There is a factory that manufactures soap. They are faced with a problem. Out of every 1,000 soap boxes made, one always ends up empty.
So the company always gets one complaint per every 1,000 sales!
The executives try a lot of ideas to solve this problem. They implement elaborate checks and balances in place. They go through their entire manufacturing line up slowly and steadily. They hire expensive consultants to analyze the problem of the empty soap box. They upgrade their machinery. But even after spending a ton of time and money on the problem, one out of every 1,000 soap boxes remains empty.
Its a mystery that drives everyone crazy.
And then one day, a low level clerk hears about the problem. And solves it in a jiffy.
All he does is places a fan at the end of the line up. The fan blows away the empty soap box. Problem solved.
Credit card fraud has always been a problem. Especially online. Fortunately, its not that big an issue in India yet. In India, only 0.16% of all transactions are fraud. Which is amongst the lowest in the world!
But the Reserve Bank of India (RBI) thinks that 0.16% fraud is still a big issue.
To solve the issue, they come with an elaborate plan. They enforce a rule that adds an extra layer of verification and authentication for online transactions in India. Consumers have to create an “ipin” with their bank account from whom they’ve gotten their credit card or debit card. An extra password which they are asked for during an online credit card transaction.
All banks have to spend time and money and upgrade their systems to support this ipin verification process.
All ecommerce websites have to spend time and money to implement this ipin loop into their order pages.
Any single order now requires participation from 2 websites: the credit card details are filled out on the vendors website. While the ipin is filled out on the banks website. And both these websites have to work in perfect sync. Or orders are lost.
What has this led to?
This ipin step has solved the 0.16% fraud issue. But in exchange, it has meant a 25% to 35% drop in payment completion rates!
Its akin to using an atom bomb to kill an ant!
(Source of my numbers: RBI tightens online card use)
What could RBI have done instead? How could they “place a fan” so to speak?
- Tighten the current system by using address checks a bit more prudently (like American Express does)
- Make sure that all the banks that issue credit cards get insurance to cover the 0.16% fraud
- Ask the credit card issuers to be a bit more pro-active and call consumers if their system flags an order above Rs 3,000 or so as “possible-fraud”
- Don’t over think your problems. Don’t spend unnecessary time on creating efficiency.
- Get to the root of the problem before trying to solve it.