This episode is Part 2 in our series on Payment Optimization. If you missed the first episode, we had a great conversation with Oban MacTavish from Spade talking about the importance of real-time merchant intelligence so that issuing banks can make better decisions about payment authorizations.
In this episode, Brant Peterson, Head of Enterprise Product, North America at Worldpay, joins Drew Edmond to talk about payment optimization through the perspective of a payment service provider. Worldpay is one of the world’s largest global PSPs – it processed over 2.5 Trillion Dollars in 2024, which was made up of 50 Billion transactions.
Tune in to hear their perspectives on payment optimization and solutions that PSPs can offer merchant customers to help them improve their approval rates.
Drew Edmond: Hey everybody. I’m Drew Edmond, an Associate Partner at Glenbrook and your host for this episode of Payments on Fire. This episode is part two in our series on payment optimization. If you missed the first episode, we had a great conversation with Oban McTavish from Spade talking about the importance of real time merchant intelligence so that issuing banks can make better decisions about payment authorizations.
I implore you to go back and listen to that episode as well. This series will kind of build from one episode to the next as we explore this topic from multiple angles. Now today we are going to be talking about payment optimization through the perspective of a payment service provider.
Worldpay is one of the world’s largest global PSPs. It processed over $2.5 trillion in 2024, which was made up of 50 billion, with a B, transactions. So suffice it to say that the folks at Worldpay have seen a lot of payments over the years and have been building solutions for their merchant customers to help them improve their approval rates for many years, long before artificial intelligence was in our common lexicon.
If we think about the payments value chain, customer, merchant, payment service provider, card network, issuing processor, issuing bank, maybe mix in some fraud solution providers, the role of the payment service provider is a major component for the approval rates that the merchant ultimately experiences.
And in a world where payment orchestration is becoming more common, the approval rate differences between one PSP and another can be the determining factor in how much volume a merchant might send to a PSP. The number of merchants that are becoming more sophisticated when it comes to routing transactions is increasing, and even before orchestration became popular, PSPs have used their approval rates as a value proposition in their go-to market communications.
There are numerous ways in which the PSP has an influence over a particular merchant’s approval rates. How they manage network tokenization on behalf of the merchant. How they manage relationships with the issuing banks to troubleshoot poor performing BINs. The sponsor bank relationships they have behind the scenes. The fraud tools they use and make available to their customers.
The relationship management they provide to their merchants to recommend the optimal features, configurations, et cetera, that will lead to better conversion. The local acquiring they offer in different countries. The payment methods they offer in different countries. Retry logic tools like real-time account updater, 3-D Secure processing.
Needless to say, the list is very long. I could have kept going, but I won’t. Our guest will probably want to add some things that I’ve missed as well.
So with that long and pedantic preamble, I’m very, very pleased to introduce our guest for this episode. Brant Peterson is a member of just about every council related to payments that you can think of. Merchant Risk Council, EMVCo, PCI Security Standards Council, Visa Acceptance Advisory Group. He’s led product development across prepaid cards, data security, payment optimization, and is now Head of Enterprise Product for North America at Worldpay.
I’m honored to have such a deeply knowledgeable guest on the podcast. Brant, welcome to Payments on Fire.
Brant Peterson: Thanks, Drew. Thanks for having me.
Drew Edmond: Absolutely. So as always we’ll start with the foundational question of just wondering how you got into payments. Obviously, you’re a man of many councils. You’ve been at Worldpay focused on some really important areas for merchants.
What brought you to this place?
Brant Peterson: Yeah, so I, I started my journey in payments around 15 years ago, really drawn to payment security. One, I just found the technologies like encryption just fascinating. But really what hooked me is around the fact that as more data breaches occurred, security solutions weren’t just about cool technology. They actually solved a real merchant problem. Really started to see like the shift in value in the fact that storing and securing cardholder data wasn’t just a security play, but it actually could be a powerful optimization tool. Layer on like things like lifecycle management capabilities, storing the data, ensuring that it’s actually great for active use to approve authorization. So really that’s how my journey into merging security capabilities into optimization, into a single discipline within the organization.
Drew Edmond: Yeah, that’s great. So how do you have time to do all that if you’re on all these councils?
Brant Peterson: It’s a fair question. It’s actually not a distraction. My involvement with industry bodies is actually, I would see as more of an accelerator into identifying customer problems. These groups that we’re members of have direct access to customer pain points. They give us insight into the industry and what the industry is trying to tackle.
So it’s not just about constant meetings and sitting in these forums. I honestly see it more as a feedback loop, right? It allows us to stay connected. It allows us to keep an understanding about what customer pain points are having and allows us to actually move faster. And it allows us also, more importantly, as we returned back from MRC last week, it allows external validation and getting a clear understanding about what’s coming next.
