Earlier this year MEF’s DCB working group kicked off a new programme to look at tackling fraud in Direct Carrier Billing (DCB). The cross-stakeholder group is currently developing a fraud framework to seek industry alignment and help market education to ensure a sustainable trusted channel.

When looking at fraud detection solutions the topic of business models for solution providers is a focus area for discussion, with a clear recommendation that revenue sharing models cannot be good for the ecosystem. The analogy of its like ‘the fox guarding the hen-house’ springs to mind – with providers potentially motivated to actually increase fraudulent traffic. Here, members of the working group share their thoughts and consider steps the industry needs to take to clean up this key ecosystem.

John P. Tullai - Chief Operating Officer - Aegis Mobile

The right business model creates the proper incentives for each stakeholder.  In the case of DCB, there is a natural tug between revenue driven by volume or traffic and protection of the MNO or carrier brand and their subscribers.  The business model does not work if the stakeholder responsible for ensuring compliance is primarily motivated to drive more traffic at the expense of protecting the MNO’s customer experience.

A business model that focuses the compliance partner on independently and objectively evaluating prospective suppliers to the DCB platform decouples the compliance activity from the MNO revenue stream.  The compliance partner must also have the flexibility to evolve technology and processes to address emerging threats.  A monthly subscription or “by the evaluation” model provides this desirable segregation and eliminates incentives to do otherwise.  Properly structured contractual terms ensure the ecosystem is protected from bad actors and fraud.

 

An independent and objective compliance partner will be dedicated to serving the customer holistically, from the preservation of revenue to protecting the brand and customers while creating a more efficient operating environment for all.  This creates a binding trust relationship between the stakeholders in the ecosystem and is supported by a business model based on services provided rather than channel revenue.

Tomas Cohen - CCO, AWG

Driven by Data, we will be able to mitigate the discussions and biased opinions on which are the best strategies to regulate our industry, and which model should be applied when enforcing fraud prevention systems and platforms.

When it comes to discussions where there could be conflict of interest between different parties, the hardest part of understanding how to organize each agent, considering that each has his own agenda, is being able to be objective. Arguments about who are the most relevant actors in terms of enforcing policy on Fraud or Compliance, have always been related to the “big names” in the industry; companies that are established and have a considerable track record, but that might not be specialists in the cybersecurity vertical. The models under which these participants have interacted with MNOs have been several, and it is clear that there must be a model in which the “controlling agent” is not linked to the actual business of who he is controlling, otherwise, whoever is enforcing policy will clearly be influenced and could be influenced to overview certain indicators that could harm the control process.

It’s always comforting that we have the possibility of strictly making decisions on anti-fraud strategies and platforms, based on numbers and facts. Whatever decision the industry decides upon, can be measured and objectively judged. Our ecosystem allows us to monitor, measure, understand and even forecast the behavior of our users, traffic, and almost every aspect of the interactions that happen all along the value chain. We have the possibility of having numbers that define who does what better than the other and in which way, thus, what the correct approach is in terms of defining policy and implementing it is. The only thing we need to do, is look, analyze and keep on defining further the new features or trends we are seeing in order to know which the next steps are.

Diverse groups of professionals from all over the world are now gathering to help and define a global strategy that will hopefully help us find the most suitable approach to regulating a thriving business that is related to such innovative participants, that it is hard to prevent and design a complete game plan which is definitive.

The pandemic has accelerated the rate at which Mobile End Users have adopted new habits of interacting with digital goods and services, thus we have a great opportunity to organize the way in which our environment works, before many new potential users and consumers are involved in the kind transactions we manage as an industry.

There is a great horizon ahead of us and we need to responsibly think and make decisions on how to achieve the best results in this journey. As mentioned before, we have a great ally: ROCK SOLID UNBIASED DATA.

Laura Carruthers - Fraud Manager, Boku

Managing any payments fraud requires a fine balance between retaining good revenue and reducing fraud. Each transaction must be objectively assessed, with the decision to authorise based on a fair risk assessment and both short and long-term impacts in mind.

Whilst carrier billing produces a lower rate of fraud compared to other payment methods such as card, fraud prevention faces an additional layer of complexity due to the number of parties in the value chain. Different organisations with varying risk appetites, and facing different impacts when fraud does escalate. Fraud cases of critical nature to one party may be considered less substantial by another, due to ratios of fraud to healthy traffic, and brand awareness amongst victims.

 

As the victim’s pre-existing line of communication is usually with the carrier, they can often face the burden of extra customer service complaints. Merchants need to protect their brand reputation. Aggregators must manage partners to ensure a single bad merchant does not cause loss of genuine business to the wider market. Whilst additional revenue arguably has some benefit for all parties in the chain, the adverse effects of fraud take hold at different times and in different ways.

Therefore, when additional parties such as fraud solution providers are brought into the mix, it is vital to maintain that level of objectivity. Introducing a solution provider on a revenue share model not only creates a conflict of interest in the value chain, promoting an attitude of ‘any traffic over healthy traffic’, but can also lead parties to prioritise short term gain over long term damage to brand and trust.

Frederico Rosato - Pre-Sales and Marketing Director, Digital Virgo

The business model is always the cornerstone of a business strategy. The revenue sharing model from the tariff billed to the end-user is an integral part of the DCB activity and has imposed itself in the VAS activity since its inception in the early 1990s.

