Payments Card Fraud Challenges in Digital and Online Sales
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Online fraud is a growing problem, as digital products and card-not-present transactions increase in popularity. Retailers face challenges preventing fraud for digital goods that can be instantly delivered and easily resold. Effective fraud management strategies consider customer experience, costs, and operational feasibility of either handling fraud in-house, outsourcing completely, or using third-party services. Success requires assessing current capabilities, planning customized solutions, and executing effectively to balance fraud prevention and customer satisfaction.
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Payments Card Fraud Challenges in Digital and Online Sales
- 1. Online Fraud is Here -What’s 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 Int’l Operations and Implementations – Chairman’s Award for Excellence – Amex Pinnacle President’s Award ReD Chief Technology Officer – Led the company in product, research, development and strategy growth to over 19 billion annual card transactions – Industry recognition – InfoWorld Magazine CTO 20 Award – Presented at countless industry conferences and industry trade organizations
- 4. Online Fraud is Here… What’s your Strategy?
- 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, “Gift Cards State of the Union 2013”
- 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, “ITRC 2013 Breach List Tops 600”, Feb. 20, 2014
- 12. Vulnerability $1 The fraudster’s price for a stolen card’s data
- 13. Retailer Challenges Card Fraud in U.K. 2001-12 EMV Liability Shift Counterfeit Mail Nonreceipt Fraud App / Acct Takeover 70% 50% 30% 10% Card-Not-Present 2001 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘08 ‘10 ‘11 2012 Source: UKPA
- 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 Children’s 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
- 16. How Fraudsters Turn Data into Dollars 1 Obtain Stolen Payment Data
- 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
- 20. Fraud Management What’s Your Strategy?
- 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
- 23. Fraud Management How did you determine your strategy?
- 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 won’t 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?
- 28. For more information: 888-278-3207 or vsafesales@trustvesta.com
Editor's Notes
- Christopher J. Uriarte Chief 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 – Vesta and Chris 2. Agenda – Growth, Vulnerability, Solutions 3. Current Situation/merchant opportunity – growth and more growth, shows no signs of stopping and consumer expectations are changing 4. Vulnerability from this growth and opportunity– 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 – assess, plan, execute Need to source all stats
- Let’s 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 everyone’s phone and is right there for immediate gratification. Experience has changed. Focus on digital product experience. If consumer experience doesn’t work, you are out of business. ******Need to quote the stat above.******
- And, as an example of this growth, let’s look at….. 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 merchant’s ability to continuously monitor/control fraud at a positive ROI
- What’s your plan? Can your system keep up?
- Presenting options to audience – 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.