Drew Edmond: That makes a ton of sense. I think to your point, it is a loop in that obviously you’re coming to them with a lot of experience from interacting with merchants of all shapes and sizes at Worldpay, but also in having the ability to kind of influence, right, those conversations and where the industry might be headed across all these varying topics that, to your point, are quite related, right? Data security and payments optimization do have some true overlapping cores there when it comes to fraud, certainly, and the great impact that fraud has on payments that we we’ll talk about soon.
What are you focused on in your new role now? You’ve moved into the Head of Product for Enterprise, coming from a more discreet focus on payment optimization. What led to that transition and how does payment optimization play a factor in your new responsibilities?
Brant Peterson: That’s a great question. My new focus is really ensuring, not just from an optimization standpoint or a data security lens, but ensuring that our portfolio of solutions across the enterprise are available, they’re relevant, they’re competitive in market, with the emphasis on actually driving value for our merchants.
And really that means not just from a product standpoint, but just understanding the challenges that they’re in the industry, which are obviously validated by industry bodies, that we’re on, but also making sure that the products improve our customers’ business effectively.
A big part of that really is championing the voice of customer, right? Making sure their voice is heard, they’re front and center with how we build and grow our solutions. But that said is, payment optimization is a core discipline, strategic initiative within the organization.
Our merchants are, of every size and caliber, are always looking for ways to reduce their costs. They’re always looking for ways to improve their acceptance. Always looking for ways to reduce complexity with payments, especially with all the constant changes that are happening.
So it’s definitely a key piece of my existing responsibility to ensure that we’re still providing that existing value proposition to our customers.
Drew Edmond: Right, and with the enterprise merchants specifically, every basis point matters at the scale that a lot of these businesses run at. We used to call it searching for quarters in the couch cushions, but sometimes those quarters can be pretty big.
Brant Peterson: That’s right. They lead to big gains. Yeah. These small little factors and these small improvements absolutely could lead to significant gains when you think about things like, 1% improvement, that’s not trivial.
Drew Edmond: Right, absolutely. And it’s a constant battle, right? It’s not a set it and forget it type of thing, where it’s like, Oh, we’re going to go plug in this solution and we’re good for life. Because the payments ecosystem is constantly changing with new fees and costs from the card networks, or even just new regulations or rule changes or things like that.
We’ll talk about this a little bit later, but all those changes can have a pretty significant increase. So you’re constantly trying to find those elements of, All right, what’s the best approach for our business and how can my PSP help us do that?
Brant Peterson: That’s right.
Drew Edmond: Let’s maybe start with just some fundamentals around payment failure and approval rates.
Talk to us a little bit about what you see as the core underlying reasons that are leading to failed payments today.
Brant Peterson: Yeah. Great question. It’s a question that a lot of our customers ask. I won’t say there’s a universal list, but I’ll give you several reasons that are very relevant that are really standing out right now, specifically within the digital space, four areas that we’re starting to see.
Either they’ve been consistently problematic within the digital space, or we’re starting to see a rise and an uptick that’s trending negatively in the wrong way. The first one we see, number one, financial declines. Insufficient funds is the number one reason why cards decline.
And honestly, it’s really historically been an untapped area in optimization, right? There is opportunity and we can talk a little bit about what those strategies could be we’re starting to see in the market, but historically, those have just been an untapped opportunity within a market, especially as we start to mature the space.
The second one that we see, number two is these are addressable, like payment lifecycle declines. Cards expire, they get lost, they’re constantly being reissued. There are technologies like network payment tokens, card account updater, or lifecycle capabilities that actually can significantly reduce these declines.
They’ve had demonstrated success that they’ve done that, but we still see declines on payment lifecycle. More than you would think with, even in the digital space, even in the recurring space. A number of our subscription customers are not adopting these technologies to reduce that.
The third one, probably the most interesting trend that we’re starting to see coming up, card not active. This is one where banks now are offering cardholders more control over the payment credential lifecycle. Not the merchants, but the actual card holders can go into their bank app, they’re allowed to pause, delete, issue new virtual cards against the banking app. And so, while that allows great control and responsibility for the card holders, it’s really creating unintended friction for our merchants.
Right. Especially our subscription merchants, because they’re the ones that want to control that experience. So, my favorite streaming service, I can go directly to their online application and pause and resume and do all of these types of things. When they are actually implemented at the bank app, then our merchants start to lose that visibility with the lifecycle and it kind of creates some disruption and some friction.
Honestly, and obviously, we’ve seen a negative trend where a lot of that is actually being abused by cardholders. They want a free month worth of subscription, they want some free sports bets, they have some free promos. And promo abuse has been on the rise, right? So you start to see a lot of these declines happening, both intentionally and unintentionally that’s happening, but it’s becoming a real problem for our merchants.
The fourth one is fraud, right? Or even perceived fraud as I like to call it. Sometimes you hear false positives. It’s like, fraud’s always a factor but it’s even more costly when it’s, whether it’s legitimate or illegitimate, like in a false positive, it’s still a problem, right?
