===[: [: [: [:
But one of the greatest things that ever happened to me was my parents had a good year in business and the accountant told them, Hey, you need some more write-offs. And so they bought it. For the office. It was like a 2 86 with a 40 Meg hard drive. And it had the five and a quarter floppy and the three and a half floppy drive.
It was like absolute cutting edge, the best of the best at the time. And yeah, I just really started getting deep into computers and teaching myself how to code. And it was a bit of a nerd and just reading through there was no user-friendly stuff back then. It was like these 600 page books.
This thick, you just had to go through a bit by. But yeah, just getting exposed to computers and tackle a really young age and being really curious about it. Always been really passionate about optimization and efficient. And I knew that I wanted to get into tech at some point.[: [:
So I started doing like in all these local area networks and the internet was just coming of age at that time, it was in the mid nineties. And so I was like, one of the early adopters on the internet with all these 14.4 pod modems and all that kind of jazz, it was super, super[:
incredible[: [: [: [:
Like these self-fulfilling bank accounts, the annuity business is just, it's just awesome. So he had some blind spots in his business and I convinced him I was a good fit for it. I could become like the tech geek in his back pocket, kind of his Sherpa to guide them through that whole world. And we launched up a bunch of businesses to get.[: [: [:
And we don't get numbers anywhere near this. Good. What do you know that we don't. And that I helped me to understand that we had[: [: the ways of my co-founders in:
And we'll only charge you if you make more money with less. And it was a very profitable business.[: [: [: [: [:
So you're very used to like Sarbanes, Oxley and visa, DSS certification and level one[: [: [: [: [:
Because especially if you think about recurring billing subscriptions, like[: [: [:
So it's just like early into computers, early into subscription,[: [: [:
You just can't build anything.[: [: [: [: [: [: [: [: [: [: [:
They're false[: [: [:
Their premiums are going. And they get to decide which transactions get approved or declined. And so[: [: [:
You've just, you just started, you've just started to pull back some of the curtain. And it's funny because accepting payments has always been. Overly complex is you're diving into the complexity of it and really a mystery for most e-commerce businesses. And in the past couple of years, the subscription economy has just exploded.
It's gone into hyperdrive. Not even explosion anymore. It's in full hyperdrive. What are you seeing is the number one thing that businesses can do to really gain a level of transparency into this complex process that enables them to reduce the risk while providing the best possible products and services to what their customers want.[: [: [:
Super frustrated to find out that it's from, most of it is for no good reason that we're just looking at serious inefficiencies in the existing payments[: [:
And the solution ultimately like the mission that I'm on. What really matters to me is improving, increasing trust and transparency and the payment ecosystem. So you right now, merchants pay for what flex pay does. But ultimately if we do our job everybody benefits because like I said, a seven it's a seven to one false decline ratio is the average in America.
Right now. It's slightly better in case. It's about a six to one in the UK. It's about a seven to one in Australia as well. This is a problem. That's pretty ubiquitous across all the different geos that are out there. We're focused mostly on the U S market right now for a few different reasons, which we can talk about later.
But ultimately if we, if emergency here's one other way of looking at it, merchants will always know more about the risk profile of a given transaction. The IP address, device ID, email, address the shipping address, all these different things, the shopping cart contents that are all these things that are directly relevant to the fraud profile of a transaction.
The merchant will always know more about that than anyone else, but the issuer, the bank issues, the credit card or debit card will always know more about the customer and the risk profile of the customer. The issuer is the one making the decision on what gets approved or declined. And this is really important, right?
A lot of people think visa, MasterCard, decide which transactions get approved or declined. No, they don't the acquirer, the merchant processor, the gateway, the merchant,[:
It's ultimately the issuers, the name of the bank on the piece of plastic that does something. Whether or not, it's going to be approved or more technically accurately the issue in processor that they use and the software tools inside of usual and processor, processors are like FIS, Fiserv TCIs yeah, a little bit of Jack Henry coming in and doing some consulting on it.
These are the systems that are ultimately deciding what's going to get approved or declined, but there they are missing. Missing tons of information and they have to make a decision super quickly, super tight SLS. Like they have to make a decision to approve or decline in order to be compliant with the use of standards for processing transactions in milliseconds.
