In this session we will discuss the business case for a proactive, real-time fraud prevention strategy which enables you to maximize revenue opportunities whilst minimizing fraud. During the session we will create a fraud management check list which combines People, Processes and Technology, underpinned by data, analysis and tailored rules.
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Understanding the impact of your fraud strategy
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2. Online fraud is still a big problem and as long as the number of online shoppers continues to grow, so will the
number of fraud cases. According to the European Central Bank there were 7.9 million cases of fraud with a value
of 1.16 billion euros in 2011 of which 56% took place in e-commerce.
European Merchant Services organizes the EMS RISK EVENT annually for retailers who are active in e-commerce
and multichannel. It is an excellent opportunity to increase your knowledge in the field of online fraud, risk
management and advanced fraud prevention and detection tools. We help you to stay ahead of online fraudsters
and to protect your online business by sharing the knowledge and experience of our fraud and risk experts, our
customers and our partners.
Do you want to attend next yearโs EMS RISK EVENT?
Please contact the EMS Marketing Department at T +31 20 660 3054 or send an email to
marketing@emscard.com. For more information visit www.emscard.com/riskevent
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3. Understanding the impact of
your fraud strategy
Kieran Mongey
Senior Fraud Consultant, EMEA
24th September 2013
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4. What we are going to address
โข Understanding drivers behind the business case for your fraud strategy
โข What are the most effective strategies we should be adopting?
โข How can we safely embrace new market opportunities โ US Cards example?
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5. First, a word about ReD
Specialist provider of fraud prevention and payment services
to card issuers, acquirers, merchants, switches and processors worldwide
โข Services are agnostic of payment type, payment channel and currency
โข Provided as managed services, hosted services or installed software
โข Tailored, by expert analysts, to the needs of individual customers
โข More than 300 large, blue-chip customers, on six continents
โข Hundreds of additional merchants connected through Payment Service Providers
โข Proprietary technology and databases; patented neural network technologies
โข Privately owned, debt free, profitable and high growth
Trusted by the worldโs biggest
brands โ and by global and
regional partners
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7. Understanding Profit & Loss in your own business
How is managing fraud different in each sector?
โข Retail โ Furniture & Homeware
โข Retail โ Electronics
โข Telco โ Top Up
โข Telco โ Contract (with Handset)
โข Insurance โ Car
โข Gaming
โข Credit Risk
โข Travel
โข Financial Services
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Revenue โ Costs = Profit
8. Revenue considerations
โข Competitors
โข 3DSecure
โข Payment Methods (cost per txn)
โข Payment Methods (fraud)
โข Payment Methods (new customers)
โข International card acceptance
โข International business expansion
โข Saturation point - Products
โข Fulfilment risk
โข Marketing strategies
โข Customer Service ethos
โข Product Margin
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9. Costs to consider
โข Manual Review FTE
โข Manual Review (other)
โข Chargeback Processing
โข Fraud Vendor Costs
โข Cash Management / Finance
โข Customer Service alignment
โข Fulfilment monitoring
โข IT roadmap
โข IT systems capacity
โข Head Office Time / Head Count / Consultancy
โข Audit (Internal)
โข Acquiring Interchange (3DS)
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10. Business decisions โ how do they impact your fraud team?