Even false declines can even be more expensive than actual fraud, up to three times of that as a result. So, fraud, perceived fraud, continues to plague a lot of our merchants, especially when they’re unintended of things like fraud lock on accounts that can have cross merchant impact where the merchant’s not doing anything wrong. There may be legitimate locks and other types of things that kind of impact our other customers that are unintended.
Drew Edmond: That’s a great overview and there’s some rabbit holes I want to go down here on some of those topics. Each one of these, I think, has a lot to unpack in terms of how merchants can think about recapturing some of those payments or whatever it might be, but even just going back to the lifecycle piece for instance. Account updater has been around for a long time, in the batch version. Then it evolved to real time account updater. And now we’ve got network tokens. Kind of multi-tiered strategy that you can use depending on where your cards might be located, right? In different countries that have different support and network tokens haven’t propagated 100% ubiquity around the world yet and things like that. They’ll have things like, All right, we’re going to try it on network token and fall back to a PAN or vice versa, right, if we know that for whatever reason we’ve seen transactions be more successful using a PAN and then falling back to a network token, we’ll try that first. Those types of things, which I know Worldpay will do on behalf of your merchants to optimize that experience.
Where are we now? With network tokens, the hope was like, all right, we’ll get everything moved over to network tokens. We’re going to see this great lift because the issuers are going to have much more confidence in the security of these particular transactions and these card credentials.
But I think the reality is that, yeah, there certainly is a lift and it certainly helps with lifecycle management, where you don’t have to manage the account updater piece as much. It’s kind of all happening in the background. But on the authorization uplift side, I think there’s still mixed results to a certain extent.
Going back to that geographic distribution of which issuers have really implemented them. How many of them have changed their fraud models to say, If I see a network token, I should probably feel more confident that this is non fraud and things like that.
What are you seeing? Has that been a gradual change as network tokens have continued to grow? We see the card networks going to say, We’ve issued our 9 billionth token, our 10 billionth token, that kind of thing.
Brant Peterson: It’s a great call out. We historically have seen inconsistencies across regions, across particular issuers or even down to, into the BIN level. And that is a level of maturity where just the ecosystem has to come along for the ride because it does depend on the card issuer. It does depend on the network. It does depend on the middlewares and the layers and the fraud systems that have been crossed, integrated into these services, all the way down to the acquirer level. So it’s a longer road than just having a single PSP being able to address that.
But we are seeing, at least Worldpay perspective, North America, we are seeing an uptick. We’re seeing better performance, we’re seeing better consistency. But I think the card networks are doing better jobs and driving behavior with the issuers to create, more rigid programs around performance expectation levels about how we should see that. So we are seeing that better performance, each region by region, depending on prioritization.
But in terms of that, you brought up some good points around how do you actually tackle these, right? What is that approach? And the problem we have with optimization is that it’s not linear. There’s not a single fix that’s going to work for every single merchant. It’s about understanding patterns or risk profiles you mentioned around the fraud systems.
Our Chief Product Officer, Cindy Turner, I love what she says. She says optimization is a game of tweaks.
And she’s totally right. I love it and I use it all the time because it really is about thinking about these kind of small experiments and formulating these hypothesis and doing some testing and iterating.
And so think about from a Worldpay perspective, there are these proven technologies, right? There are card account updaters, there’s network tokens, but Worldpay cares more about outcomes and consistency, right? It’s not just selling tokens. We’re selling consistency in the approach.
So while they are these proven technologies and they are effective, sometimes they don’t always work, right? They’re not performing consistently, they’re not a panacea. But that’s where these things around, like falling back to PAN if it isn’t working. Should we adjust the routing based on if it’s a credit or debit? Can we augment the transactions?
And I think these things are happening today. The hard part is, and where we start to see is, as the maturity of the issuers come into nature, these things cannot be hard coded. They have to be adaptive. And they actually have to augment and be adaptive in terms to these changes because then the maturity comes and we start to see that particular issuer is now good or performing well with a token.
And then you have to augment your strategy. Those are those types of experiments and tweaks that you have to be truly flexible in order to manage this complexity because just when you think you have it, the rules are going to change. And so that’s really the approach that we have is that it doesn’t end, right?
It is not linear. Some of the things that you had known, you may have to go back to your playbook from day one and look at it and say that these are things that were board demonstrated that may actually work or they’re no longer effective. And you cross those out and move on to the next.
So, it requires a little bit of patience to understand where these trends and patterns are moving.
Drew Edmond: Yeah, I’m picturing a large wall of knobs and levers that’s like, a hundred high than can constantly be tweaking. For people that are listening to this particular podcast, you know it is called Payments on Fire. You’re probably relatively familiar with certain large movements that happen in the industry.
One of which was Worldpay getting acquired by FIS, subsequently getting spun back out. But I think there’s something really important there in that, for the time that you were there, and you continue a close relationship with them going forward, they’re a major issuer processor for financial institutions. You’re a huge, huge acquirer. You see tons of transactions. Being able to see both sides of the transaction, I think my hypothesis would be that that would create some learnings in terms of, if we make this change over here, we can see what the outcome is on this side.
