fraud prevention in international commerce

www.securetrading.com | [email protected] | 0800 028 9151

Fraud Prevention in International Commerce

Presented by: Tim AllittDate: 25th May 2011


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


Fraud losses on UK issued cards

3

Card Fraud Type – on UK issued credit and debit cards

2006 2007 2008 2009 2010 % +/-09/10

Phone, internet and mail order fraud (Card-not-present fraud)

£212.7m £290.5m £328.4m £266.4m £226.9m -15%

Counterfeit (skimmed/cloned) fraud £98.6m £144.3m £169.8m £80.9m £47.6m -41%

Fraud on lost or stolen cards £68.5m £56.2m £54.1m £47.7m £44.4m -7%

Card ID theft £31.9m £34.1m £47.4m £38.2m £38.1m 0%

Mail non-receipt £15.4 m £10.2m £10.2m £6.9m £8.4m 22%

TOTAL £427.0m £535.2m £609.9m £440.0m £365.4m -17%

Contained within this total:

UK retail face-to-face transactions £72.1m £73.0m £98.5m £71.8m £67.4m -6%

UK cash machine fraud £62.0m £35.0m £45.7m £36.7m £33.2m -9%

Domestic/International split of total figure:

UK fraud £309.9m £327.6m £379.7m £317.4m £271.5m -14%

Fraud abroad £117.1m £207.6m £230.1m £122.6m £93.9m -23%

Source: UK Cards Association


UK Fraud situation

4

2005 2006 2007 2008 2009 20100

50

100

150

200

250

300

350

400356.6

309.9327.6

379.7

317.7

271.5

82.8

117.1

207.6230.1

122.793.9

UK International

Source: UK Cards Association


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


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.


Business threats

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Online Fraud

System Failure

Theft of customer

data

Hackers (malicious damage)

Virus Internal Fraud

0

10

20

30

40

50

60

70

2007200820092010

Percentage of merchants

Source: Cybersource 2011 UK online fraud report


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 ContinuesIn 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


Most popular markets

9

Sweden Italy Spain NL France Germany0

10

20

30

40

50

60

70

80

90

20112009

Perc

enta

ge o

f m

erc

han

ts

Source: Cybersource 2011 UK online fraud report


The Payment Pipe

10


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


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

European Payment Methods (examples)


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.

European Payment Methods


PCI Data Security Standard

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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

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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”

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Source: SecureTrading Research


How our core book is performing with enrolments

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1 2 3 4 5 6 7 8 90%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Percent of Txns Successfully EnrolledJan - May 2011


Enrolment Rates

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Europe USA Visa MasterCard UK France Italy Germany Spain0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Source: SecureTrading


Enrolment Rates

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10%

20%

30%

40%

50%

60%

70%

80%

90%



Enrolment Rates

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10%

20%

30%

40%

50%

60%

70%

80%

90%



Approval Rates

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Europe USA UK France Germany Spain Italy0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Non 3-D3-D



What About Abandonment?

3-D Secure Non 3-D84%

85%

86%

87%

88%

89%

90%

91%

92%

93%

94%

UK Abandonment

Approved Abandoned

Abandonment rate = 2.2%

Approval rate: with 3-D= 93% Without = 87%

Adjusted benefit of 3-D Secure = 3.8% improvement

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3.8%


“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”

3-D Secure

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Source: Ross Anderson / Steven J. Murdoch

www.securetrading.com | [email protected] | 0800 028 9151 24

Contact details

Tim [email protected]

+44 (0) 207 289 9890+44 (0) 7894 481 310

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