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Payments Card Fraud Challenges in Digital and Online Sales
1. Online Fraud is Here -Whatâs Your Strategy?
Sponsored by Vesta Corporation
2. About Vesta
Leading comprehensive payment
gateway with proven fraud protection.
Payment Expertise
- $5 billion in transaction volume processed annually
- Over 20 years of experience processing digital
payments for global brands
Loss Prevention Expertise
- Experts in high risk CNP transactions: ticketing,
mobile, virtual gift cards
- State of the art risk management evaluation platform
3. Online Digital Products
Chris Uriarte
Chief Payments Officer
Leads development of global payments
products and services
American Express
VP & Head of Intâl Operations and Implementations
â Chairmanâs Award for Excellence
â Amex Pinnacle Presidentâs Award
ReD Chief Technology Officer
â Led the company in product, research, development
and strategy growth to over 19 billion annual card
transactions
â Industry recognition
â InfoWorld Magazine CTO 20 Award
â Presented at countless industry conferences
and industry trade organizations
5. Prevent Fraud, Increase Revenue
Growth
Vulnerability
How business
processes & practices
influence digital product
fraud
Solutions
Strategies supporting
the digital lifestyle that
every retailer should
consider
6. What is the Digital Experience?
55%
of
U.S. adults
own smartphones
as of 2013
1
2
3
Ticket
7. Consumer preferences
are changing and
demanding convenience
through digital products
Growth
$2B
2013 eBook
(20% of all book
sales)
>$5B
2014 Music
Download
(39% of $15B
globally)
>$118B
2014 Digital
Gift Cards
(8x more than
2012)
$57B
2013 Digital
content sales
globally
8. Digital Gift Cards
Opportunities
⢠Part of overall payment strategy
⢠Increase in average spend
⢠Opens new shopping channels
⢠New customers
Challenges
⢠Immediacy of delivery
⢠Customer experience
⢠Must be mobile enabled
⢠Lack of detailed fraud and data elements
⢠Minimal purchase data elements
⢠High attack rate
⢠Ease of monetization
9. Gift Card Growth
Gift card spend & eGifting spend ($Billions)
$160.00
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$-
2012 2013 2014 2015 2016
Source: CEB TowerGroup, âGift Cards State of the Union 2013â
10. Growth
Growth of
eGift purchases
Growth of card-not-present
purchases
Increase in fraud
11. Vulnerability
600+Data breaches reported
in 2013
30% over 2012
Cards affected by data
breaches in past year 40+
Million
Source: Bloomberg Business Week, Michael Riley, Ben Elgin, Dune Lawrence and Carol Matlack, Mar 13, 2014;
Identify Theft Resource Center, âITRC 2013 Breach List Tops 600â, Feb. 20, 2014
14. Increased Complexity
Merchant Time to Assess Risk
10
mins 1 hr 4 hr 24 hrs 48 hrs
High
Financial
Risk
Low
Laptops
Physical Gift Cards
Dog Supplies
Childrenâs Clothes
eBooks
Watches
Virtual Gift Cards
Travel
Online Gaming
15. Fraud Control Lifecycle
Solutions implemented
Time lag for solutions
to take effect
Value of fraud
to reduce fraud
Familiarity with
weaknesses and
technology
increases fraud
New solution is
implemented to
reduce fraud
Fraud rises as
new technologies are
cracked and new
weaknesses found
2006 Time 2013
Implies
innovation
17. How Fraudsters Turn Data into Dollars
2
Purchase
Digital
Products
Music Digi tal Goods
Onl ine Gaming eBooks
18. How Fraudsters Turn Data into Dollars
3
Monetization of
Goods
Acquire
Product
Access
Sell Product
Access
19. Finding Balance
Objectives Challenges
⢠Guard retailer from high risk
of digital product fraud
without being at the cost of
lost sales or a good customer
experience
⢠Provide a low friction customer
experience
⢠High risk of immediate delivery
⢠Often high false positive rate
21. Digital Fraud Management
Complete
Outsourcing
In-House
⢠Increase resources
⢠Difficult to review
⢠Adds more third
party tools
Third-Party
Services
⢠Create new segmentation
⢠Develop fraud strategies
⢠Increase out sort rate for
reviews
⢠Segment all digital products
to a third party
⢠Use service with option for
indemnifying transactions
⢠Form partner relationship
with vendor
22. Criteria for Success
Complete
Outsourcing
In-House
⢠Use existing
resources and
systems
⢠Achieve same KPI
levels
⢠Same customer
experience
Third-Party
Services
⢠Equal or better than
current in-house
⢠Achieve same KPI levels
or better
⢠Same customer
experience
⢠Equal or better than
current in-house
⢠Achieve same KPI levels
or better
⢠Same customer
experience
24. Strategy Drivers
Customer driven
Cost driven
Operationally driven
Too much fraud?