So they can't really leverage machine learning or AI in production. These really great cutting edge tools that we have, they have to use. They have to rely on rules-based thing so they can use AI in the lab. But then ultimately that creates rules, a static rules that they used at the decisions. And they're acting in a self-interested manner, trying to optimize for getting fraud or the ecosystem.
They can't decline too many transactions where that irritate their customers and great churn. But ultimately if it comes down[: [:
This is why 3d secure was supposed to be so cool. So
It's like, how do you, like, how do you figure out like the pieces of data that are missing are the pieces of the data? How. Identify it. How do you resolve it? How do you move forward with it? Because data's great, but data's only data unless you know how to take action on it. How are you guys, how is Flexpay looking at that data differently than then say the guy who's set up on, on Shopify.[:
Then you can start to say how am I going to solve for this? And you start to realize. You need a lot of data and you need really deep relationships with the usuals. Now, this is one of the things where we've been very fortunate again, having been in e-commerce at scale processing, hundreds of millions, billions of dollars in transactions at this point, we've got some pretty deep relationships with a lot of the issuers and it turns out that they also would like to see a better solution.
If you find the right ones, which is another thing that we've been really good at is having conversations with the issuers that actually care about this and these willing processors who care about this and want to do better. And, we develop relationships with a few of them that started sharing data with us.
And I think we're, we're at several billion transactions now of data that we received from[: [: [: [:
And now that we know that, there's 8,000 issuers in America, all making decisions independently of one another as to what transactions. Approve or decline. You start to[: [:
The juxtaposition of[: [: [:
And this is how we look at our systems.[: [: [: [:
And the card is not expired. The account is not closed. And then suddenly on month 15, I get to do not honor declined code and three[:
I think the curtain a little bit here, right? About 95% of all do not honor is a fraud system. That means it's not a hundred percent, but if you do not honor error codes, and if you see an increase in do not honor decline codes on your business as a merchant usually means that maybe you got hit by a fraud ring, or for some reason, the issuers and their systems are starting to think that you're a high risk merchant and they're declining more of your transactions.
They're more sensitive to you. And what we find is that these systems within the issuers are very quick[: [: [: [: [: [:
His decline rates went up by 30, 40%, used to be like 10 and 12%. And now he's 16, 17%. And he's what the heck is going on? And I'm just, all my profit margin is getting lost[: [: [:
But like within 30 days, there's a massive spike in average[: [: [:
So this is like part[: [: [:
It's actually had the opposite effect and this is recorded, so we're not going to name names, but there are versions that pretty much, I think like 80% of[: [: [:
And they rolled into the secure[:
The account closed one is the one that is like the death spike. But a lot of the other ones can give you a little bit of hope, but you moved into the next thing is, when you get hit by a fraud ring or when you get perceived as fraud, does the higher risk merchant.
Yeah. Yeah. A high-risk merchant. Does the process of retrying increase that visibility into potential partners seen as a higher, we have really[:
And they call it hammering. Hammering declines. Like the worst possible thing. I was talking a couple emergency that day. Yeah, we'll take all of our soft declines. Soft declines is like NSF bank declined to honor stuff like that. We took a little horse off declines and we retried them every day for 60 days.
Like, how's that working out for you? What happened? What happened to your approval rate on fresh attempts?
Oh, yeah. Oh yeah, absolutely. They doubled their decline rates, doubled the decline rates. But during that, so this is because of. The more you hammer away at declines, even soft declines. The more your reputation with the issuers is starting to be affected. So if you live in a world where first of all, you can't do nothing with all these field payments, you have to do something as a merchant.
All of your profit ends up getting tied up in these, but if you understand that you live in a world where you have a finite number of retries, To be able to get this transaction pushback through. Then you understand that you need to be as precise and as intelligent as possible when you do reach ahead to make sure that you're doing something meaningful and you're right.