For companies like Digital Virgo, whose main stakeholders have experience since this origin, the model fits in with our DNA. In this context, our priority has always been to ensure the protection of the end customer through strict operating rules. Protecting the user means protecting the carriers, the merchants, our business, and last but not least, sustaining our activity.

This last aspect is essential for a Group of our size with significant global presence (+25 countries of presence with +40 countries covered). In order to combat fraud, we integrate various compliance filters and our anti-fraud solution called DCB Shield, in which we invest heavily.

 

Moreover, we count with the know-how of external anti-fraud experts to ensure the security of each transaction. One thing is clear: all players in DCB have the responsibility to unleash the potential of a safe digital monetization market by fighting fraud together.

At Digital Virgo, our objective remains to support our clients in the management of a sustainable DCB ecosystem by providing them with the best quality and protection over time.

David Lotfi - CEO, Evina

The fox and henhouse analogy is very apt because it speaks to conflict of interest. In our instance, we are referring to companies that sell both traffic and anti-fraud solutions. We think its common sense that the revenue of an anti-fraud provider cannot be dependent on traffic sales.

While there are legitimate firms that are doing this, our view is that one can’t be judge and jury and expect the same results achieved by those who properly separate the fox and the hens. There is a conflict in blocking one’s own traffic and there is a conflict in letting competitor traffic pass unhindered. These scenarios create a clear problem of trust.

 

One example of business models rooted in conflict of interest is when companies provide anti-fraud solutions either at no charge or at a very low fee. They then monetize traffic. A second related example is when these companies offer potential clients anti-fraud solutions that only monitor actors who are not their clients. That’s saying to everyone, pay me, and I won’t report you. In our view, that’s not how to create a sustainble industry.

Declan Pettit - Co-founder, Commercial Director, MCP Insight

Revenue share – as payment for protecting traffic from fraud – is a conflict of interest. Further, it could be argued that involving any Campaign Management Solution (CMS) provider in the fraud detection part of providing clean traffic is wrong.

On the one hand, CMS provider needs to be motivated to deliver traffic that leads to successful activations but, on the other – vetting traffic for fraudulent activity requires an independent 3rd party who’s remuneration is not based on the fraudulent status of the traffic – and even less so based on its successful conversion rate. This dichotomy requires that anti-fraud suppliers be independent from the value chain.

  

MCP recently regretfully declined to complete a response to a large Asian carrier’s Fraud Detection RFP – on the basis that their sole proposed remuneration method was revenue share. We understand the existence of a campaign management requirement – and that it lends itself to such a remuneration model – but there is an innate conflict between this and providing fraud detection solution as one package, especially if remuneration for both parts is based solely on revenue share.

Teniola Stuffman - Executive Director, Business Development, VAS2Nets Technologies

Telcos offer services from 3rd party providers that penetrate and connect different aspects of people’s lives; the essence is to meet the requirements of B2C and B2B. Frequently such conditions entail demand for an increase in subscriptions to boost the profitability of telco business and responsibilities of 3rd party service providers is to ensure premium connectivity. However, cyber criminals’ tactics to fraud and security keep increasing with a growing number of concerns. DCB frauds have different elements and shapes that keep unfolding as telco companies drive network innovation with 3rd party service providers. While cyber criminals’ intention remains enormous, revenue sharing models between telcos and 3rd party service providers remain a coherent excuse for battling DCB fraud.

 

Understandably, the telcos own the network technology domain and infrastructure, as well as customer relationship, innovation is often driving by 3rd party services providers with technology competence, as such the value chain already remains symbiotic; hence revenue control shouldn’t be a measure for countering growing concerns of fraud and security issues.

The telcos are in customer-facing positions and obtain first-hand insights into fraudulent issues with a comprehensive fraud management system. Predictive measures in place help offer high-efficiency services to customers. Fraud management tools and security processes in carrier billing are necessary tools and a must for 3rd party service providers because they remain indicators to checkmate unusual spikes and any fraudulent activities.

The business model needs to be re-defined, base on current trends, as change is a constant. Survival requires models that help to monetize ideas, mainly because of the pattern with customers spending more time on OTT-developed products than with traditional telco services. Combining forces in alliance require jointly shaping operational excellence.

Roland Kneisler - Head of Product, Vene Overwatch

Fraud in the DCB ecosystem is an ongoing issue and nearly everyone in the value chain is exposed to it. One solution to this problem is anti-fraud products to block fraudulent transactions, but there is one key consideration here, which commercial model is being used?

The four types of commercial model are:

  1. Monthly fee – A fixed amount that includes a defined amount of traffic or fraud checks.
  2. Click-based fee – a price for each fraud check (e.g. attempts on the payment page).
  3. Conversion-based fee – a price for each sale.
  4. Revenue share – a defined percentage of the MNO, Aggregator or Merchant’s revenue.

 

To prevent fraud, conversion-based (3) and revenue share models (4) should be avoided. They give the wrong incentive because:

  1. The fraud company needs to block fraudulent transactions, but also needs to earn money for their service.
  2. A lot of sales are coming from fraud and need to be blocked.

In these two commercial models, the better a company is at blocking fraudulent transactions, the less they are getting paid. In order to make a profit, employees may even knowingly allow suspicious transactions or block less traffic.

So that the fox is not guarding the henhouse, we think that commercial models between anti-fraud companies and their clients should be based on fixed prices and / or click transactions, rather than the amount of sales or revenue.

If you would like to contribute a comment to this article contact us at editorial@mefmobile.org or leave your thoughts in the replies below.

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