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Fraud
Team
Systems API
Marketing
Fulfilment
Budget &
Finance
Product
assortment
Acquiring/
PSP process
functionality
11. Cost centre or revenue centre?
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Decline Rate
- Fraud
- False positives
Manual Review Rate
- Staff
- Other costs
New Channels
- Cards
- Fulfilment
- IP
-40
-20
0
20
40
60
80
1 2 3 4 5 6 7 8 9 10 11 12
Net Contribution
Net Contribution
13. People and process supporting technology
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Data
Analysis
Reporting
Education
Rules
14. Profiling โ why is it so critical? (both positive & negative)
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Consumers are continuously presented with offers to spend more money
Banks, Insurers & Retailers are great at it โ all driven through marketing and customer
profiling
16. Profile data
Card number
Amount
Purchase velocities
Billing / shipping details
Email
CV2 AVS
Payment details / 3DS responses
Shopper history
Global negative lists / merchant
specific positive lists
Unlimited bespoke data field functionality
Product / delivery / customer details
Today
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17. Profile segmentation
Same day/next day
delivery
Click & collect
International
Marketing segments
PayPal / alternative paymentsNon registered / registered
High risk technology
Aligned to customer service
proposition
3D secure status
Mobile payments
Call centre sales
Risk strategies aligned to business requirements
Today
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19. Industry standard merchant KPIs are improving
Prior to Collaboration Today
FRAUD EXPOSURE
REDUCED BY
41DAYS
1. Chargeback received from Acquirer 40 days
โข 72% within 30 Days of Transaction Date
2. Reporting developed 2 days
3. Screening Database Population 1 day
4. Analysis of data 2 days
5. Education / Present findings 1 day
6. Rule changes 2 hours
TOTAL 46 days
1. Fraud data received from Acquirer 3 days
โข 72% within 3 Days of Transaction Date
2. Reporting developed - BI 15 minutes
3. Screening Database Population 5 minutes
4. Analysis of data 2 hours
5. Education / Present findings 1 day
6. Rule changes 2 hours
TOTAL Under 5 days
Data
Analysis
Reporting
Education
Rules Data
Analysis
Reporting
Education
Rules
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20. Fraud affects all players in the payments chain โ what are the issues?
CardholderMerchant
IssuerAcquirer
โข Security and confidence
โข Speed (to enable faster delivery)
โข Positive customer experience
โข Reduced fraud and chargebacks
โข Reduced costs of managing fraud
โข Protection for genuine customers, to enable sales
โข Speed (to enable faster delivery)
โข Support for merchants in tackling fraud
โข Fraud prevention re-sell opportunities
โข Control of merchant fraud
โข Reduced fraud losses and control of chargebacks
โข Faster fraud detection for improved cardholder experience
โข Robust, scalable fraud prevention solutions to support growth
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ReD Fraud XchangeTM
21. Data โ fast detection leads to minimal exposure
Key negative data points to be tapping into:
โข Negative Databases
โข 500,000 distinct data fields loaded in June 2013
โข Fraudulent card, email, phone, address, IP, Device and generic customer data
fields โ therefore detects โLIVEโ data elements
โข Fully automated processing ensures efficiencies in loading data quickly and
therefore value of โcurrentโ fraud detected
โข Data feeds from Underground Online Fraud Lists
โข Automated Merchant chargeback files
โข Click & Block declines
โข Work with Acquirers & PSPs to leverage their intelligence
โข Internal databases โ marketing / operations / fulfilment
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22. Data โ not just Chargeback monitoring
โข Related Fraud, Confirmed Fraud & Chargeback Analytics
โข Fraud / Data Flags โ Profile Building
โข Data can be marked in accordance with business objectives โ not just fraud
โข Marketing / New Business / New Markets
โข Products
โข Payment Types
โข Proactive Fraud Alerts
โข Rule Effectiveness Reporting ensures efficiencies are maintained
โข Continuous enrichment of data as retailers grow and new fraud trends emerge. What
you see as fraud today will not be the MO or trend tomorrow โ but it still needs to be
stopped!
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23. Extracting intelligent data
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โข Self-service Business Intelligence portal and Operational portal
โข real-time and near-real-time access to transaction data
โข proactive fraud alerts
24. Intelligence into effective & quantifiable rules
Rule Functionality
1. Silent Rules โ profiling & understand rule impacts pre deployment
2. Click & Block - instant Blacklisting / Whitelisting stopping / accepting immediately
3. Hard / Soft Rules โ prioritise rules according to impact & risk appetite
4. Auto analyst rules โ reduce volumes in review queues during peak times
5. Auto pilot rules โ create subset rules for a defined duration from certain rules