I glossed over that. What are some of the low hanging things that a merchant can do right now? So a lot of it is what I tell people is the most sophisticated way to handle. This is what we do at flex pay, right? Using AI to analyze each transaction at the individual level and come up with a custom crafted strategy for that transaction based on all the different data fields that we can scrape together on, on that transaction.
But if we want to go broad strokes, blunt instrument, make sure that you're[: [: [: [: [:
I failed payments are double at 2:00 AM. What they are at 2:00 PM. Is that the infomercial type, like impact is that kind of the thought process to, I have no[:
Maybe they think that it's like some cyber hacker from over in Russia or overseas somewhere. Who knows, but they probably have really good data that shows the transactions running through card, not present in the middle of the night are higher risk transactions. Oh, that doesn't apply to all issuers, but again, we're going blunt instrument here, right?
Generally speaking, retrying transactions on Fridays and Saturdays, right? For soft declines, driving them around the first and the 15th, trying to match up with when payday goes through, that helps with NSF understanding what MCC you're in your merchant category code. Most merchants don't need to know what an NCC is, but it's one of the most important indicators on how your transactions are going to be treated by the issuers and the level of risk that they assume.
I are on your transactions, especially if you're a merchant, who's doing say under 300 million a year in processing. The systems that the issuers aren't going to be able to create custom models, to really understand how to improve the performance of your transactions over time. So you just ended up getting cast into these large buckets and the rules on the bucket apply more than the rules that you get treated on as an individual merchant, Amazon, Google, and Microsoft don't seem to have this problem anywhere near as much when you have really good data, but there's plenty of other merchants who do.
They ended up like the MCC that you're in, which is a four digit number that as assigned by your merchant bank, when you open your account and a lot of merchants don't even know what their MCC is, just the struggle side, what my MCC is going to be. And they just automatically put me in that bucket. And next thing I'm ending up all these declines.
I shouldn't have. And I'd say another one is data fields looking really carefully to data validation, like removing special characters from human address fields, a play around with zip plus four versus not using zip plus four, play around with, should I use the recurring flag or not using the more Korean flag?
How does that affect my approvals by issuer? Now we're starting to get a little bit more into the niches, but we're in the niches. Or 3d secure, right? When does it make sense for me to use 3d secure[: [: [:
And of[: [: [: [:
And they ended up turning it all[: [: [: [:
It's I'll take the higher approval rate on the 97% and I'll take a hit on approval rate on this 3%, but it's really like the 3% of the worst of my customers. But I don't want to say no to you, but I know that there's a problem here and they're high risk and I'll just send them through with 3d secure.
And so then the issuers are like, what the heck? Every time we see 3d secure, it's like this super high risk stuff. And I don't want this additional liabilities. We're just going to and they have what's really interesting[: [: [: [: [: [:
I got 3d[: [:
And what has started to happen is a lot of merchants are saying I'm going to authenticate every single transaction and they get the authentication of that transaction for 3d secure, two dot oh. But then the cardholder issues, a chargeback. And if that charged back ratio on 3d secure authenticated transactions for that particular financial institution, get to a certain point, we don't know what that point is, but when it gets to a certain point, they go, oh wait a second.
We didn't say we were going to. Liability on all of these transactions. So then they go and they knock on the door of the car brand and the car brand goes and knocks on the door of the acquiring bank, which then goes down to their sales channels and says, Hey, so can you quit using 3d secure? Because the issuer's over here, they're a little upset that they're having to take liability for so many of these things.
And[: [: [:
Primary authorization stream after the 3d secure authentication. So it's really disappointing. This is a large complicated problem with multiple players with conflicting agendas. And I part of the challenge here is that anything to do with. Changing the payment ecosystem, especially in America is literally like turning the Titanic.
There's a reason why, the little chip that we have in our cards, like Uganda had that for 13 years before America did. And there's other reasons why there's like lobbying and politics and money and all kinds of other stuff going on between it, but still. It's really hard to get things changed, especially when you don't want to start messing in the authorization stream.
So the problem, you can start to see the problem, just because you understand what the problem is. Does it mean that you can automatically get in and solve it? So we're working on some really interesting pilot projects right now. What we do is we get all this data. We understand the motivations of the players.
