll be no integration required, zero engineering time. And the reason behind that is, since you’re already integrated into Stripe, we can make use of the data that we have, and any time an issuer asks for further information, we can send that to them. Obviously, you can update your integration with Stripe, make it healthier, send more data, and that will lead to better performance, but Deflection should just work out of the box. 

But maybe where I’m even more excited, honestly, is how we handled Resolution, because instead of having merchants manually review every single Alert, make a decision on “Should I refund it, should I not,” and spend more opex, we decided to build this on top of an interface that users are already familiar with, which is Radar. So as of last week, we added support for a brand new rule type called Resolution Rules, which will allow you to automate which disputes you want to refund. 

So you can imagine doing things like hit “Resolve all my disputes,” or if you’re cost-conscious, just resolve the ones that are below a certain dollar amount. If you’re worried about a specific network, you can say just Visa or Mastercard. So we support eight attributes today. And you can mix and match between them for as much control as you want. But because this thing was built natively in Radar, it is very simple for us to, and fast for us, to add support for new attributes. So I would love to be able to do things in the future where we can say, “Hey, was this transaction 3DS’ed?” Or, “Is this a repeat dispute offender?” 

And where things get very interesting is when you can look at, “Hey, what’s my likelihood of winning this dispute?” And things will start to scale if you combine that with something like Smart Disputes, which we announced yesterday, where hopefully when you come to Stripe, you don’t even have to write a rule. What we could do is figure out the most cost-effective and intelligent way to resolve the disputes that you’re not going to win, and they’re hopefully cheaper, and then escalate the ones that you can win and hopefully win them with Smart Disputes. And that way, you’re maximizing your revenue retention but minimizing your dispute rate. 

But that’s more future stuff. In the meantime, what we did build, the last thing, was analytics specifically for prevention so that you can see the ROI you’re getting from the product. You can see what your dispute rate reduction has been, the number of lookups you’re getting, the blocks you’re getting. And per rule, we’ve added performance metrics so you can understand: “Is this rule helping me, or is it kind of leading to more revenue loss?” And you can make more educated decisions on how to update these rules. 

But this is very much just the start. I think we have a long road ahead, a lot of investment, and a lot of partnership to get to a point where merchants can truly take their hands off the wheel when it comes to disputes and just focus on what they do best, which is growing their business. 

MELANIE FULLER: Yeah, I can’t, I really can’t wait. Ishan and I were talking about the fact that there’s so much more that we want to do together, and hopefully we’ll be back here next year talking about even new and more innovative things to help merchants. 

But really the bottom line of it is, you can’t go wrong. I mean, just both of these products, Consumer Clarity and Ethoca Alerts, are no-brainers for your business. They empower consumers to recognize their transactions. That’s a no-brainer. That stops disputes. But then, if they are about to dispute, we allow you to have control and take ownership of that and make a decision about what’s best for your business and your business model. Thank you so much. 

ISHAN VIRK: Yeah. Thank you. 

MELANIE FULLER: Thank you for your partnership. 

ISHAN VIRK: Thanks, Melanie. 

MELANIE FULLER: It’s been so much fun working with you. 

ISHAN VIRK: Yeah. You, too. 

MELANIE FULLER: Thanks, everyone.