What did you learn from that time when Worldpay was a part of FIS and, with the relationship as you have it today, what benefits does that bring to your merchants? What did you learn from that relationship?
Brant Peterson: Yeah. That’s a good shot. I like how you characterize it. And I think that was kind of that strategic fit. And when Worldpay and FIS came together, understanding the entire link in the value chain, right, all the way from authorization to issuing into banking.
And so I think the key learnings, what helped us introduce some new initiatives, like some capabilities like our trusted MID program, right, where we could actually have a deeper insight into the network side on the debit issuing side, allow us to see things that we could not have seen historically as the role of the acquirer processor.
It also led into things around our direct data sharing, fraud data sharing with some of our card issuers. So obviously those are outcomes, or capabilities that we brought together by, by joining forces within these two companies.
But I think really, what we started to see more about the insights sharing that we learned, issuers have different risk tolerances than acquirers and merchants. They have different motivations. We learned that the motivations of the card issuer are not the same as the merchant.
And so we really started to understand their perspective about what motivates them, what they feel is optimization, what those strategies are, what their preferences are. We learned quickly that they actually prefer more data to make better decisions and so, which led to the pilots around data sharing programs.
So, allowed us to really understand their behavior, their risk tolerance, their profiles. We also found out that even if I get a specific decline code coming back from Visa, Mastercard, the card issuers have 27 different unique cards that actually link to that one. And so we started to really get an understanding. Digging deeper about that translates to, as we peel back the onion, deeper levels of understanding. So it allowed us to basically understand how we should optimize or how we should think about sending transactions to issuers, right? Our goal is to ensure that we don’t give the issuer an opportunity to decline the transaction.
Just sharing these insights both tactically, sharing the data from a learning and behavior has allowed us to really create some gains in terms of our optimization capabilities from the merchant side.
Drew Edmond: Even just learning from the last conversation in this particular series, talking to Oban MacTavish at Spade, the struggle that some issuers have, the merchant ID structures that some merchants have sometimes are very complicated and disjointed and disconnected. And so a bank doesn’t even know that this particular transaction is the same merchant as this transaction. Obviously that’s going to impact their fraud models, thinking that, Oh, this transaction is this merchant, this is a completely different merchant.
So yeah, a world in the future where the banks just have more context and more data to be able to make these better decisions is so critical. I think it’s such a fundamental piece of, I don’t know if it’s ever going to be solved, but at least attempting to solve problem at a grand scale. Fundamentally, it’s a data issue for a lot of it. Not for all of it, but certainly for a lot of it.
Brant Peterson: Yeah.
Drew Edmond: You mentioned fraud, suspected fraud, perceived fraud, actual fraud as one of the underlying elements that drive some of these less than ideal outcomes for the merchants’ experience with failed payments. I think it’s no secret that fraud continues to be on the rise. It’s a huge problem globally across payment methods, across payment rails, whatever it might be.
It’s growing in every direction and it’s a huge pain point for the whole entire ecosystem to deal with. It’s a team sport, as we like to talk about it, for everyone to pitch in to help reduce that fraud, right? Merchants are obviously working with fraud solution providers and trying to put their best practices in to to help mitigate it upfront. Acquirers have to manage it for their portfolio. The networks have a heavy hand in keeping fraud down for the trust of the ecosystem and to make sure people still feel comfortable using cards and other payment methods to move money around. And of course, issuing banks have a concerted effort to reduce it for not only their own fraud loss, but the experience that their customers have.
So, certainly a major issue, of course, and the fact that it continues to rise, I think people are still always looking out there for, All right, what are the best tools that we can use to help mitigate loss on our side, depending on who you are as a player in the ecosystem.
Earlier this year, in February, it was announced that you guys acquired Ravelin, which is a fraud management solution that has been working with and supporting leading enterprise merchants for a long time now. And they also have a really great report that they publish every year. It always makes the rounds here at Glenbrook.
But I’m curious, what made that decision? Obviously anytime you make an acquisition it’s like, I’m making a bet for a reason. What was the reason? What did Worldpay see in Ravelin that you said, Okay, bringing this under our umbrella is going to make things better for our merchants.
Brant Peterson: I think there’s a few things. I’ll tell you just from my perspective, I’ve spent some time with the Ravelin team as they’ve come on board the Worldpay family. What I get really excited around is that this Ravelin acquisition was truly a capability driven acquisition rather than a book of business.
Worldpay obviously has grown by acquisition in terms of organizations, but really exciting to see the laser focus on this particular problem like fraud. I think what’s also exciting around the long-term strategic fit with Ravelin is around they are an AI ML company, like product led company, first and foremost, specializing in this very particular focus area of fraud prevention, which is really a key pillar of optimization, which gets me excited, right? We think about, we can’t optimize, like we talked about, payment credentials and all these other types of declines, but if you don’t get the fraud down and you don’t clean up the traffic, we cannot optimize your volume. We cannot improve your volume. And there is a direct correlation between fraud to authorization to authentication and those types of things.