We get a lot of data from the issue is where they share with us open kimono. We only represent the good merchants, which is another thing too, like in our. One thing that makes us different from some of the other vendors who like do Dunning and stuff, is that we will deliberately not try to recover some transactions that we have a high suspicion or not legitimate.[:
How do you know, how do you know when to actually try that recovery?[: [: [:
A lot of billions of transactions out of the issuing processing systems and the software systems that are making this. I'm getting the three digit risk scores, analyzing those, being able to understand what's working, what's not, and you don't get to receive all that data and form those relationships. If you're a bad actor, who's trying to push through illegitimate transactions.
And this is another one of the problems that we see in the ecosystem is that it's not just issuers that are acting in a self-interested manner. You got all these people with when there's a lack of transparency, you get all kinds of people acting in a self-interested manner. You get bad actors all over the place.
There's backer, carpool. Who are signing up for things that they don't actually want, just so they can get an incentive. And they're using charts back as a way to cancel out of a product. And fraudsters of using the system, or like a little bit of friendly for us.[:
Does this whole process really start to incur like the fraud? I How does this play into the fraud side of the house? So I'll let you, you keep going, man, but it's funny. Cause you're going down my list here,[:
Quasi and nefarious things like forced captured to try to push through transactions that I have no business pushing through. Illegitimate transactions, just trying to boost up their profit margins. You've got a fire or is acting in a very self-interested manner. In a lot of ways you get the networks acting in a self-interested manner, and then you get the issuers and is acting in a self-interested manner issues like I'm trying to reduce fraud, losses and stuff like that.
And this is the problem. If we just had everybody operating. And in a more transparent manner. Okay. You would lose the advantage[: [: [:
So it turns out today merchants are willing to pay for that service. So that's our primary source of revenue. When we say some of these[: [: [:
Just, it[: [: [:
And we're getting more and more accurate with. The ones that we do think are legitimate. We can start to get a little bit more aggressive and a little bit more creative. And again, knowing why the declines are happening in the first place. And what's going on inside of the risk systems that are ultimately responsible for declining.
Those transactions helps a lot. So now, if you are living in a world of finite retries where you can't just hammer on declines, you say these ones are worth trying harder on these ones on my trail. Once or twice, I let them go I'll layer in my account. Updater I layer in these other data cleanup things, and that.
Overall, I can massively increase my recovery on all these fields payments while simultaneously reducing my attempts. That's the sweet spot. That's the magic. And then what we find is that when we do a really[:
Ultimately make more money on this bucket of pain that I have, but also fewer retries, fewer refunds and fewer charge backs than if they were just using a rules-based system. So it was like a four it's four massive wins all combined. And this again, Only happens when you are acting in a very[: [:
I think w we'll be able to really eat away at this problem. And we're talking a big problem here before COVID it was 400 billion a year in false declines. That's 35 billion in fraud losses for the issuers, a hundred billion for the for the[: [: [: [:
Every, the brick and mortar is has
And so the problem just keeps stacking and getting bigger. Thus the need for it. I It's insane that flex space should even be necessary. Honestly, if everything was running[: [:
This is what's required and it's not an easy thing to solve, but that's the real problem. That's really the underpinnings of why we have all this pain. Why merchants are going through all this pain and. I didn't know all this. When I first got started and the day that I found out and started having this conversations oh, because it's like the scales falling off my eyes oh, you mean, there's something I could do[:
So you asked earlier, what are some of the things we should do? I think, first of all, it's yeah, I'm on a mission to create awareness and saying, Hey, Mr. Merchant, who has all this pain from failed payments, you don't have to be in pain. There is[: [:
Like actually go and measure how much you're losing in false declines because Peter Drucker, one-on-one what gets measured, gets managed. Once you're measuring it, then you can say let's do an audit on what are we actually doing about this problem and how well is that working? And then you can start to get creative around there's this new category of business that's emerging payment authorization management, which I'm super[:
This is where flex pay fits as well. We're in payment authorization management, and it's a really important. Set of tools that can help you to solve this problem. So once you're aware, you can do something about it. You start to measure the problem, and you're looking at the tools and you can say what are the other tools that exist within Pam payment[: [:
Let's try this. Let's try that layer in better strategies, layering in AI, whenever you can. There's really great AI tools,[: [: [:
So yeah[: [: [: [: [:
So getting all the data and then really being able to refine machine learning algorithms around that data that helped to improve it gives a big leg up. We have been testing those same. Algos on UK traffic. And I was pleasantly surprised to see that they perform just as well, if not even better on the UK traffic.
