Global Startup Cities Podcast: AI assists merchants on chargebacks

Victor Swezey 0:02
Hello and welcome to a special edition of “The Buzz,” a Bank Automation News podcast. Today is July 25 2023. My name is Victor Swezey, and I’m the editorial intern at Bank Automation News. Today is the second episode of our Global Startup Cities series, where we take you to some of the most innovative tech hubs around the world to give you a look at these startup cultures and the markets they serve. Along the way, we’ll be talking to 10 tech founders from these cities about the products they’re bringing to market. This week, we’ll be traveling to Tel Aviv, the capital of Israel, the Middle East’s startup nation. For years, Tel Aviv has been churning out innovative startups across multiple verticals, including social trading platform eToro and cybersecurity firm winds. As of March, the city alone was home to 95 unicorns, according to the Times of Israel. Joining me today is the founder of just a startup using AI to automate chargeback mitigation for E commerce merchants and banks. Please welcome Roenen Ben-Ami.Roenen Ben-Ami 1:08
Great to be here. Great to meet you, Victor. Thanks for having me. So I’m Roenen, I’m the co founder and chief risk officer adjust just solves the problem of chargebacks from mine merchants at the post transaction stage. In order to explain that I always like to give an example of what a chargeback is. So we’re all on the same page. So let’s say you’re an online merchant selling a pair of shoes and a cardholder buys those shoes, it’s shipped to their address. After receiving the merchandise, that cardholder has the ability to dispute that transaction. And many times it could be an innocent mistake, they forgot what they purchased. Someone else in the family made the purchase or actual criminal activity of trying to get something for free. What happens at that point is that the cardholder goes to their bank disputes the transaction and receive the funds in return. At that point, the bank, let’s say it’s Bank of America will submit into the card scheme networks Visa or MasterCard, an actual chargeback. And the funds are ultimately taken from the merchant, I say the system is built, that you’re guilty until proven innocent as a merchant, because the funds are automatically taken from the merchant. And unless they handle the process of proving that this chargeback is illegitimate chargeback, based on the reason called what the actual claim is, then they’re going to lose those on them. That process is quite manual with many rules and regulations. And what we have done is taken a three pronged approach to solve this for merchants. And the first approach is really hands free, we realize that merchants don’t have the time, when you don’t have the knowledge or resources to deal with their chargebacks, we take the entire problem onto our shoulders and handle it on their behalf. The second point is being an automated solution. And what we mean by that is really two items. First, it’s actually tailoring the solution at scale per merchant, to their end user flow their industry so that we could get the best solution on their behalf. And then running that solution in an automated fashion because chargebacks fluctuate and come in at a random split pace across the month. And what we’re doing is actually handling those cases automatically. So it doesn’t matter if one month, it’s several 100 chargebacks. And the next month, several 100 1000s of chargebacks, we’re gonna get all to all those cases, the same quality. And the final item is really being a data driven solution. So we’re actually running tests on the responses that we’re receiving once one and what’s lost finding where our weak spots are, per issuing bank per card scheme per reason code of the actual chargebacks per payment processor, we’re able to run a B tests there find those weeks that improve on those weak spots. And overall it the win rate and the amount of funds that we recover for our merchants improves over

Victor Swezey 4:03
time. Got it and why are chargebacks such a big problem for businesses? And can you set the scene of you know, I think a lot of banks are aware that there’s been kind of a rise in fraud in recent years. Can you can you go into that a little bit?

Roenen Ben-Ami 4:18
Yeah, definitely. I’ll start by going back to 2008. During the global financial crisis when the term friendly fraud was coined, when the when there was a difficult economic situation, many more illegitimate claims were being made in the online space around chargebacks. And there was a large increase. Then if you go back to pre COVID the rise was around 25 to $50 billion dollars a year were being lost due to friendly fraud chargebacks these illegitimate claims by the card holders and since since COVID, because so much has gone online and The chargeback problem is really an online problem, the majority of chargebacks are happening there, it’s turned into over $125 billion problem and growing, it’s growing in the double digits each year as well. So it’s really a growing issue. And it’s it’s quite a problem for merchants, because I always say the chargeback process has been stuck in the past, it’s still very, very manual with many rules and regulations. The car scheme has changed their rules every year, Visa just came out with new rules around fraud chargebacks, MasterCard last year made all these changes around subscription chargebacks. And there’s many more changes that are going to come. And it’s really the merchants that need to be on top of those rules, as well as manually handling the cases. When the volumes are so high, it’s just not feasible to get to all the cases in a manual fashion.

