Understanding the impact of your fraud strategy

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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

  1. 1. 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 year’s 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 Follow us on:
  2. 2. Understanding the impact of your fraud strategy Kieran Mongey Senior Fraud Consultant, EMEA 24th September 2013 3
  3. 3. What we are going to address • Understanding drivers behind the business case for your fraud strategy • What are the most effective strategies we should be adopting? • How can we safely embrace new market opportunities – US Cards example? 4
  4. 4. First, a word about ReD Specialist provider of fraud prevention and payment services to card issuers, acquirers, merchants, switches and processors worldwide • Services are agnostic of payment type, payment channel and currency • Provided as managed services, hosted services or installed software • Tailored, by expert analysts, to the needs of individual customers • More than 300 large, blue-chip customers, on six continents • Hundreds of additional merchants connected through Payment Service Providers • Proprietary technology and databases; patented neural network technologies • Privately owned, debt free, profitable and high growth Trusted by the world’s biggest brands – and by global and regional partners 3
  5. 5. The Business Case 6
  6. 6. Understanding Profit & Loss in your own business How is managing fraud different in each sector? • Retail – Furniture & Homeware • Retail – Electronics • Telco – Top Up • Telco – Contract (with Handset) • Insurance – Car • Gaming • Credit Risk • Travel • Financial Services 7 Revenue – Costs = Profit
  7. 7. Revenue considerations • Competitors • 3DSecure • Payment Methods (cost per txn) • Payment Methods (fraud) • Payment Methods (new customers) • International card acceptance • International business expansion • Saturation point - Products • Fulfilment risk • Marketing strategies • Customer Service ethos • Product Margin 8
  8. 8. Costs to consider • Manual Review FTE • Manual Review (other) • Chargeback Processing • Fraud Vendor Costs • Cash Management / Finance • Customer Service alignment • Fulfilment monitoring • IT roadmap • IT systems capacity • Head Office Time / Head Count / Consultancy • Audit (Internal) • Acquiring Interchange (3DS) 9
  9. 9. Business decisions – how do they impact your fraud team? 10 Fraud Team Systems API Marketing Fulfilment Budget & Finance Product assortment Acquiring/ PSP process functionality
  10. 10. Cost centre or revenue centre? 11 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
  11. 11. Best Practice Fraud Strategies 12
  12. 12. People and process supporting technology 13 Data Analysis Reporting Education Rules
  13. 13. Profiling – why is it so critical? (both positive & negative) 14 Consumers are continuously presented with offers to spend more money Banks, Insurers & Retailers are great at it – all driven through marketing and customer profiling
  14. 14. Card number Amount Purchase velocities Billing / shipping details Email CV2 AVS Historically Standard profiles / data Low chargebacks or low insults – not both 15
  15. 15. 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 16
  16. 16. 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 17
  17. 17. Turning data into rules Data Analysis Reporting Education Rules 18
  18. 18. Industry standard merchant KPIs are improving Prior to Collaboration Today FRAUD EXPOSURE REDUCED BY 41DAYS 1. Chargeback received from Acquirer 40 days • 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 • 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 19
  19. 19. Fraud affects all players in the payments chain – what are the issues? CardholderMerchant IssuerAcquirer • Security and confidence • Speed (to enable faster delivery) • Positive customer experience • Reduced fraud and chargebacks • Reduced costs of managing fraud • Protection for genuine customers, to enable sales • Speed (to enable faster delivery) • Support for merchants in tackling fraud • Fraud prevention re-sell opportunities • Control of merchant fraud • Reduced fraud losses and control of chargebacks • Faster fraud detection for improved cardholder experience • Robust, scalable fraud prevention solutions to support growth 20 ReD Fraud XchangeTM
  20. 20. Data – fast detection leads to minimal exposure Key negative data points to be tapping into: • Negative Databases • 500,000 distinct data fields loaded in June 2013 • Fraudulent card, email, phone, address, IP, Device and generic customer data fields – therefore detects ‘LIVE’ data elements • Fully automated processing ensures efficiencies in loading data quickly and therefore value of ‘current’ fraud detected • Data feeds from Underground Online Fraud Lists • Automated Merchant chargeback files • Click & Block declines • Work with Acquirers & PSPs to leverage their intelligence • Internal databases – marketing / operations / fulfilment 21