So really this investment of, this focus point of bringing these, what’s perceived as unique disciplines into kind of a strategic focus, whether it be fraud disputes, authentication, driving better authorization. So I think that’s the exciting thing about them coming into the fold technically and both organizationally, is really in invigorating where we actually start to really drive on that narrative around fraud and authorization are clearly connected. I think also the, being so fraud focused, the things that they are going to go and tackle and address these pain problems.
Account takeover, ATO, friendly fraud, returns fraud. It’s just plaguing our merchants, right? These guys are just up for the challenge. They’re up for it. Like they are just energized and they are, talking with our customers. They have deep, deep knowledge in here. So it honestly, it just fits organizationally, philosophically, culturally. We couldn’t be happy to bring these guys on. And based on the discussions I’ve had, they’re just as excited to come on board.
Drew Edmond: That’s great. You have to be passionate about fighting fraudsters because the fraudsters are so passionate about getting money.
Brant Peterson: Right. They’re motivated too.
Drew Edmond: Yeah. And just touching on the fraud piece even further. I think it’s obviously not just about the, We want to stop fraud upfront and that’ll clean up our approval rates so that what does get through is good transactions and things like that. But on the flip side, if you’re not doing that and you’re constantly allowing this fraud to come through, the kind of perpetual and long decline of your approval rates, that it can be hard to get back up if issuers start to say, Ooh, this particular merchant seems to be, we’re sending a lot of fraud notifications that way, they’ve got a lot of chargebacks. Maybe we just turn them off slowly but surely, or not so slowly in some cases.
Brant Peterson: One hundred percent, right. You start to see those negative behaviors. They’re easy to get into those traps. They’re harder to claw back out.
Drew Edmond: Absolutely. Another announcement that is very relevant for this conversation that you’ve touched on is the partnership with Capital One and the ability for the merchants that are using your fraud tool to benefit from the data sharing agreement that you have with Capital One, who’s really been on the forefront from an issuer perspective in terms of saying, Hey, let’s work more closely with payment service providers, acquirers to get that data and actually use it to start making better decisions. Let’s have an API that can be used to do so.
Can you just explain a little bit more of how that works? What kind of data is being shared, what the results have been so far and even thinking about like, what’s the future of this look like? I think it’s still kind of a new concept. You don’t see a ton of talk about other issuers talking about it too much. This seems very important. I’m glad we’re doing it, but like, how’s it going?
Brant Peterson: Yeah. I’ll tell you, this is one of my just favorite, favorite products, right? Not so much from a technology standpoint, but it really is what we’ve been talking about. Bridging merchant to acquirer, to network, to issuers. Really starting to come together on this thing and really starting to share data and insights.
In this case, we’re actually sharing fraud data. But if you think about where this started around the collaboration with FIS and it really spurned around, issuers are the ones that have to make these tough decisions on fraud authorizations and they’ve had limited data or abstracted data, right? By the time it gets all the way to the issuer, they don’t have enough data to make, let’s say, intelligent or effective decisions. And so as a result, we start to see inefficiencies and how they’re making these decisions.
And they’re always constantly, like you mentioned, the fraud rules and the levers that are constantly tweaking. And we started to see more decline transactions, perceived fraud versus legitimately fraud. If you think about specifically here in the US, where you’ve seen in PSD2 countries or other areas like 3DS authentication, which is very mature and we’ve seen it being effective in reducing fraud and false positive stuff. Not very scalable, not as effective here in the US. We just haven’t seen it. And so as a result of that, Worldpay and Cap One partner to enhance fraud decisioning through like a data sharing agreement that really kind of improves the richness of the data.
We’re talking about sharing fraud related data, right? These are basically the same data fields in a transaction that would be related to 3DS authentication fields, right? That you’d actually go get a risk score with the issuers before the authorization. So it’s really nothing transformational in terms of the data that’s being shared and sent to the issuer to make a scorecard. It’s really about how the data is directed directly to the issuer to have unobstructed, not malformed, directly from the source to ensure that they get the highest likelihood of the best approval.
So, yeah, I think there’s, we actually had a focus group with about a hundred merchants in our MRC focus group a few weeks ago. And that was a big question, right, around sharing data, there’s a natural resistance around sharing of data, right? We made it very clear about the data. This is not confidential data. This is not PII data that we’re going to sell to advertising, to our issuing partners. It’s really around, logically separated data that’s unique for the transaction, that just allows the issuers to make better decisions and stuff that they do every day with 3DS. So it’s really an approach that bridges, just allows them to make better decisions.
So I think once we started to sit down with those merchants and really talk about the type of data that’s being shared, I think it alleviated some initial concerns. But those are the types of things that we’re going to be talking with a lot of our customers around the specific data that’s being shared and how it’s shared, what the outcomes that are, the results that are happening, which we’ve seen based on our initial deployments, are seeing some real, real results that have been great.
