Fraud Countermeasures and AI-Driven Services
Fraudulent charges are a thorn to any payment provider. However, blockchain once again looks to disrupt this space. It will do so by enabling all merchants the ability to confirm purchases via the government ID. As there are no longer intermediaries and payments are wallet to wallet merchant’s will bear the full burden of proving whether a purchase is valid or not.
For smaller merchandise a simple QR code scan or swipe of a credit card would suffice but for larger purchases additional confirmation of identity may be required. Point of sale systems whether online for e-commerce or in store would then require the authentication of a user.
However, some may wish for more protection and creditors, through the use of their own credit asset blockchain, would be able to provide. This is where legacy payment providers such as Visa and Mastercard stand to re-invent themselves as AI service providers.
Fraud detection, like today, would involve AI systems but instead use the various credit asset’s blockchain as a basis for running operations. Every 5 seconds or when the blockchain settles, the transaction information would be sent through AI models which would flag potential fraud. It would be at this point that the brand’s mobile application, email or text would be needed to confirm the transaction. The managed service, though, could still be Visa or Mastercard behind the scenes.
Additionally, through a blockchain feature known as asset clawback, credit brands would have the ability to remove from a merchant’s wallet a transaction amount and place it back with a consumer after the point of sale. This further incentivizes merchants to use the government ID to fact check whether a purchase was indeed real. It also further highlights the criticality of a government ID’s ability to confirm authenticity.
In both cases, AI would be able to proactively ask for confirmation of transaction as well as initiating a clawback of assets. However, both would be separate products or functions of a crediting organization.
Visa or Mastercard would be in the business of supporting as many creditor blockchains as possible as their AI models would now be components. No matter which blockchain, they would still be sniffing transactions. Creditors could also build this functionality themselves but because operating expenses are now more crucial than ever, the question would be how soon could the return on investment be yielded and will it be a lowered operating expense once implemented? Looking to government bounties, this again would be an area where open source initiatives look to lower the cost of protection for all as brand’s vie lowering managed service providers.
Asset clawbacks would also be an operations question. Each clawback could be done manually by customer support agents or anyone in the company. AI would be implemented here to make the process self-service and reduce bogged down support staff.
Regardless, both aspects of the service represent an ongoing expense to the creditor’s fee structure which will impact their interest rates back to merchants and investors. Although a creditor’s blockchain may yield lower interest rates than a competitor, knowing that AI fraud detection is a feature may make them feel more secure holding the asset. Consumers also wanting more protection would drive a creditor’s asset’s popularity. Although it may not yield as high it would still, eventually, be more revenue to the merchant regardless.
The most prevalent disruption in this arena, though, comes from banking insurance companies becoming redundant. Thanks to authentication of purchases and asset clawbacks guaranteeing funds make their way back to consumers there’s little to insure as each stage of transaction would have a full record trail with the ability to be reversed. Some merchants may lose money with assets being clawed back but this only further drives the market of point of sale systems that validate purchases as thoroughly as possible.
Physical Credit or Debit Cards Become Optional
Credit cards and their issues such as Visa, Mastercard and American Express have produced entire ecosystems of users based around the movement of money. By facilitating payments for merchants, merchants get paid timely. By facilitating for consumers, we have fraud protection, the ability to postpone payments and rewards for using the services.
Physical cards, cell phones (NFC) and QR codes will merely be an address for payments to be made. Point of sale systems connected to the internet will “see” the address listed and make a call directly to the blockchain network for the transaction.
Because each creditor asset will have their given rewards and fraud detection baked in, “credit card” companies will look the exact same as any creditor brand. Because assets now all require the same kind of features, a creditor for a mortgage could offer just as compelling of an interest rate as another creditor. Due to blockchain removing the transactor overhead, it enables every type of creditor the ability to handle large amounts of transactions.
Instead of having a Chase Freedom or Reserve branded credit card, it may just simply be a Chase card with their underlying asset encompassing both credit and debit card features. The cost benefit calculation for a brand would then be weighing whether a higher asset allocation for yield but with higher fees is more profitable than a lower yielding account but with less fees.