So that's super exciting for[: [:
So it made it easier for us to start there, but definitely, we're just getting started when it comes to the geos.[:
Or some sort of recurring process, right? How big does a company need to be? Before they should start looking at recovering is there like a metric they need to be looking at to goes now I need to really be serious and look at this. Yeah.[:
The larger, the really large merchants have less of the problem. And they're also more sophisticated in their approach.[: [:
So if you say to a really small merchant, who's just getting started. Hey, I can recover 50% of all your failed payments, but they only have a thousand dollars a month and failed payment. It's not going to really move the needle for them. There's other solutions out there that are good enough Dunning solutions that kind of just set it and forget it.
And we go and offer. We have plenty of merchants who are super small using our tech, but it was because our tech was already integrated into the platform that they're on. So they have this billing platform that they're in because the billing platforms integrated to Flexpay, it's literally like a super painless flip of a switch.
They can turn it on, larger merchants who tend to be on like a, some sort of accustomed in-ground like in how system homegrown system, they have to do an integration into our API APIs. Yeah these failed payments, how are you going to send them to flex pay, to be able to flex them here?
They're not going to write them down on a piece of paper and send it by carrier pigeon, right? Like you need a, you need an integration to do that. And a lot of times what we find with the smaller merchants is that. You[: [:
It's just the dollars and cents that are tied up. And it aren't enough to move the needle. You've got bigger problems. You need to solve like your product market fit and growing a team and marketing and things like that. But what we absolutely find is that what, once merchants get to a certain scale, it's usually when they're doing a few hundred thousand dollars a month in processing, they inevitably start to turn around and say, okay, what's all this money that I'm losing out the back door.
This is ridiculous, right? It's not symbolization inefficiency play. And I would argue that the earlier you are optimized and efficient. The more profitable.[: [: [:
And I'm speaking from experience here when I was a startup e-commerce company, when you're able to make more money than your[: [: [: [:
You better. Word your team. There's all, there's this whole virtuous cycle that comes out of this, that ends up compounding and creating this sort of exponential effect. So the earlier you can take it on and your business and the earlier you can make it a priority to optimize around these things.
Optimizing lifetime value, the better off easier your business is going to end up being a is the short answer. But definitely you don't have to convince the large merchants of this, right? Some of the merchants using our platform, $3.7 million a month in declines. We[: [:
Like these guys are super motivated to have the absolute best solution because every little, 1% of better performance and recovering field payments is going to really move the needle for them. We've talked, you mentioned homegrown solutions. You mentioned some softwares that people can use.
For those types of things, if I was a merchant that I've started doing this and I'm using. One of the many popular systems that are out there today. How do I find out whether or not I can work with flex pay or, is there a way for me to quickly and easily figure that out before picking up the phone and giving you all.
Yeah definitely just like[:
Flex bay. Like for example, we just completed a new integration into Chargify, which I'm really excited about. They're a good partner of ours. So anybody who is in charge of high, it can just, with a flip of a switch, they can turn on flux bay and we could go, and we're adding in more and more platforms all the time, making it easy as possible for people to integrate with us.
So yeah, I think that would probably be a good place to start. Ask it again. I'm super passionate about this. And obviously we were a for-profit business and I want people to come in and use our tactic really is the best at doing, at fixing this problem. But, I hope that some of the things that, we talked about on this podcast interview can also help, even if you're not using our tech right.
Take some of the low hanging ideas and build them into your logic, like retrying transactions during business during business hours early in the afternoon, east coast. I am on Fridays and Saturdays trying them on the first on the 15th, making sure you're in the right MCC, use a high quality merchant bank.