Drew Edmond: That’s great. Say a little bit more about the MRC discussion. Was that merchants plus acquirers plus issuers all in the room talking about this particular issue of data sharing?
Brant Peterson: Yeah, that was actually a different panel. So one was a focus group that we brought in for merchants to really share and provide awareness about this particular capability, right. Did you know that that Worldpay and Cap One and other issuers are going to start to be sharing this? What are your key concerns? What are your pain points with this? Would you adopt this based on some of the pain points you’re having with 3DS authentication today?
There was other forums that I, as well as colleagues, participated in with MRC. One notable one around the acquirers committee, where really that’s the connection between authorization and compliance rules, right? And actually identifying, if you understand compliance rules and you actually align and do your compliance mandates correctly, you’ll actually effectively remove the likelihood of the issue or decline of transaction, right? Don’t give them an opportunity.
But that said is, one of the key challenges with MRC where we’re starting to create visibility and awareness is that the industry is actually has an overwhelming number of network led changes. I think there was like 2000 of these last year, they’ve been coming up globally as well as across the networks and so, while these mandates are good, they actually can drive better authorization, performance, lower fraud, create better efficiencies and program costs. They’re just making it incredibly difficult for merchants to adopt, right?
And so, as part of the acquirers committee, industry leaders, including my competitors, sat in a room together as well as on stage to really talk about those pressing challenges, the things that are affecting our merchants the most. We really emphasize things around the need for collaboration between the networks and the merchants and the acquirers to simplify the overall network changes, right? There’s so much of them, they’re hard to understand, they come out so fast. And so, we think about these are things that are solvable, a well-rounded implementation could actually benefit everybody, right? If we actually included merchants, they’re the ones that are most affected by these changes. Let them play a key part in these types of changes, get early feedback.
I don’t think those are anything that’s transformational. I think it’s honestly it’s good product management. We’re all good product companies. We need to think about Stripe and PayPal and Adyen and Visa and Mastercard. We’re all good product companies and we should just use the things, our disciplines that we do today, when we think about network, like it changes. And I think that’s really something to be said around the evolution of MRC, right? Moving from this kind of organization that has always been like focused on fraud and thought leadership, to more of an advocacy group, right?
Helping educate customers, but also influencing card networks, regulators, policy makers to make sure that we’re thinking about merchants first and foremost, and taking in their voice of customer and their needs in mind when we think about a lot of these new changes in the industry.
Drew Edmond: Absolutely. In terms of these industry-wide conversations, the concept of orchestration has been around for a few years now, of course. And we’re not going to talk about it in the multi-PSP version of it, but really, there’s different versions of orchestration comes to routing and choice of payment, and debit routing, another thing that’s been around for a long time, however, a little bit newer for folks on the e-commerce side. And so as an opportunity for optimization, in my mind, kind of falls under, are you optimizing for costs? Are you optimizing for approval rate essentially, and trying to balance those?
How do you see this being used by merchants today? Is it primarily enterprise merchants? Is it mostly for costs? Is it mostly for approval rates? What is the state of debit routing these days?
Brant Peterson: Yeah, it’s a great question. I think there is a watershed moment with debit regulation in the US just recently that’s allowed that kind of shift. You’re absolutely right. Historically, debit routing and our debit routing capabilities we’ve offered to merchants has always been a cost saving strategy.
One. Merchants can absolutely measure the ROI impact. Cost savings are actionable. They’re tangible. You can prove it to your CFO around cost savings. I think the hard part we’ve seen over the last couple of years is that while cost savings are easy to demonstrate an ROI impact, they’re hard to sustain over time.
We just talked about 2000 network pricing changes that have come out. Compliance mandates are coming out, market conditions are changing. Even think about Worldpay and FIS coming together and then spinning off. A lot of customers and organizations are doing, the merchant organizations, they’re doing the same thing. And when they do that, their MCC categories change and some of the dynamics of their profile change and all of that impacts the ability to preserve those cost savings over time. And so that’s the hard thing to sustain.
What we’ve seen the shift in focus is as a result of that, and I’ll say the customers still believe in cost savings, it’s never going to go away. Protecting margins and profitability will always be a key piece of our merchants focus strategy. I’ll say the shift we’ve seen is while the cost savings are still relevant, we do see a merchant segment that really wants to start to prioritize on authorization. They just believe that it’s true, right, from a top line revenue. Especially of our subscription customers, if they think about long-term customer value, keep them forever, right? And you’ll grow lifetime value versus losing them over cost savings in the bit of a decline transaction, right?
So really prioritizing authorization has been a shift to something a lot of our customers believe that it’s true. We are actually as well piloting solutions right now. We are actually allowing merchants that choice. Do you want to prioritize on cost savings? Do you want to prioritize the optimization value on authorizations?
What’s really advantageous and I think what’s benefit, like there always seems to be that trade off. But what’s really great about debit routing here in the US, though, is that if you do optimize on authorization, you get the cost savings too as well. So there’s not a trade off. It’s really a win-win scenario. I think just the hardest part you have is, unlike cost savings though, is proving authorization lift in a quantifiable way. I can prove cost savings are easy. How do you prove the lift? How do you prove authorization lift?
