For the first in a series of interviews with leading women executives in the payments industry, I talked to Madeline Aufseeser, CEO of Tender Armor, recognized by BankInnovators.net as one of the top innovators shaping the future of banking.
Our conversation focused on the security issues impacting adoption of digital payments that drove her investment in developing the company’s lead product, CVVPLUS, her focus on addressing the voice of the consumer, and what’s she’s learned about jumping into the start-up pool.
Tell us about the journey you took from industry insider/analyst to launching this company?
I met my business partner Robert Steinman through mutual friends. Robert had an idea around solving for fraud, and my expertise could help structure and bring the idea to market. The response to the product idea was overwhelmingly positive. Everyone got the concept and thought the market need was significant. Frankly, I was very apprehensive about making the jump from a long career working for big brand name companies into running a start-up. It’s a risky and a challenging proposition.
As an industry analyst I sat on the sidelines watching and learning about many other start-ups, while also noting what worked and what did not. This experience gave me the confidence I needed, I had no doubt that I knew what needed to be done and how to go about it. Every time someone says no, you have to knock on more new doors, there is little time to celebrate small wins and you instinctively know that you can’t stop for a moment until the yeses materialize.
What is the underlying business model of Tender Armor?
At heart, I have always been a consumer advocate, and learned from early business experiences that success comes from understanding the customer. In this case cardholders are our ultimate end-users, therefore everything stems from cardholder acceptance and creating a value proposition that resonates. Hence, Tender Armor’s business model is built on the concept that consumers worry about fraud and want protection on their payment cards, so they are willing to adopt the product to alleviate the worrying associated with having a fraudulent financial event.
Bank card issuers are willing to offer the product to cardholders for free because once consumers adopt the solution, the bank generates significant margin improvement on their portfolios and keep their customers happy.
Many recent studies indicate that after a fraudulent event 40-50% of all cardholders change their behavior with the particular card product to the detriment of the bank. So the business model is simple, put the control in the hands of the cardholder and the bank wins.
What is the key factor that will make CVVPLUS successful?
Plain and simple, consumer adoption of the service.
We know that security concerns continue to impact the digital payment market and regulators are signaling greater interest in prescriptive measures to ensure consumer safety. Does this help or hurt the market?
Consumers want to know that they are being protected, and that their cards will be kept safe and secure while shopping online or over the phone. This is a deeply rooted emotional concern and even though many consumers know banks will reimburse them for financial losses on fraud, that knowledge does not alleviate the emotional worry and hassles about curing a situation because a payment card has been compromised. It’s much like when a consumer has a car accident, they know the insurance company will pay the claim, but that doesn’t alleviate all the emotional issues associated with having a car accident or the challenges associated with repairing the damage.
Stub Hub is a good case in point. Stub Hub, an online ticket reseller, went from not requesting the card security code to mandating it. Once the Stub Hub executive team mandated requiring the card security code on all transactions the fraud rates and expenses went down as expected, and to their surprise not only did the abandonment rates stay flat; the authorization approval rates went up by 2%, thereby increasing sales.
Additionally, in the U.S. it is common practice among many different types of online interactions to use dual-factor authentication methodology. It appears that the ecommerce shopping channel has been one of the last bastions to adopt dual-factor. The European Union PSD2 regulations have mandated “stronger dual-factor authentication” on all ecommerce transactions by the end of 2017. So in the EU, a solution such as CVVPLUS will be required and consumers will not have a choice. So much like EMV, it looks like the US market place is the last to by-in or adopt this thinking.
Speaking of the EU, you’ve recently launched there – how is that market different from the U.S.?
The EU is very different in that there are no hurdles relative to consumer adoption because of the PSD2 mandate, which requires dual-factor stronger authentication by year-end 2017. So banks are very willing to talk and listen to possible solutions knowing they need to get something in place.
What are some of the key competitive market dynamics driving investments in these technologies?
The cardholder user experience is one of the primary areas of focus when talking to prospective bank issuers. Balancing the fraud concerns with a “frictionless” payment experience becomes the issuer’s main concerns. Yet, many bank issuers have not yet recognized the amount of worry consumers feel regarding keeping their payment card information safe. Nor have the bank card issuers completely understood the negative implications once a cardholder’s account has been compromised and the propensity for the majority of cardholder to either use that account less or even close the account and move to another institution. That post fraud consumer reaction to use a card less or attrite is what I like to call the silent revenue killer for banks.
NOTE: Click here for their analysis of the fraud solutions competitive landscape.
As you launched your product, was there any particular barrier that surprised you?
I knew that starting a new business would be demanding and I have the perseverance to do what it takes to make it work. However, the amount of tenacity, grit, determination, and vigilance goes well beyond what I could have imagined. The payments industry has an excruciatingly long sales and solution boarding cycle. No matter how sensible and timely a product may be or how easy it is to integrate, the time to market is much longer than anyone could project. That translates into arming the business with more capital and staying power upfront. Which means I effectively am driving two major tasks simultaneously – client sales and raising capital. These two tasks also sometimes can have a chicken and egg effect in that investors want to see contracts and implementations before they invest and prospective clients want to know you have enough capital to stay around and support the business while the company is just starting out. One must consider that in today’s market getting early capital is challenging even in the midst of a “Fintech” boom. Many investors predicate commitments on having a revenue stream.
Where does Tender Armor go from here?
Tender Armor has a long road map centered on security products built on the foundation and premises for CvvPlus. We will start with expanding to the many different use cases within the financial services community. One such top of mind expansion utility is using CvvPlus as a replacement for PINs at the POS on debit and credit card transactions and with ATM transactions, making those transactions safer with the use of the dynamic out-of-band CvvPlus codes. There are many more use cases for CvvPlus and it is early days for the company. Meanwhile, our focus is on the immediate future and insuring our path to revenue creation.
Maddy Aufseeser provides significant domain expertise to Tender Armor, with over 30 years in the financial services and payment industry, she is able to leverage her knowledge, network and leadership skills to build, promote, and inspire the organization.
Prior to starting Tender Armor, Ms. Aufseeser served as a senior analyst with Aite Group (a leading FI research and advisory firm). Her area of coverage included; prepaid, credit and debit card issuing, marketing and processing, as well as loyalty marketing and incentives. She has advised senior leadership teams and staff at a long list of Fortune 500 companies in the financial sector.
Click here to learn more about Tender Armor and it’s CVVPLUS product.