Deutsche Bank wants to get in on the trend of banks trying to grab buy now/pay later market share from fintechs, and part of its planning is ensuring bad transactions can get identified as early as possible.
"Instant payment needs instant fraud checks," said Kilian Thalhammer, head of merchant solutions for Deutsche Bank.
Deutsche Bank has added artificial intelligence from Visa subsidiary Cybersource, which enables merchants to obtain a fraud risk score for transactions. The technology will cover all payments, and will play a role in the bank's pilot of its BNPL product. Banks sense an
The bank's BNPL tests are initially focused on Germany, where installments are among the top three payment methods in e-commerce, along with digital wallets and direct debits, according to
Since both digital payments and BNPL require faster processing, the bank is looking for a quick decision on fraud before going ahead with the loan.
"Today fraud must be detected at the moment of payment. It is a 'yes' or 'no' proposition to stop fraud before it gets into our system," Thalhammer said.
Deutsche Bank's BNPL and non-BNPL merchants will gain access to Decision Manager, a Cybersource product that uses AI, global data from Visa's network and the card network's fraud rules to accelerate processing for valid transactions and block bad ones. The bank is vetting for fraud in real-time payments, which can also serve as an extra layer of security for lending decisions that are made quickly at the point of sale. It also removes more of the risk from the merchants, placing it on the regulated bank's shoulders.
"What's being discussed [at Deutsche] is a system where the scoring will be deployed at the merchant gateway rather than the merchant level," said Akif Khan, a vice president and analyst at Gartner. "Deutsche is providing payment services to e-commerce markets and is acting as a point of aggregation for fraud screening."
Deutsche Bank is collaborating with Credit2 to produce a white-label BNPL product. A portal will allow merchants to manage and track consumers and purchases. The bank pays the purchase price to the merchant's account upon confirmation of order shipment via the merchant's e-commerce site.
Deutsche uses its internal lending platform to vet borrowers for non-payment risk and fraud through a mix of its own systems and the Cybersource ones. "We are in the learning phase and will see what synergies exist that can help us," Thalhammer said of how Cybersource can inform other types of fraud beyond transaction fraud. The bank is moving into BNPL as the installment lending market gets more competitive and complex. Lenders are seeking
Real-time processing, which is part of Deutsche Bank's BNPL product, shortens the window to spot fraud to a few moments from about two business days. This drastically narrowed time frame has prompted financial institutions to seek ways to
"Merchants have different requirements when it comes to fraud and risk," said Thalhammer. "With this suite we can use all types of payment methods."
As results flow in from Deutsche Bank's German tests, BNPL will expand to other markets globally, as
"Right now it's a mostly Europe-based approach, but as Cybersource operates globally we have a possible solution in place if we move our new fraud approach into new regions," said Thalhammer.
For Visa, the Deutsche Bank collaboration is an opportunity to expand its "network of networks," or a strategy at the card brand to find
Cybersource has a number of competitors, including Feedzai, Featurespace, Forder, Riskified and Signifyd.
"These solutions have evolved over the past few years whereby, in addition to using risk signals on the financial transaction, these solutions are also pulling in risk signals from the online account, such as device fingerprints, behavioral biometrics, customer tenure, email address profiling and other nonfinancial data," said David Mattei, a strategic advisor at Aite-Novarica. "Combining both account and financial transaction data have improved the performance of merchant fraud technology."
