The lighthouse of Genoa at night; a ship and three men in the foreground by H. Merke (1800).

3 Fintech New Stories

#1: Plaid Joins Beacon

What happened?

Plaid, which launched a fraud data consortium called Beacon last year, is adding some additional insights:

Plaid is now extending Beacon’s capabilities by enabling companies to analyze their Plaid-linked accounts for fraud indicators. By leveraging the vast Plaid network, participants gain unique insights that can significantly improve their existing fraud prevention models.

Once a user links their account to a company via Plaid, Beacon can provide that company with 40+ insights about the linked account … Customers can evaluate these insights to determine the likelihood of downstream fraud. 

For example, analysis for a neobank showed a 65x higher risk of unauthorized returns when three or more browsers linked the account to other Plaid apps within a week.

So what?     

The value of a data-sharing consortium is directly proportional to the number of participants that are sharing data in that consortium.

Over the last year, Plaid has (by my estimation) roughly doubled the number of participants in Beacon, from 10 to 20. Most are fintech companies (as you might expect), but there are a couple of traditional financial institutions, which is extremely smart (and a growth vector that Plaid should pursue aggressively). Early Warning Services (EWS) doesn’t allow non-banks to participate in its fraud data-sharing consortium, which is one of its biggest competitive vulnerabilities.

Like many data-sharing consortiums, Beacon is give-to-get. You can only access the consortium’s data if you also share data.

With this announcement, Plaid is supercharging the consortium’s value by adding 40+ fraud insights from its own network (which is primarily made up of consumer-permissioned bank account data). These additional insights can only be accessed by Beacon members, which is an interesting strategy for overcoming the cold start problem inherent in any network business.

(A quick note for you 1033 nerds out there – the 40+ insights are only available to the company that is working directly with the end consumer and has acquired their permission. Because that permission explicitly encompasses this use of the data, it is not considered secondary data and is not subject to secondary data use restrictions. The data in Beacon is not bank data nor data from the Plaid network, so secondary data use restrictions [or any other restrictions under 1033] do not apply.)       

#2: Rewards Optimization!

What happened?

Google is introducing a neat feature:

Google is adding the ability to see what shopping rewards and savings options you have on your saved credit cards as you check out using Google Pay. The feature is out today on select cards from American Express and Capital One, and it’s coming to more cards in the future.

You can see the benefits during checkout when prompted to enter a card number. A drop-down menu appears showing your card options along with a new description of benefits, like the percentage of cash back you get or what your point multiplier is for certain categories like travel. For now, this feature is only available when using Chrome on the desktop.

So what?     

Last week, I wrote about Kudos (a startup focused on helping consumer maximize their credit card rewards), Visa’s new flexible credential, and the automation of optimal credit card usage. In my write-up, I wondered if these innovations could make credit card reward programs, as they are currently designed, unsustainable:

If you don’t need to be a spreadsheet-wielding fanatic in order to reap the maximum benefits provided by rewards credit cards, how will the issuers of those cards be able to continue offering them at their current levels?

Credit card rewards are a benefit that depends on a certain amount of breakage and sub-optimal use. If you change that, issuers will respond.    

This feature from Google would seem to further amp up the pressure on credit card issuers, although, for the moment, it is only available for Capital One and American Express cards.

(BTW – does anyone happen to know the mechanics of how this Google Pay feature works? And why they decided to start with AmEx and Cap One?)

#3: The Worst Idea For Stopping Scams

What happened?

Revolut, which has been struggling for years to obtain a UK banking license and whose customers have been getting absolutely inundated with payment scams lately, has instituted a new policy:

The banking app, which is not a licensed bank, is asking suspected fraud victims to take selfies while holding up a piece of paper that says they understand they are “unlikely” to get their money back.

The app requires customers to go through the security checks when it suspects they could be the victim of a scam.

It uses this intervention, Revolut said, to “break the spell” of a potential scammer.

But the selfies were described as “horrible” and “like hostage photos” by solicitors who represented scam victims. 

So what?

I get it.

It’s frustrating to get raked over the coals by regulators and consumer advocates regarding payment scams while, at the same time, being ignored by your customers when you warn them that they are about to have their money stolen.

But come on, guys, this is not the way!

Just game out the different scenarios at play:

A.) Our sophisticated scam detection technology was correct, but the customer ignored us after taking the selfie, and they lost their money. Now they’re out the money, embarrassed by the selfie, and initiating a dispute regarding the transaction.

B.) Our sophisticated scam detection technology was correct, and the customer decided not to send the money after taking the selfie, but they’re still not sure the transaction wasn’t legitimate, and they’re embarrassed by the selfie.

C.) Our sophisticated scam detection technology was incorrect, and the customer decided not to send the money after taking the selfie. Now they’re mad about being inconvenienced and they’re embarrassed by the selfie.

D.) Our sophisticated scam detection technology was incorrect, but the customer ignored us after taking the selfie and sent the money. Now they don’t trust our ability to keep them safe, and they’re embarrassed by the selfie.

If you’re 100% confident in your ability to detect scams, just block the payment. If you’re not, then run them through the standard warnings and let it go through.

Making your customers feel like idiots isn’t a good strategy, under any circumstance.

2 Fintech Content Recommendations

#1: This is NOT Fraud Advice (by Footprint) 📚

I’ve really been enjoying this new series from Eli and the team at Footprint. The first three editions cover the basics of how wire transfer fraud, chargeback fraud, and account takeover fraud work. 

#2: The opportunity behind Square Banking (by Jevgenijs Kazanins, Popular Fintech) 📚

A thing I really like about Jev is that he writes Popular Fintech (his wonderful newsletter) in order to better understand topics or companies that he is puzzled about, rather than to show off. This makes his research (which is incredibly data-rich) and writing (always clear and concise) unusually honest.

This article on Square’s banking business is a great example.

1 Question to Ponder

How do the mechanics of Google Pay’s new credit card rewards feature work? Why did Google decide to start with AmEx and Cap One?

I know I’m repeating myself here, but I really am curious.

Alex Johnson
Alex Johnson
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