Victor Swezey 5:52
Can Can you dig in a little bit more to the role that AI plays in? Just how exactly do you use artificial intelligence to help manage this chargeback system?

Roenen Ben-Ami 6:03
Great, so I’ll explain it by where our technology works in the process. And then and then how the AI fits into the technology. So we really started with using the this automated approach by integrating with the actual payment service providers of the merchants, for example, Stripe, Avi and Braintree and many more. So we’re actually become a sub processor on behalf of the merchant and can pull directly their chargeback data from their from their PSPs. But they’re called. And then we have our third party solutions that we use that enrich our data, meaning that we’re able to find out more information about the actual transaction, what else happened in this that specific transaction that can help us understand and tell the story better on this specific case. And then there’s also third, the data points that we can take from the merchant themselves. Many times we can go live without that merchant data. But we can improve the solution. If merchant data is added, it can integrate with our API, or it can send us a CSV report. Once we have all that data in our system, our system is able to work alongside our specialists that are tailoring the solution using our smart tools specific for that merchants needs their end user flow. And then once they’re live with the tailored solution that the AI really kicks in. Once we’re starting to receive recent results on that merchants or cases, once we receive the we receive those results, we can run tests, where are we not performing very well? Where are we can we perform better? Let’s try different data points. Let’s try different arguments, different ways of designing the templates, run different AP tests with different issuing things. So I always say that the issuing banks, the banks of America or chases of the world are reviewing this evidence. And you can see with one one issuing bank, a 60% win rate and another one, a 20% win rate with the same scenario. So each one is analyzing your evidence in a slightly different way. And you have to tailor the solution to each issuing banks preferences.

Victor Swezey 8:21
Could we go through like a banking related case study?

Roenen Ben-Ami 8:24
Yeah, that’s a great point. Because the the chargeback ecosystem doesn’t only affect merchants, in the end, it affects the acquiring banks that are actually allowing the processing for the merchants as well as the issuing banks that are issuing the credit cards to the actual card holders. And as well as the card schemes themselves. And I will say the entire ecosystem of chargebacks is quite manual, and and challenging. And we’ve actually looked into both the pain points of the acquiring banks, as well as the issuers. We even have several pilots running on the issuing side to help them deal with their pain points. But the ecosystem itself has a lot of innovation, yet to come to make this a more efficient, scalable process and a more accurate process. That’s where we really see a lot of our play here is to help make this ecosystem more accurate and making the right decision. So issuing banks when they post the chargeback, they’re actually sending it into the card scheme networks into in a manual fashion posting it into those systems. And when they receive our evidence or return, they’re manually reviewing that evidence, and it’s quite a tedious process for them to do. So we’ve been working on helping them make their process more efficient.

Victor Swezey 9:49
Maybe let’s transition now to you know, a little bit broader scale about Tel Aviv and about what it’s like to be a startup there. So you know, Tel Aviv is we all know it’s a startup hub. Um, can you explain a bit maybe the history of that? And you know, what is exactly the environment for founders like there?

Roenen Ben-Ami 10:07
Yeah, sure. I always say that Tel Aviv is interesting in Israel in general is interesting that because we’re, you know, we’re a small startup country, though we say, we look to innovation not only within the country, but across the world. And we’re always outward looking, how we could change things globally, which a lot of times, you know, I feel like in the US, or in the places in Europe, you’re trying, you’re looking inward, and how you can deal with inefficiencies inside the specific area of the world, Israel really looks outward, and not only dealing with their own inefficiencies, and they see it with many of the startups around us. It’s an amazing environment, I have to say it’s under one very small city, amazing city, but it is a small city, I always, everybody always told me to go to San Francisco experience the startup environment there. It’s a great environment, but it’s very spread out. Tel Aviv is you know, I go down the street and have coffee with our investors, I go walk over to the offices of one of our have one of our merchants that work with us. Everything is in walking distance, it’s very easy and, and collaborative in the same way. Because I can tell you, on a personal level, when we we started to build a building just there were so many other entrepreneurs out there that were helping us with things and learning what we should do and how we should do things. And now that I’m in a situation that I can help, as well, I have many entrepreneurs reaching out to me and asking for my advice on things. And we’re very collaborative, and, and allow room for encouraging each other and to to succeed because we, we’ve all been there. It’s a challenging environment. And it’s nice to be in that collaborative environment.

Victor Swezey 12:05
So, you know, Israel is renowned for producing all kinds of high quality startups, advanced startups in all different industries. But I think especially cybersecurity, and you know, you’re sort of tangential, related to cybersecurity with anti fraud and charge backs. And I was just, I guess, wondering, how do you think this emphasis on high tech security came about? And is it tied at all to Israeli history and society?