  21. 21. Data – not just Chargeback monitoring • Related Fraud, Confirmed Fraud & Chargeback Analytics • Fraud / Data Flags – Profile Building • Data can be marked in accordance with business objectives – not just fraud • Marketing / New Business / New Markets • Products • Payment Types • Proactive Fraud Alerts • Rule Effectiveness Reporting ensures efficiencies are maintained • 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 – but it still needs to be stopped! 22
  22. 22. Extracting intelligent data 23 • Self-service Business Intelligence portal and Operational portal • real-time and near-real-time access to transaction data • proactive fraud alerts
  23. 23. Intelligence into effective & quantifiable rules Rule Functionality 1. Silent Rules – profiling & understand rule impacts pre deployment 2. Click & Block - instant Blacklisting / Whitelisting stopping / accepting immediately 3. Hard / Soft Rules – prioritise rules according to impact & risk appetite 4. Auto analyst rules – reduce volumes in review queues during peak times 5. Auto pilot rules – create subset rules for a defined duration from certain rules 6. Sub-client rules – aligned to how the rule strategy in segmented / KPIs / available data 7. Bespoke rules – commonly building multi-layered rules (5 data combinations) 8. Tumbling & Swapping / Velocity – detects auto-generating cards and emails Rule Maintenance 1. Rule Effectiveness Reporting – ability to constantly monitor and substantiate performance of rules / modify accordingly 2. Rule Manager – rules can be changed through an easy to use Interface OR through working with your risk analyst 24
  24. 24. 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% 25
  25. 25. 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
  26. 26. The US Opportunity 27
  27. 27. The opportunity • US ecommerce estimated to reach $278.9 billion by 2015 (Forrester) • 2.84 million tourists visited the UK from the USA in 2012 • These tourists spent £2.4 billion (almost £1 billion more than any other country) 28 $280bn
  28. 28. The size of the problem 29 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 – June 2013
  29. 29. What makes accepting US cards so difficult? Problems • Fraud is high compared to the genuine volume • Scheme fines and blocks • Business decision to block transactions • European fraudsters are buying US cards, and monetising through European retailers 30 Causes • Genuine volume is low • Business decision to accept US cards leading to increased fraud • Fraudsters prefer to use US cards – costs less
  30. 30. What is driving European fraudsters toward US cards? • Compromised US credit cards are cheaper to buy • $10 compared to $50 (Federal Court Case in the US) • supply and demand - the market is flooded with cards from the US • Lower US security - cards are easier to compromise and use 31 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%
  31. 31. Case study – large European airline Problem • Denying all US (and Canadian) cards through internal fraud rules, due to scheme requirements Solution • Worked with ReD to create a targeted rule strategy to release US transactions Results • Released transactions worth €2.7m in the first 3 months with a chargeback rate of 0.1% 32
  32. 32. Case study – growing MVNO UK telco Problem • Declining all transactions on US cards, but during the Olympics wanted to open up market Solution • Targeted rules opened channel allowing low value top ups, targeting tourists and students Result • Now accepting c.1000 transaction per month and growing 33
  33. 33. Case study – large UK travel company Problem • 90% of chargebacks coming from US cards, fined heavily by schemes Solution • Created tailored rules Results • Reduced chargeback rates from 18% to 1.2% • US cards now account for only 26% of all chargebacks 34 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 fraudsters’ movements through reporting and business intelligence tools
  34. 34. Let’s monetise the US opportunity – safely! • Use your data • Tailor your rules • Continuously report and monitor 35 Data Analysis Reporting Education Rules Don’t block the US revenue opportunity – it is possible to safely accept these transactions
  35. 35. What have we learnt? Our fraud management checklist: • The importance of understanding how Fraud impacts Profit outside of just the chargeback line of a P&L – thus driving appropriate fraud strategies • Adopt best practice strategies at both a micro and macro level • Use your fraud strategy to open up new revenue streams 36
  36. 36. Thank you Kieran Mongey Senior Fraud Consultant, EMEA kmongey@redworldwide.com +44 (0) 7957 494 119 37

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