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Sponsored by Vesta Corporation
Online Fraud is Here - What’s Your Strategy?
About Vesta
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
Leading comprehensive payment
gateway with proven fraud protection.
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
Online Digital Products
What’s your Strategy?
Online Fraud is Here…
Growth
Prevent Fraud, Increase Revenue
VulnerabilityHow business
processes & practices
influence digital product
fraud
SolutionsStrategies supporting
the digital lifestyle that
every retailer should
consider
What is the Digital Experience?
55%of
U.S. adults
own smartphones
as of 2013
12
3
Ticket
Consumer preferences
are changing and
demanding convenience
through digital products
Growth
$2B2013 eBook
(20% of all book
sales)
>$5B2014 Music
Download(39% of $15B
globally)
>$118B2014 Digital
Gift Cards(8x more than
2012)
$57B2013 Digital
content sales
globally
Digital Gift Cards
• Part of overall payment strategy
• Increase in average spend
• Opens new shopping channels
• New customers
Opportunities
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
Gift Card 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
Growth of eGift purchases
Growth of card-not-present purchases
Increase in 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, Mar 13, 2014;
Vulnerability
The fraudster’s price
for a stolen card’s data
$1
Retailer Challenges
EMV Liability Shift
Fraud App / Acct Takeover
Counterfeit
Mail Nonreceipt
10%
30%
50%
70%
2001 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘08 ‘10 ‘11 2012
Card Fraud in U.K. 2001-12
Card-Not-Present
Source: UKPA
Increased Complexity
Merchant Time to Assess Risk
10 mins 4 hr 24 hrs1 hr 48 hrs
Financial
Risk
High
Low
Laptops
Dog Supplies
Children’s ClotheseBooks
Physical Gift Cards
Watches
Virtual Gift Cards
Online Gaming
Travel
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
How Fraudsters Turn Data into Dollars
1Obtain Stolen
Payment Data
How Fraudsters Turn Data into Dollars
2Purchase
Digital
Products
Music Digital Goods
Online Gaming eBooks
How Fraudsters Turn Data into Dollars
3Monetization of
Goods
Acquire
Product
Access
Sell Product
Access
Finding Balance
• Guard retailer from high risk
of digital product fraud
without being at the cost of
lost sales or a good customer
experience
Objectives Challenges• Provide a low friction customer
experience
• High risk of immediate delivery
• Often high false positive rate
Fraud Management
What’s Your Strategy?
Digital 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 digital 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 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
Fraud Management
How did you determine your
strategy?
Strategy Drivers
Customer driven
Too much fraud?
Stop selling the product!
Cost driven
Operationally driven
• 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
Challenges of Digital Sales for
Online Retailers
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
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?