Roenen Ben-Ami 12:29
Yeah, I think there’s something there. Especially, you know, as you mentioned, cybersecurity is a really big space and high tech scene in Israel, as well as where we sit more on the FinTech side and anti fraud side. There are a lot of things that are learned in the military here, especially in the intelligence branch that can be adaptable in Israeli into society and civilian life. And I feel that, especially in the in the anti fraud space, I feel like it was a chain reaction, if you look at when PayPal purchased fraud sciences, and Israel really became a hub for the anti fraud space after that, and you saw so many startups from that were ex PayPal, employees that went out to build amazing anti fraud startups. And then it was from the next generation to the next generation because I look at myself, before building just I spent time at startup that was purchased by nove called simplex that two of the founders there were ex Pay Pal employees. So kind of has been passed down from from two different entrepreneurs. And it’s been interesting to see how this chain reaction has occurred, has become a hub for the FinTech, anti fraud sector. So there’s definitely something that you could go back to the military things that have happened there, and then chain reactions that have occurred, and just the the education moving from, from person to person.

Victor Swezey 14:08
You know, where do you think things are going in the future? And what are maybe some fintechs that we should be watching coming out of Israel?

Roenen Ben-Ami 14:16
Yeah, I think there’s a lot of exciting things happening in Israel. I can tell you, for example, we work with a company called millio, which is a really amazing company what they’re doing. They’ve been around even longer than we have, but they’re just doing some really exciting things for SMBs in the United States, allowing them to pay their their actual vendors in an easier fashion through their system, they could pay through credit card, and then they’re behind the scenes paying the actual vendors in whatever way they need to cry. Ach check are many other ways. Another one is mesh, if you’ve heard of them, which is an amazing company, there Dealing with the financial side of companies and being able to manage your finances better and having corporate cards for the employees and allows you to actually manage the finances across the company in a lot more efficient MIT way. And there’s many more the scene is really hot and exciting to be a part of it.

Victor Swezey 15:28
You’ve been listening to “The Buzz,” a Bank Automation News podcast. Please follow us on LinkedIn and Twitter. And as a reminder, you can rate this podcast on your platform of choice. Thank you for your time, and be sure to visit us at finainews.com for more automation news.

Victor Swezey 0:02
Hello and welcome to a special edition of “The Buzz,” a Bank Automation News podcast. Today is July 25 2023. My name is Victor Swezey, and I’m the editorial intern at Bank Automation News. Today is the second episode of our Global Startup Cities series, where we take you to some of the most innovative tech hubs around the world to give you a look at these startup cultures and the markets they serve. Along the way, we’ll be talking to 10 tech founders from these cities about the products they’re bringing to market. This week, we’ll be traveling to Tel Aviv, the capital of Israel, the Middle East’s startup nation. For years, Tel Aviv has been churning out innovative startups across multiple verticals, including social trading platform eToro and cybersecurity firm winds. As of March, the city alone was home to 95 unicorns, according to the Times of Israel. Joining me today is the founder of just a startup using AI to automate chargeback mitigation for E commerce merchants and banks. Please welcome Roenen Ben-Ami.Roenen Ben-Ami 1:08
Great to be here. Great to meet you, Victor. Thanks for having me. So I’m Roenen, I’m the co founder and chief risk officer adjust just solves the problem of chargebacks from mine merchants at the post transaction stage. In order to explain that I always like to give an example of what a chargeback is. So we’re all on the same page. So let’s say you’re an online merchant selling a pair of shoes and a cardholder buys those shoes, it’s shipped to their address. After receiving the merchandise, that cardholder has the ability to dispute that transaction. And many times it could be an innocent mistake, they forgot what they purchased. Someone else in the family made the purchase or actual criminal activity of trying to get something for free. What happens at that point is that the cardholder goes to their bank disputes the transaction and receive the funds in return. At that point, the bank, let’s say it’s Bank of America will submit into the card scheme networks Visa or MasterCard, an actual chargeback. And the funds are ultimately taken from the merchant, I say the system is built, that you’re guilty until proven innocent as a merchant, because the funds are automatically taken from the merchant. And unless they handle the process of proving that this chargeback is illegitimate chargeback, based on the reason called what the actual claim is, then they’re going to lose those on them. That process is quite manual with many rules and regulations. And what we have done is taken a three pronged approach to solve this for merchants. And the first approach is really hands free, we realize that merchants don’t have the time, when you don’t have the knowledge or resources to deal with their chargebacks, we take the entire problem onto our shoulders and handle it on their behalf. The second point is being an automated solution. And what we mean by that is really two items. First, it’s actually tailoring the solution at scale per merchant, to their end user flow their industry so that we could get the best solution on their behalf. And then running that solution in an automated fashion because chargebacks fluctuate and come in at a random split pace across the month. And what we’re doing is actually handling those cases automatically. So it doesn’t matter if one month, it’s several 100 chargebacks. And the next month, several 100 1000s of chargebacks, we’re gonna get all to all those cases, the same quality. And the final item is really being a data driven solution. So we’re actually running tests on the responses that we’re receiving once one and what’s lost finding where our weak spots are, per issuing bank per card scheme per reason code of the actual chargebacks per payment processor, we’re able to run a B tests there find those weeks that improve on those weak spots. And overall it the win rate and the amount of funds that we recover for our merchants improves over