Stop selling the product!
25. Challenges of Digital Sales for
Online Retailers
⢠Customer experience is king
⢠Card-not-present transaction
⢠No physical address required for
delivery
⢠Instant delivery of product, that is
easy to monetize in a secondary
market
⢠Driving competitive growth as part of
an overall customer acquisition
strategy
⢠Traditional fraud prevention
solutions wonât work
26. Measuring Success
Will this be your experience?
Authorization
Decline Rate
5% - 35%
Risk
Decline Rate
3% - 20%
Settlement
60% - 90%
Chargeback
Rate
0% - 1%
Net
Settlement
27. Your Strategy: Assess, Plan & Execute
Assess the current state of your program
⢠Will it provide the level of loss prevention for new digital products?
⢠Will it provide the highest level of customer experience? Equal to other products?
Plan
⢠Can you segment payment and risk processing by SKU or other segmentation?
⢠Do you have segmented KPIs in place today?
⢠Standard ROI matrix or process? Decision threshold?
⢠If implementing an in-house solution do you have the resources?
Execute
⢠Will you be able to implement and reach success milestones, KPIs?
⢠How will implementation impact current processes?
⢠Do you have the systems, training and people resources to reach your goals?
Christopher J. UriarteChief Payments Officer
Chris Uriarte leads the company's development of global payments products and services. He joined Vesta from American Express, where he served as the Vice President and Head of International Operations and Implementations, overseeing major investments in Asia, Europe and Latin America. While at American Express, he received a number of awards and accolades, including the Chairman's Award for Excellence and the Amex Pinnacle President's Award. Prior to Amex, Chris spent 11 years as the Chief Technology Officer at Retail Decisions (ReD), a global leader in payment services and fraud prevention. While at ReD, he oversaw the company's product, research, development and strategy efforts, which grew to over 19 billion payment card transactions processed annually for the world's largest banks and retailers. Chris has received industry recognition including an InfoWorld Magazine CTO 25 Award, presented at numerous payment, fraud and technology industry conferences, and served on the boards of several industry trade organizations.
Nowhere in this presentation do we actually suggest a strategy year by year
Overall: the presentation should follow this rough outline
1. Intro â Vesta and Chris
2. Agenda â Growth, Vulnerability, Solutions
3. Current Situation/merchant opportunity â growth and more growth, shows no signs of stopping and consumer expectations are changing
4. Vulnerability from this growth and opportunityâ fraud, breaches, merchants feeling the pain. Then dig into their opportunity and the challenges associated with that. E.g EMV, fraud lifecycle, etc. monetization of fraud
5. Options/strategies for dealing with these issues
Take a look at customer experience and does their current strategy resolve issues? Where should they move to? Make case (again) of how world has changed and is changing and they MUST change their strategy or lose revenue.
6. Conclusions: end is reiteration of presentation â assess, plan, execute
Need to source all stats
Letâs look at the consumer experience and the need. How do you handle this? Why do you need a strategy? Consumers are moving from physical card to digital because its on everyoneâs phone and is right there for immediate gratification. Experience has changed.
Focus on digital product experience. If consumer experience doesnât work, you are out of business.
******Need to quote the stat above.******
And, as an example of this growth, letâs look atâŚ..
Why are we seeing this growth?
-trying to franchise new customers
-we have new payment devices that allow instant purchases
-extending electronic/online services to a broader audience
Consumer preferences are changing, look at companies like Netflix, Sony, Amazon. Delivery has to be immediate. Band width keeps expanding and mobile devices are everything. Merchants are challenged to manage operational costs, control fraud rates while consumer demand explodes in the CNP world.
Introduce notion of increase in compromised devices associated with growth and the fall out for merchants.
EMV will cause fraud to migrate to easier access points (ecommerce)
Online fraud to increase. Add some stats/infographics of what happened in Europe to help build the story.
****Need to change graphic so it looks better
Fraud mitigation is a major challenge today: requires
-continuous process improvement
-new tools, services and adaptation
-additional and new resources
-new solutions will lag behind problem (reactive)
-time to implement
This may limit a merchantâs ability to continuously monitor/control fraud at a positive ROI
Whatâs your plan? Can your system keep up?
Presenting options to audience â how do you handle it today?
Does your current strategy solve the problem?
How did you get here? And is it addressing the current need and your immediate needs in regards to digital products?
There are differences between physical and digital goods. Vesta has developed proprietary risk model to detect small and large scale fraud attacks specific to digital products (purchase point and redemption point). We have millions of transactions that has allowed us to model. Learned this from telco experience.