Elena Krasnoperova, VP Risk Management at Zong, presents Best Practices for Mobile Payments Risk Managment at the 2011 Annual Merchant Risk Council conference in Las Vegas.
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Best Practices in Risk Management for Mobile Payments - MRC 2011
1. Best practices for Risk Management in Mobile Payments Elena Krasnoperova Vice President of Analytics and Risk Management, Zong
2. Agenda What are mobile payments? How do mobile payments work? How do mobile payments differ from other types of CNP payments? How can mobile payments make transactions more secure? What are the special fraud management challenges of mobile payments? What are the key regional differences in fraud management for mobile payments? What are the best practices from leading Digital Goods merchants? 2
13. Often involves Premium SMS or direct carrier billing4 Source: Adapted from Juniper Research report “Mobile payments for digital & physical goods”.
14. What are the main types of mobile payments? Proximity payments Remote payments Digital goods and services Physical goods and services Cash and credits 5 Source: Adapted from Juniper Research report “Mobile payments for digital & physical goods”.
31. Agenda What are mobile payments? How do mobile payments work? How do mobile payments differ from other types of CNP payments? How can mobile payments make transactions more secure? What are the special fraud management challenges of mobile payments? What are the key regional differences in fraud management for mobile payments? What are the best practices from leading Digital Goods merchants? 8
32. Transaction initiation 1. User selects Mobile as the payment option 2. User selects the amount of credits to purchase 9
33. “Log in” 574 - 2341 3. User enters Mobile phone number (pre-populated for previous users of Mobile payments) 10
37. Agenda What are mobile payments? How do mobile payments work? How do mobile payments differ from other types of CNP payments? How can mobile payments make transactions more secure? What are the special fraud management challenges of mobile payments? What are the key regional differences in fraud management for mobile payments? What are the best practices from leading Digital Goods merchants? 14
76. Agenda What are mobile payments? How do mobile payments work? How do mobile payments differ from other types of CNP payments? How can mobile payments make transactions more secure? What are the special fraud management challenges of mobile payments? What are the key regional differences in fraud management for mobile payments? What are the best practices from leading Digital Goods merchants? 17
89. Only 3 attempts to enter PIN are allowed to prevent guessing19
90. Agenda What are mobile payments? How do mobile payments work? How do mobile payments differ from other types of CNP payments? How can mobile payments make transactions more secure? What are the special fraud management challenges of mobile payments? What are the key regional differences in fraud management for mobile payments? What are the best practices from leading Digital Goods merchants? 20
91. Four unique challenges Consumers expect instant transaction confirmation and delivery of goods Consumers do not tolerate payment friction as purchases are discretionary Most of the fraud is “friendly fraud” Mobile operators control refund policies and processes 21
92.
93. Can not reverse transaction back on the mobile phone bill if transaction is fraudulent
94. Once the digital goods are delivered, can not take them back if transaction is fraudulent22
95.
96. “No friction” is the core promise of mobile payments, and the main driver of adoption
97. Consumers have very little tolerance for any additional payment friction (e.g., 2FA)23
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99. Tools that work for “professional fraud” (e.g., device fingerprinting or IP geolocation) are less effective for “friendly fraud”
102. Some mobile operators have a “no questions asked” refund policy and thus high refund rates
103. Most operators do not allow payment processors an opportunity to contest refund requests
104. Some operators do not give payment processors visibility into transaction- or user-level refunds25
105. Consequences Effective risk management in mobile payments has to be: Instant / real-time (vs. delayed) “Behind the scenes” (vs. user-initiated) Effective for “friendly fraud” (vs. for professional fraud) Proactive (vs. reactive once refund occurs) Based on millions of mobile payment txns 26
106. Best practices for risk management …to assess risk and rewards… …and to take action Many data elements are combined… Device fingerprint Bar user Consumer transaction history Block transaction Product type Phone area code Review transaction Geo-location match Refund history Transaction risk level Reverse transaction Recent txn velocity Consumer risk level Consumer time on file Warn merchant Merchant industry Consumer lifetime value IP address Monitor consumer Purchase amount Carrier Time stamp Allow transaction Country 27
107. Agenda What are mobile payments? How do mobile payments work? How do mobile payments differ from other types of CNP payments? How can mobile payments make transactions more secure? What are the special fraud management challenges of mobile payments? What are the key regional differences in fraud management for mobile payments? What are the best practices from leading Digital Goods merchants? 28
108. Regional differences European and Asian consumers are much more used to Mobile payments than US consumers Refund rates are lower in Europe and Asia than in the US because of differences in Mobile Operator refund policies and consumer habits Operator-mandated spending limits are often much higher in Europe and Asia than in the US Some European countries have very strict regulations affecting Mobile Payments, particularly as they relate to minors (<18 years old) 29
109. EU regulations: Example By law, Spain prohibits processing of premium SMS (i.e., mobile payment) transactions targeting minors (<18 years old) between 11 pm and 8 am CET Source: Comisión de Supervisión de los Servicios de TarificaciónAdicional: Código de Conducta. 30
110. Consequences Risk management policies and tools must be tuned for country/MNO differences Must abide by operator-mandated spending limits, consumer notifications, and other rules Given differences in refund rates, risk-reward tradeoffs differ by country/operator Consumer usage patterns and fraud patterns differ dramatically by country – what’s normal in FR differs from what’s normal in the US 31
111. Agenda What are mobile payments? How do mobile payments work? How do mobile payments differ from other types of CNP payments? How can mobile payments make transactions more secure? What are the special fraud management challenges of mobile payments? What are the key regional differences in fraud management for mobile payments? What are the best practices from leading Digital Goods merchants? 32
112. Merchant best practices Be clear about your refund policies Provide end-users with ability to contact you and resolve problems Know thy user (what’s normal vs. not) Share risk-related data with your payment provider (e.g., TOF, unique account identifier, device fingerprints, negative lists) Take prompt action on fraudsters (restrict their accounts, reclaim unused goods) 33