Victor Swezey 4:03
time. Got it and why are chargebacks such a big problem for businesses? And can you set the scene of you know, I think a lot of banks are aware that there’s been kind of a rise in fraud in recent years. Can you can you go into that a little bit?

Roenen Ben-Ami 4:18
Yeah, definitely. I’ll start by going back to 2008. During the global financial crisis when the term friendly fraud was coined, when the when there was a difficult economic situation, many more illegitimate claims were being made in the online space around chargebacks. And there was a large increase. Then if you go back to pre COVID the rise was around 25 to $50 billion dollars a year were being lost due to friendly fraud chargebacks these illegitimate claims by the card holders and since since COVID, because so much has gone online and The chargeback problem is really an online problem, the majority of chargebacks are happening there, it’s turned into over $125 billion problem and growing, it’s growing in the double digits each year as well. So it’s really a growing issue. And it’s it’s quite a problem for merchants, because I always say the chargeback process has been stuck in the past, it’s still very, very manual with many rules and regulations. The car scheme has changed their rules every year, Visa just came out with new rules around fraud chargebacks, MasterCard last year made all these changes around subscription chargebacks. And there’s many more changes that are going to come. And it’s really the merchants that need to be on top of those rules, as well as manually handling the cases. When the volumes are so high, it’s just not feasible to get to all the cases in a manual fashion.

Victor Swezey 5:52
Can Can you dig in a little bit more to the role that AI plays in? Just how exactly do you use artificial intelligence to help manage this chargeback system?

Roenen Ben-Ami 6:03
Great, so I’ll explain it by where our technology works in the process. And then and then how the AI fits into the technology. So we really started with using the this automated approach by integrating with the actual payment service providers of the merchants, for example, Stripe, Avi and Braintree and many more. So we’re actually become a sub processor on behalf of the merchant and can pull directly their chargeback data from their from their PSPs. But they’re called. And then we have our third party solutions that we use that enrich our data, meaning that we’re able to find out more information about the actual transaction, what else happened in this that specific transaction that can help us understand and tell the story better on this specific case. And then there’s also third, the data points that we can take from the merchant themselves. Many times we can go live without that merchant data. But we can improve the solution. If merchant data is added, it can integrate with our API, or it can send us a CSV report. Once we have all that data in our system, our system is able to work alongside our specialists that are tailoring the solution using our smart tools specific for that merchants needs their end user flow. And then once they’re live with the tailored solution that the AI really kicks in. Once we’re starting to receive recent results on that merchants or cases, once we receive the we receive those results, we can run tests, where are we not performing very well? Where are we can we perform better? Let’s try different data points. Let’s try different arguments, different ways of designing the templates, run different AP tests with different issuing things. So I always say that the issuing banks, the banks of America or chases of the world are reviewing this evidence. And you can see with one one issuing bank, a 60% win rate and another one, a 20% win rate with the same scenario. So each one is analyzing your evidence in a slightly different way. And you have to tailor the solution to each issuing banks preferences.

Victor Swezey 8:21
Could we go through like a banking related case study?

Roenen Ben-Ami 8:24
Yeah, that’s a great point. Because the the chargeback ecosystem doesn’t only affect merchants, in the end, it affects the acquiring banks that are actually allowing the processing for the merchants as well as the issuing banks that are issuing the credit cards to the actual card holders. And as well as the card schemes themselves. And I will say the entire ecosystem of chargebacks is quite manual, and and challenging. And we’ve actually looked into both the pain points of the acquiring banks, as well as the issuers. We even have several pilots running on the issuing side to help them deal with their pain points. But the ecosystem itself has a lot of innovation, yet to come to make this a more efficient, scalable process and a more accurate process. That’s where we really see a lot of our play here is to help make this ecosystem more accurate and making the right decision. So issuing banks when they post the chargeback, they’re actually sending it into the card scheme networks into in a manual fashion posting it into those systems. And when they receive our evidence or return, they’re manually reviewing that evidence, and it’s quite a tedious process for them to do. So we’ve been working on helping them make their process more efficient.

