What’s your strategy?

Gift Card Fraud

Chris Uriarte

Chief Payments Officer

Mike Fletcher

General Manager

Gift Card Fraud Solutions

Growth

Gift cards & the cost of fraud

VulnerabilityHow business

processes & practices

influence gift card fraud

SolutionsThree that every retailer

should consider

Growth 2013

$118BGift cards

delivered via

mobile &

digital

channels

Source: CEB TowerGroup

• Key component of an

overall customer

acquisition strategy

• Convenient gift

alternative

• eGift increases

convenience

• Increases average

spend

8x more

2012

Growth

by 2015Gift cardswill account for18%of holiday spending

Source: CEB TowerGroup, Gift Cards State of the Union 2013

Growth

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

2012 2013 2014 2015 2016

Gift card spend & eGifting spend ($Billions)

Source: CEB TowerGroup, Gift Cards State of the Union 2013

Growth of eGift purchases

Growth of CNP Purchases

and Fraud

Vulnerability

600+Data breaches reported

in 2013

+30% over 2012

Identify Theft Resource Center, ITRC 2013 Breach List Tops 600, Feb. 20, 2014

Cards affected by data

breaches in past year40+Million

Source: Bloomberg Business Week, Michael Riley, Ben Elgin, Dune Lawrence and Carol Matlack, March 13, 2014,

Vulnerability

The fraudster’s price

for a stolen card’s data

$1

How fraudsters turn data into dollars

1Obtain Stolen

Card Data

2Purchase

Gift Cards/eGift

3Turn into

Cash or Use Funds

Buys Goods

or Services

Sells Card

or Code

Increased Complexity

Fin

an

cia

l R

isk

Time to Assess Risk

High Risk $$

Low Risk $$

Laptops

Dog Supplies

Children’s Clothes

eBooks

Physical Gift Cards

Watches

Virtual Gift Cards

10 mins1 hr 4 hr 24 hrs 48 hrs

Fraud control lifecycle

Time lag for solutions to take effect

Valu

e o

f fr

au

d

Time2006 2013

Familiarity with weaknesses and

technology increases fraud

Solutions implemented to reduce fraud

Fraud rises as new technologies are

cracked and new weaknesses found

New solution is implemented to

reduce fraudImplies

innovation

Fraud management

What’s Your Strategy?

Fraud management

Complete

OutsourcingIn-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 stored value

products to a third party

• Use service with option for

indemnifying transactions

• Form partner relationship

with vendor

Criteria for Success

Complete

OutsourcingIn-House

• Use existing resources

and systems

• Achieve similar 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

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 your 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?

• How will implementation impact current processes?

• Do you have the systems, training and people resources to reach your

goals?

Mike Fletcher

General Manager

InComm Digital Solutions

e-Gift Card: Challenges and Opportunities

Value proposition

InComm transforms the

shopping experience in stores,

online and through mobile and

social commerce.

IDS provides an innovative

technology platform that allows

brands and distributors to sell,

promote and deliver prepaid

products in digital and physical

formats. Transactions are initiated

in a digital environment.

What is the digital gift card experience?

1

Order from web site

2Receive notice

via email

Taking your physical gift card

and offering it in a digital format

eGift card

displays

based on web

or mobile

browser

3

How stored value products fit into the overall customer/sales strategy

• Prepaid sales via online and mobile

• Incremental sales and last-minute

shopping

• Promotional opportunities

• Ability to retain customers via loyalty

• Stored value continues

to increase, along with

digital

• Mobile sales on the rise

• Online sales extend your

in-store offerings

Current state of online stored value products

In 2014,

retail purchases

made with prepaid

cards will top

U.S. $200B

Source: Forbes, April 2014

The purchase volume numbers include prepaid

debit, payroll cards, open (from a major card

company like Visa or MasterCard and which can

be used anywhere) and closed-loop gift cards

(like Starbucks for example), and open and

closed-loop consumer incentive cards.