6. Sub-client rules โ aligned to how the rule strategy in segmented / KPIs / available data
7. Bespoke rules โ commonly building multi-layered rules (5 data combinations)
8. Tumbling & Swapping / Velocity โ detects auto-generating cards and emails
Rule Maintenance
1. Rule Effectiveness Reporting โ ability to constantly monitor and substantiate
performance of rules / modify accordingly
2. Rule Manager โ rules can be changed through an easy to use Interface OR through
working with your risk analyst
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25. Rules aligned to sales strategies
Fraud strategies aligned to
marketing campaigns to deliver ROI
DENY MORE THAN 4 CARDS PER IP IN 3 DAYS NOT IN EXCLUSIONS LIST
TOTAL HITS IN LAST 30 DAYS 158
TOTAL FRAUD IN LAST 30 DAYS 28
FRAUD RATE 17.7%
MARKETING CAMPAIGN TO UNIVERSITIES LATE SEPTEMBER
TOTAL HITS IN 3 DAYS 419
TOTAL FRAUD IN 3 DAYS 7
FRAUD RATE 1.7%
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26. The devil is in the detail
Related
fraud
volumes
International
delivery
reject rates
Mobile
payment
revenue
3D Secure
drop out
Marketing
campaign
success rates
Positive list
performance
Foreign
card
acceptance
Call centre
overheads
Challenged
and released
revenue
Continuous performance improvement delivering ROI
28. The opportunity
โข US ecommerce estimated
to reach $278.9 billion by
2015 (Forrester)
โข 2.84 million tourists visited
the UK from the USA in
2012
โข These tourists spent ยฃ2.4
billion (almost ยฃ1 billion
more than any other
country)
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$280bn
29. The size of the problem
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0,00% 0,20% 0,40% 0,60% 0,80% 1,00% 1,20% 1,40% 1,60%
USA
Australia
France
Canada
Brazil
Netherlands
UK
Germany
Italy
Spain
Norway
Denmark
Saudi Arabia
Belgium
Switzerland
Sweden
UAE
Japan
Portugal
Russian Federation
Attempted Fraud Rate (by value)
by card issuing country
Source: ReD European customers, January โ June 2013
30. What makes accepting US cards so difficult?
Problems
โข Fraud is high compared to the
genuine volume
โข Scheme fines and blocks
โข Business decision to block
transactions
โข European fraudsters are buying
US cards, and monetising through
European retailers
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Causes
โข Genuine volume is low
โข Business decision to accept US
cards leading to increased fraud
โข Fraudsters prefer to use US cards
โ costs less
31. What is driving European fraudsters toward US cards?
โข Compromised US credit cards are cheaper to buy
โข $10 compared to $50 (Federal Court Case in the US)
โข supply and demand - the market is flooded with cards from the US
โข Lower US security - cards are easier to compromise and use
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USA Card Country and Time on File <14
Ship
Country
Accepted
TXN
Confirmed
Fraud
Confirmed
Fraud Rate
Related
Fraud
Related
Fraud Rate
UK 1849 624 34% 1470 80%
Spain 37 24 65% 30 81%
USA 741 11 1% 20 3%
Italy 22 5 23% 15 68%
Turkey 7 4 57% 6 86%
Macedonia 40 4 10% 40 100%
Others 90 3 3% 22 24%
Total 2786 675 24% 1603 58%
32. Case study โ large European airline
Problem
โข Denying all US (and Canadian) cards
through internal fraud rules, due to
scheme requirements
Solution
โข Worked with ReD to create a
targeted rule strategy to release US
transactions
Results
โข Released transactions worth โฌ2.7m
in the first 3 months with a
chargeback rate of 0.1%
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33. Case study โ growing MVNO UK telco
Problem
โข Declining all transactions on US
cards, but during the Olympics
wanted to open up market
Solution
โข Targeted rules opened channel
allowing low value top ups,
targeting tourists and students
Result
โข Now accepting c.1000
transaction per month and
growing
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34. Case study โ large UK travel company
Problem
โข 90% of chargebacks
coming from US cards,
fined heavily by schemes
Solution
โข Created tailored rules
Results
โข Reduced chargeback
rates from 18% to 1.2%
โข US cards now account
for only 26% of all
chargebacks
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Solutions
implemented
to reduce fraud New solution
implemented
to reduce fraud
Time
Value of
fraud
Fraud begins to rise as
fraudsters adapt
Source: Datamonitor
ReD continues to track fraudstersโ movements through
reporting and business intelligence tools
35. Letโs monetise the US opportunity โ safely!
โข Use your data
โข Tailor your rules
โข Continuously report and monitor
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Data
Analysis
Reporting
Education
Rules
Donโt block the US revenue opportunity
โ it is possible to safely accept these transactions
36. What have we learnt?
Our fraud management checklist:
โข The importance of understanding how Fraud impacts Profit outside of just
the chargeback line of a P&L โ thus driving appropriate fraud strategies
โข Adopt best practice strategies at both a micro and macro level
โข Use your fraud strategy to open up new revenue streams
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