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Introduction to Online Payments Risk Management by Ohad Samet

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Chapter 7. Detection: Figuring Out that Something Is Wrong

Detecting that “something” is happening in your system is one of the core activities of the RMP team. How do you set up effective detection mechanisms? By employing three activities: measuring your current performance, using inflow to predict future performance, and setting up mechanisms to detect outlier activity that needs to be investigated.

Measuring Performance

The biggest advantage in measuring your performance based on actual numbers is being able to know exactly what’s going on. The biggest disadvantage is that you have to wait a long time to get that number, basically making it impossible to respond to events in any reasonable amount of time; you could be out of business by the time you get your fully developed loss numbers. While measuring your rejection rate (the percent of stopped applications at every stage of your decision process [models, manual decisions]) is pretty straightforward, merely trying to understand which of your rejections is a mistake is going to take a while. As I noted before, card payment originating time based cohorts take 60–70 days to reach 95% development, which means that it takes several months to get to around 95% of chargebacks you can expect to receive for this cohort. In consumer lending, write-off time (the point in a debt’s lifecycle when you stop collecting and declare a debt lost and off your balance sheet) is based on your payment terms and the way regulation defines default—most ...

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