And it’s something I think we’ve actually started to unlock, and our early pilots have indicated meaningful impact. It’s harder than the actual technology itself to prove that.
Drew Edmond: Is that kind of AB testing control groups and just trying to measure the difference between those or is that at the market level or at the BIN? What are the levels that you test that to see what that does?
Brant Peterson: Yeah, absolutely. We have AB testing experimentation with defined control groups that can be both configurable and we can turn up, like you said, these little dials that can turn up the levers and turn, taper them down depending on what that is. But I think the hard part is reporting in a way and, into a dashboard that, merchants understand that matters to them. Which is the hard part. It’s the ability of quantifying that in a way that they can easily distill and understand. Because things like AB testing and control and experimentation are not easy concepts.
Some of the folks that we’re talking to are the CFOs, they’re talking to the business folks, the finance folks, and that’s okay. But it’s a hard, very technical discussion to demonstrate the value bringing.
Drew Edmond: Especially in the kind of the enterprise portfolio that you’ve got, I think there’s a sophistication curve, right, depending on who’s running payments at some of these businesses, where, let’s say on the high end, you’ve got folks that they want to be in control of those knobs and levers a lot of the times and have super, a lot of transparency into, If I make this change, what’s the outcome over here? To your point about how do you make this visible and digestible in a dashboard, to the other end of the spectrum where it’s like, Listen, we don’t have a lot of resources to think about this, but we trust you and you’re telling us all these kind of solutions that you have for us.
How do you weigh that spectrum as Head of Product for Enterprise, at Worldpay? Folks like that, that’s a very different kind of persona to persona spectrum to work with.
Brant Peterson: It’s a fair question and it’s actually something we’ve thought about a lot. Goes back to that ability of the panacea, right? There’s not a singular silver bullet. We see them as more as personas and behaviors of customers of what they want. Some of our customers, like, I just want the black box and I don’t care what’s in the black box, just tell me how we’re doing. And that’s fine. We love those discussions as well because there’s a level of just, they’re delegating these responsibilities to Worldpay as their provider with a sense of trust to do it.
The other ones, and I honestly, I think I find more rewarding. I love customers like, What’s in the black box. They’re intellectually curious about what we’re doing. How can we get better? Hey, I just looked at your reporting and I see some things like, how can I get better? How can we get better? And I think that’s where it drives the collaboration piece.
So there’s one thing around the technical piece, but then there’s the operational and the expertise where we have, we actually have a team of experts that actually look and work with our customers on this, right? It’s not about like, Hey, I’m going to sell you a new product. It’s about, Hey, I’m looking at these symptoms and you’re actually changing.
If some of this behavior could actually reduce these costs, they can grow your approval rates. So it allows us to get better, but also, without actually having to, they don’t have to buy anything more. They don’t have to necessarily make a change. We can do that on their behalf.
So I think it really depends on the persona about what the customer wants out of this program. I think some other providers are very guarded about that and it’s our secret sauce. Worldpay’s a little differently. We’re pretty transparent about it because if I had a 30 minute conversation or anybody in our team, these experts, you’ll realize that it’s so complex that we’re not giving away anything, right? They’re going to be like, you guys should handle that. Yeah, you guys should handle this. But we’re very transparent about that. We’re very open, because we do our job. We offer the black box to abstract that complexity, but there’s some customers that want to know why these things are happening. And we love those discussions as well.
Drew Edmond: Yeah, absolutely. Sometimes you hear people talk about, Oh, payments is commoditized, or things like that. Well, not really. Yeah. Sending an electron to Visa or to Mastercard. Sure. You can build that. But I think it’s what’s going on in the black box that allows you to differentiate and to think really deeply about solving challenges for merchants. And this is one of the major challenges, right? We’ve got to keep this metric up and constantly be fighting the battle for it.
Brant Peterson: That’s right.
Drew Edmond: I want to talk about AI because what podcast can happen without it. And machine learning, which is maybe even more accurate in some cases depending on what we’re talking about. But I’d love to just hear about how does Worldpay think about using artificial intelligence, machine learning in your tools today? How has that changed, if at all, over the past few years, just with the explosion, obviously, of the topic.
Brant Peterson: Yeah. Definitely very relevant. Arguably number one question we get from customers around our investment in this area, and I’ll preface, like machine learning, things like ML have been a core part of our strategy for years, particularly like in dynamic debit routing that we’ve done for US. We’ve had these strategies around finding least costs based on transaction and all these variables of complexity. So it’s always been something that we’ve, implemented and installed and have grown and cultivated over the years.
We’re experimenting now with AI more into newer, more advanced use cases, particularly around when we talked about like, do I use a network token? Or do I use a PAN and now I have a variable? Because now we can route network tokens down the unaffiliated debit networks. I now have another variable.