That has a really good reputation. Generally speaking with the with the usual, really good fraud system on the front end to make sure that the reputation of your transactions continues to be good as you're hitting scale. Make sure you're validating those data fields and clean out the pup, the garbage.
All those little things stack together to really start to put you in. This is really great spot. And then when you want to take it to the nth degree. And get into the dishes while you come use a[:
And then when they fine tune that and figured that out and they still feel like they have some. For recovery. I this is where they reach out to flex pay and they really get, get to go on and moving on that. And you look, even if you're not a merchant with a significant[:
And to try to do what we can to. To make it better at the end of the day. Trust and transparency goes a long way in solving a lot of the problems that are out there. And I'm super excited. You and I we've talked a lot about Flexpay and our problem and it's true. Like I can go deep down that well, but there's plenty of other things that you and I have talked about in friendly chats about emerging technology and how it can really help move things forward.
I'm excited. I am very optimistic that things are going to get better. In the near[: [:
They seem to be getting worse. The stuff that we thought was going to really be a big help, like 3d secure is not helping at all. It's actually making things worse. And so we've got to really pull together and get the major stakeholders in the ecosystem to say, Hey. But there is a better way.
Let's sit down and try to make this a reality. And we're, at the bleeding edge, the forefront of that, having the conversations[: [: [:
I'm definitely, I, I. There's a rabbit hole that I want to go down with you just not today. So I will keys it right now. I really want to, at a later time T start to dive into the new entrance into the market that, and how they're impacting. The overarching view of how we accept payments, how we buy things, how it adjusts our behavior.
And yes, I am talking about that fun thing called buy now pay later and how it has transformed and how it is transforming the way that certain demographics. Look at leveraging payments. And that doesn't even include going over into the other fun stuff, which we start talking about the use of cryptocurrency and blockchains.
And we could go crazy over into that stuff, but definitely the one that, that I would want to dive in and get your perspective on is really around the buy. Now pay later. What you're seeing from your side of the house and how flex pay might be able to actually help. And some of those scenarios, cause I know most of them are using credit card as their primary payment method.
Boom. Yes. They still have really big problems with failed payments for sure. But it's significantly worse on the merchant initiated transactions, which as soon as you go into the buy now pay later. It has moved from a real-time customer issue to transaction to a merchant, initiate a transaction. But the good news is that's where we can really play, like with my tools and with some of the ideas that we talked about.
There's lots of things that you can do. You are in more pain, but you have more tools available to you to actually be able to fix the problem and ameliorate it. But yeah, that's the buy now pay later stuff. We're seeing a huge move into that space. Tons of merchants in that space using our tool right now, getting like absolutely phenomenal results out of it.
So I'm very excited and bullish on what we can[:
And you go even further into the behavior of the consumer. Now, when the consumer realizes that they've authorized someone to initiate those transactions on their behalf I think they've started to realize that means that you can't. Turn off the card and walk away because you've gone a little bit further into it.
So I'm going to leave that one is something we can come back to and dive a little bit deeper into the merchant initiated side of the house at a later date. Darryl, is there anything else that we want to talk about today before we say goodbye and head into a fantastic. Nah,[:
There's so many other topics every time you and I get together and have a conversation, it's always fun. I always enjoy them. You've been a[: [:
So I know we're going to get plenty of opportunities to continue the conversation in the future. I guess the only other thing is that,[: [:
Mostly just so I can really have my finger more closely on the pulse of everything that's happening in that space. So anybody who is in that space, who's looking for help looking for ideas. Who wants to really get out there and build some interesting solutions around it, know that my virtual door is always virtually open and I'm always interested in having more conversations around that space and whatever I can do to help out other founders and help out other fintechs in that space is something I'm really passionate about.
And yeah, if you are a merchant in you're and this pain, while, There's a really great solution out there to help, to fix with pain that you in. And I'd be super happy to see what we can do to help out on that. I think we can probably leave it there for now,[:
And that's just not for myself. I hear that from a lot of other. And I want to say thank you for being that and let you know that we all appreciate that availability. And it has helped so many people move forward in their ventures. So I want to thank you again for that.[:
And it really does take a village so happy to do my.[: