What's causing the sudden 30% increase in chargebacks for Adyen's US-based e-commerce clients using the Risk Management solution?

Introduction

The sudden 30% increase in chargebacks for Adyen's US-based e-commerce clients using the Risk Management solution is a critical issue that demands immediate attention. This analysis will systematically identify, validate, and address the root cause while considering both short-term and long-term implications for Adyen's business and its clients.

To tackle this problem, I'll follow a structured approach that covers issue identification, hypothesis generation, validation, and solution development. My goal is to provide a comprehensive analysis that not only addresses the immediate concern but also strengthens Adyen's risk management capabilities for the future.

Step 1

Clarifying Questions (3 minutes)

• Looking at the timing, I'm thinking there might be a recent change in the Risk Management solution. Has there been any significant update or feature release in the past 30-60 days?

Why it matters: Recent changes could directly impact chargeback rates. Expected answer: Yes, there was a recent update to the fraud detection algorithm. Impact on approach: If confirmed, we'd focus on the new algorithm's performance and potential bugs.

• Considering the specificity to US-based clients, I'm wondering about any regulatory changes. Have there been any new financial regulations or compliance requirements introduced in the US market recently?

Why it matters: Regulatory changes could affect transaction processing and dispute resolution. Expected answer: No significant regulatory changes in the past quarter. Impact on approach: If confirmed, we'd shift focus from external regulatory factors to internal processes or market-specific issues.

• Given the substantial increase, I'm curious about the timeline. Over what period did we observe this 30% increase in chargebacks?

Why it matters: The speed of change can indicate whether it's a sudden technical issue or a gradual shift in user behavior. Expected answer: The increase occurred over the last month. Impact on approach: A sudden spike would suggest a technical or systemic issue, while a gradual increase might point to changing market conditions or user behavior.

• Considering the potential for data anomalies, I'm wondering about our measurement systems. Have there been any changes to how we track or calculate chargebacks recently?

Why it matters: Ensures we're dealing with a real issue and not a data reporting problem. Expected answer: No changes to the chargeback tracking system. Impact on approach: If confirmed, we can rule out measurement errors and focus on actual performance issues.