I think about payments has always been this kind of sequential, events, right? I call fraud and then I call altercation and then I call authorization. It has to go very linear as we talked about. And I mentioned before, optimization is now becoming, is not linear. So we’re looking at AI to actually look at these things more holistically, where these things can be made based on these very factors without having to call these four or five different events all through a single transaction, which introduce latency, complexity and things.
The other thing we’re investing in, as you know, we just mentioned a minute ago, is around predictive modeling for AB testing and experimentation. So we can do AB testing and we can prove it, but what we start to see around is, behavioral changes and historical contextualization start to shift.
And a great example are a lot of our customers do are heavy into their dunning process and the retry strategies, and ensuring that like, they need to get that authorization. Even if they get a transaction decline that says, do not retry this transaction, a lot of our merchants do.
Why? Because historically it’s been worth the squeeze. Because there was a 6 to 10% recovery rate and it was, it’s worth it to them, from their perspective, no matter what the costs were. But we’re starting to see issuers get better at better categorization on their decline codes. They’re getting more efficient.
And so where we have seen things like effective rates on do not honors go from 6% to like 0%. This is where things like AI should be adaptive and we’re looking at it saying, really, it’s not worth the squeeze anymore. You shouldn’t be retrying on this particular decline reason code, because historically what was in your playbook three years ago is no longer valid.
So that ability to use AI more from a historical contextualization or predictive of saying it actually may be effective today, but maybe in six months from now, our predictive modeling says it’s not going to be effective, so stop doing it. So we can actually, instead of actually being very reactive, we could say stop doing these in next month’s time, because we start to see the trend. So those are the ways that we’ve been applying AI within our optimization capabilities, in addition to some of the cool stuff that our Ravelin team’s been utilizing AI and, ML for.
Drew Edmond: Let’s look into the future a little bit. And it can be some of the stuff maybe that we talked about as well, but if there’s any other things that you’re thinking about in terms of kind of the future of authorization rate optimization. Is there anything on the horizon that you see that you think is going to have a significant impact? Maybe one way or the other? Either positively or negatively where it’s like, Hey, this is coming down and, Ooh, this could be a problem that we’re not prepared for as an industry or the other way where it’s, Hey, this could really help,
Brant Peterson: Yeah, there probably are. I have more of a positive outlook on it. I’ll tell you things that I want to see or that I believe, I want to see the future around payment optimization. Short term outlook. We actually just talked about this. AI is going to drive smarter decisions around success rates. We talked about that trade off between balancing costs and efficiency with higher approval rates. AI can help with that. It’s not going to solve everything, but AI should be used as an accelerator for things of the expertise that we already know about and this complexity, and that should help us kind of unravel and then unlock some of that.
And I think that, and that’s something we’re doing today. So I think that’s a short-term outlook that I think is absolutely going to be, is going to start to see some immediate returns now, if not in the near term future.
Long-term vision. I’d love to see it. Identity becoming the key factor in optimization of authorization rates. Identity builds trust and building trust tampers down concerns with issuers and card networks, right? And so this idea of bringing in identity into the fold, through this holistic approach of identity authentication, authorization, building trust within merchants and issuers.
And if you get to that point, you’re going to lift the ecosystem up. That’s a technical piece, and I think that kind of goes to the things we’ve been talking about, both from the vision statement at MRC as well as here at Worldpay as part of our payment performance initiative around just all players in the ecosystem, ensuring merchants, acquirers, issuers are coming together on that, defining. And we talked about this before, right? There’s different motivators and there are different needs, but higher approval rates actually benefits the entire ecosystem. Everybody, from merchant to issuer. Both from a collaboration standpoint, love to see those come together in addition to things like, identity is not becoming a standalone discipline, really coming into the fold and something more powerful or embedded into the overall optimization proposition.
Drew Edmond: Yeah it makes me think a lot about kind of the notion of the authenticated token, if you will, right? Like if I’m a merchant and I have my card portfolio and I just switch you over to network tokens. That could be any card, right? But if you have, an Apple Pay token or a biometrically authenticated token, whether that’s on your laptop, on your phone, whatever it might be. That’s just so much more trustworthy and provides that confidence. And I think that’s like a piece of that identity puzzle. And you see that, I think with the network saying, Oh, we want to get rid of PANs and only use, click to pay or whatever it might be, or Paze.
And where it’s like, all right, we have these other digital wallets that are out there too. And a lot of different perspectives on whether or not there’s going to be uptake on the merchant side, on the consumer side, whatever it might be. But I think the underlying notion is that authenticated token concept however it ends up being implemented, I think is so critical, because otherwise it’s like, well, this could just have come from anybody.
Brant Peterson: That’s right.
Drew Edmond: All right. But this has been an amazing conversation Brant. Thank you so much for joining me on the episode.
Brant Peterson: Thanks for having me, Drew.
Drew Edmond: Of course. And to all of you listening, thanks for joining us. Until next time, keep up the good work. Bye for now.