Victor Swezey 9:49
Maybe let’s transition now to you know, a little bit broader scale about Tel Aviv and about what it’s like to be a startup there. So you know, Tel Aviv is we all know it’s a startup hub. Um, can you explain a bit maybe the history of that? And you know, what is exactly the environment for founders like there?

Roenen Ben-Ami 10:07
Yeah, sure. I always say that Tel Aviv is interesting in Israel in general is interesting that because we’re, you know, we’re a small startup country, though we say, we look to innovation not only within the country, but across the world. And we’re always outward looking, how we could change things globally, which a lot of times, you know, I feel like in the US, or in the places in Europe, you’re trying, you’re looking inward, and how you can deal with inefficiencies inside the specific area of the world, Israel really looks outward, and not only dealing with their own inefficiencies, and they see it with many of the startups around us. It’s an amazing environment, I have to say it’s under one very small city, amazing city, but it is a small city, I always, everybody always told me to go to San Francisco experience the startup environment there. It’s a great environment, but it’s very spread out. Tel Aviv is you know, I go down the street and have coffee with our investors, I go walk over to the offices of one of our have one of our merchants that work with us. Everything is in walking distance, it’s very easy and, and collaborative in the same way. Because I can tell you, on a personal level, when we we started to build a building just there were so many other entrepreneurs out there that were helping us with things and learning what we should do and how we should do things. And now that I’m in a situation that I can help, as well, I have many entrepreneurs reaching out to me and asking for my advice on things. And we’re very collaborative, and, and allow room for encouraging each other and to to succeed because we, we’ve all been there. It’s a challenging environment. And it’s nice to be in that collaborative environment.

Victor Swezey 12:05
So, you know, Israel is renowned for producing all kinds of high quality startups, advanced startups in all different industries. But I think especially cybersecurity, and you know, you’re sort of tangential, related to cybersecurity with anti fraud and charge backs. And I was just, I guess, wondering, how do you think this emphasis on high tech security came about? And is it tied at all to Israeli history and society?

Roenen Ben-Ami 12:29
Yeah, I think there’s something there. Especially, you know, as you mentioned, cybersecurity is a really big space and high tech scene in Israel, as well as where we sit more on the FinTech side and anti fraud side. There are a lot of things that are learned in the military here, especially in the intelligence branch that can be adaptable in Israeli into society and civilian life. And I feel that, especially in the in the anti fraud space, I feel like it was a chain reaction, if you look at when PayPal purchased fraud sciences, and Israel really became a hub for the anti fraud space after that, and you saw so many startups from that were ex PayPal, employees that went out to build amazing anti fraud startups. And then it was from the next generation to the next generation because I look at myself, before building just I spent time at startup that was purchased by nove called simplex that two of the founders there were ex Pay Pal employees. So kind of has been passed down from from two different entrepreneurs. And it’s been interesting to see how this chain reaction has occurred, has become a hub for the FinTech, anti fraud sector. So there’s definitely something that you could go back to the military things that have happened there, and then chain reactions that have occurred, and just the the education moving from, from person to person.

Victor Swezey 14:08
You know, where do you think things are going in the future? And what are maybe some fintechs that we should be watching coming out of Israel?

Roenen Ben-Ami 14:16
Yeah, I think there’s a lot of exciting things happening in Israel. I can tell you, for example, we work with a company called millio, which is a really amazing company what they’re doing. They’ve been around even longer than we have, but they’re just doing some really exciting things for SMBs in the United States, allowing them to pay their their actual vendors in an easier fashion through their system, they could pay through credit card, and then they’re behind the scenes paying the actual vendors in whatever way they need to cry. Ach check are many other ways. Another one is mesh, if you’ve heard of them, which is an amazing company, there Dealing with the financial side of companies and being able to manage your finances better and having corporate cards for the employees and allows you to actually manage the finances across the company in a lot more efficient MIT way. And there’s many more the scene is really hot and exciting to be a part of it.

Victor Swezey 15:28
You’ve been listening to “The Buzz,” a Bank Automation News podcast. Please follow us on LinkedIn and Twitter. And as a reminder, you can rate this podcast on your platform of choice. Thank you for your time, and be sure to visit us at finainews.com for more automation news.