SecureTrading's Head of Sales & Marketing, Tim Allitt's presentation to the BT Fresca client conference on 25th May 2011. Tim presented to over 75 retailers about the benefits of 3-D Secure, International Payment methods and current counter-fraud measures.

1. Fraud Prevention in International Commerce Presented by: Tim Allitt Date: 25th May 2011

2. Fraud losses – UK cards – UK fraud losses Are we doing well? Cost to merchants of online fraud Business threats How do people pay online in UK now? Which European countries are attractive? Which European payment types are attractive? PCI 3D secure – success or failure? Enrolment rates Approval rates Agenda 2

3. Fraud losses on UK issued cards 3 Source: UK Cards Association

4. UK Fraud situation 4 Source: UK Cards Association

5. Automatic fraud screening: This has made significant advances over recent years CVV/AVS/Credit check/ID check/velocity check Introduction of 3D Secure Single order history: Behaviour analysis, negative lists, internal scoring. Tends to be expensive and more manual process, focus now on how to automate as volumes grow Trend now leading to: Device tracking Shared negative lists Are we doing well? 5

6. Cybersource 2011 UK online Fraud report The average annual online revenue lost to payment fraud is expected to drop from 1.8% to 1.6% in 2010 There is great variety in the scale, very large business expect to lose 1.5% to on-line payment fraud (<£365K), large business expect to lose 1.2% (£173k), small business around 1.5% (£3,500) 39% of businesses expect to lose less than 1% of their revenue to fraud in 2010. What is the cost of Fraud? 29% of larger merchants stated key priority in the next 12 months is to improve automated detection and sorting capabilities, in an effort to reduce the number of orders being sent for review.

7. Business threats 7 Percentage of merchants Source: Cybersource 2011 UK online fraud report

8. 94% of merchants accepted credit and debit cards* Paypal increasing (41% now accepting, up 10% on 2009)* UK Direct debits now stable* Overseas payments more popular (15%)* Maestro International now expanding in Europe in eCom markets such as Belgium, Spain and Italy with 3D Secure How do people pay 8 International Expansion Continues In total, 59% of respondents stated that they are accepting online orders from overseas (meaning that when fulfilled, the order is shipped to or downloaded in a country outside the UK). Digital goods merchants report a much higher percentage of international web orders; an average of 35%, compared to physical goods retailers at 17%. *Source: Cybersource 2011 UK online fraud report

9. Most popular markets 9 Percentage of merchants Source: Cybersource 2011 UK online fraud report

10. The Payment Pipe 10

11. Access the largest markets in Europe, especially Germany Increase sales by allowing customers to pay with a method they trust and understand Anyone with access to online banking with one of the participating banks can use the payment methods straightaway and without charge. There is no need for them to register, download any files or open a special account. Reduced risk of chargebacks with iDeal and Soförtuberweisung. Payments made with iDeal are guaranteed and cannot be reversed. Reduced risk of bad debt and lost stock from card fraud. Benefits of European Payment Methods

12. European Payment Methods (examples) iDeal iDeal is Netherlands specific payment method that enables your customers to pay you from their Internet Bank Account. It is effectively a bank transfer initiated by your customers. The benefit is that customers “push” the money out, dramatically reducing the risks of chargebacks. Soförtuberweisung (Epayments Direct) Like iDeal, Soförtuberweisung allows your customers to pay you from their Internet Bank Account, again with the benefit of dramatically reducing the risks of chargebacks. Unlike iDeal, Soförtuberweisung is not limited to the Netherlands and is widely used in Austria, Belgium, Germany (51.4%* of all Germans prefer to use Soförtuberweisung) and to a lesser extent the Netherlands and the UK. * EuPD Research and Paypal Germany

13. European Payment Methods ELV ELV is a German specific payment type that is basically a spontaneous Direct Debit. It has the advantage of being universally available to all Germans with a bank account. However, it carries a 13 month chargeback period for on-line business. It is because of this that we would advise merchants to think carefully about the risk involved before choosing to accept ELV as a payment method.

14. PCI Data Security Standard 14

15. PCI Data Security Standard API Solutions Tokenisation: Removes requirement to hold card data Token used to generate refunds and repeat transactions Eliminated costly compliance for the storage Hosted Solutions Three Options: Payment Pages Fully Customised Appearance Payment Pages + As above, but with your URL iFrame Payment details collected without host iFrame Completely removes compliance requirement 15

16. 3-D Secure – Success or Failure? Some people like it: “I love the guarantee” “If it wasn’t for Verified by Visa I wouldn’t trade online – I need to know I’m going to get paid” Some people hate it: “It’s just friction” “Every time I see that bloody box I cringe. I don’t want to enter another password and I don’t want my customers to do so either. It just gets in the way” 16 Source: SecureTrading Research

17. How our core book is performing with enrolments 17

18. Enrolment Rates 18 Source: SecureTrading

19. Enrolment Rates 19 Source: SecureTrading

20. Enrolment Rates 20 Source: SecureTrading

21. Approval Rates 21 Source: SecureTrading

22. What About Abandonment? Abandonment rate = 2.2% Approval rate: with 3-D= 93% Without = 87% Adjusted benefit of 3-D Secure = 3.8% improvement 22 3.8% Source: SecureTrading

23. 3-D Secure “text book example of how not to design an authentication protocol” “more than 250m users of Verified by Visa alone… probably the largest … system ever deployed” 23 Source: Ross Anderson / Steven J. Murdoch

24. 24 Contact details Tim Allitt tim.allitt@uc.com +44 (0) 207 289 9890 +44 (0) 7894 481 310