Current state of online stored value products

(5% of all U.S. retail spending)

55% of U.S. adults own smartphones as of 2013

Source: Mercator Advisory Group, CustomerMonitor Survey Series, Payments, 2011, 2012, 2013

Smartphone ownership in U.S., 2009–2013

2009 2010 2011 2012 2013

17%21%

28%

42%

55%

24%

33%

50%Growth

32%

But, issuers say mobile card loads are small

Source: Mercator Advisory Group

Form factor2013 average

reported % of loads

Physical 93%

Virtual 6%

Mobile 1%

Customers want options

Agree they prefer to

have the option to

purchase either a digital

or a physical card

87%

Source: November 2013 consumer survey commissioned by InComm.

74%Agree they are likely

to purchase a digital gift

card in 2014

Source: November 2013 consumer survey commissioned by InComm. Consumers were asked to check all that apply.

The most

commonly cited

reasons for

selecting eGift

Cards are their

immediate

delivery and

ease to send,

buy and redeem

18%

21%

21%

26%

28%

32%

42%

62%

Recipient preference

Hard to lose

Environmentally friendly

Easier to redeem

Cool gift to give

Easier to purchase

Easier to send

Instant delivery

Instant delivery drives eGift sales

Source: Aggregated data of digital and physical gift cards fulfilled through the InComm Digital Solutions platform when our

clients offer both delivery options through their eCommerce sites.

Digital captures last-minute sales

eCommerce sales for physical and digital gift cards in December 2013

Physical gift card sales taper off as Christmas approaches

because shipping means gifts may not arrive for Christmas

Digital gift card sales rise as Christmas approaches because

instant delivery means gifts arrive in time for Christmas

Christmas

43%

Physical

cards

57%

Digital

cards

Mobile on the rise

are interested in

storing digital gift

cards on their phones

46%

Source: November 2013 consumer survey commissioned by InComm

40%prefer to have a digital

gift card scanned from

their phone rather than

carry an email printout

Source: InComm Digital Back Office

8% 7% 7%11%

19% 16%

27% 25%30% 29% 29%

92% 93% 93%89%

81% 84%

73% 75%70% 71% 71%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013 Q2 2013Q3

Mobile Desktop

eGift card views from mobile

Mobile viewing of eGift cards is on the rise—almost 30% of eGift cards

are now viewed first on a mobile device rather than a desktop.

• Card not present transaction

• No physical address required

for delivery

• Instant delivery of product,

that is easy to monetize in a

secondary market

Challenges of digital stored

value sales for online retailers

Previous experiences and challenges

• Guard retailer from high risk

of digital goods fraud without

being at the cost of lost sales

or a good customer

experience

Goal Challenges• High risk due to immediacy of

product fulfillment

• Merchants payment gateway controls

• High rate of payment denial of good

customers

Previous experiences and challenges

• Implemented easy to use, secure payment solution

• Real-time payment processing

• Eliminated the InComm merchant’s fraud liability

• Improvement of inline/pend process for better approval rates

Solution

• Peace of mind for InComm’s merchants offering digital gift cards

• Instant approval and delivery of digital gift cards

• Fraud related liability for InComm’s merchants is Zero

• Able to turn the cart on and LEAVE it on!

Results

Previous experiences and challenges

• Driving the highest throughput of sales

• Indemnifying against fraud

• Customer service experience – how many calls?

Need to keep this in check

Measuring success

• Mobile experience is gaining

traction – both interaction and

sales from mobile devices

• Better experience because

customers are familiar with

the device, having an account

• Ability to identify location via

IP address to reduce fraud

• Fingerprinting

Future road map of

enhancements and changes

Your strategy is critical to your business.

Summary Points

• Eliminate fraud related expenses with chargeback indemnification

• Ensure that you select an easy-to-use and implement yet secure

solution

• Maximize the customer experience with real-time payment

processing and the reduction of false positives

Questions?