Chris Harper, Retail Decisions, explored the fraud prevention challenges for online merchants seeking to take advantage of growth opportunities in new markets. He discussed the importance of understanding the different fraud profiles of target countries and differing consumer attitudes towards online security and alternative payment channels. He provided practical examples of these differences and their implications for risk and fraud prevention. Examples also illustrated the importance of access to global fraud intelligence and flexible fraud strategies that can be adapted quickly to changing circumstances, as merchants learn more about the countries into which they are expanding. Topics such as tailoring fraud strategies and rules by country, channel or payment types were also covered.

1. Fraud Challenges for
International Expansion
Generating LIFT
Chris Harper
Senior Director, Sales, ReD

2. Generating LIFT
 Local Knowledge
 Intelligence
 Flexibility
 Tailoring

3. Local Knowledge

4. What’s different about cross-border fraud detection?
 Differing status of EMV implementation
 Weaker authentication and verification services in many countries
 Differing consumer attitudes to online security
 Cultural and language barriers

5. Chip and PIN rolled out in 2004 -
0
50
100
150
200
250
300
350
2004 2005 2006 2007 2008 2009 2010 2011
Phone, internet and mail order fraud (Card-
not-present fraud)
Counterfeit (skimmed/cloned) fraud
Fraud on lost or stolen cards
Card ID theft
Mail non-receipt
The UK experience post EMV implementation
- movement of fraud to CNP channels
100% compliance achieved by February 2006

6. Fraud heat map of Los Angeles Online transactions with cards issued in France
What’s different about cross-border fraud detection?
 You probably don’t know the delivery hotspots and local fraudster MOs
IP City Attempted Fraud Rate % Volume % Attempted Fraud
Paris 1.7% 18.0% 17.3%
Marseille 3.1% 2.9% 5.1%
Lyon 2.4% 3.4% 4.7%
Caen 3.8% 1.9% 4.0%
Rennes 2.1% 3.1% 3.8%
Orleans 2.7% 2.0% 3.2%
Lille 1.8% 3.0% 3.1%
Toulouse 1.9% 2.8% 3.0%
Nantes 1.7% 2.6% 2.5%
Bezons 1.8% 2.2% 2.3%
Bordeaux 1.7% 2.3% 2.1%
Others 1.6% 55.7% 48.9%
Total 1.8% 100.0% 100.0%

7. Intelligence

8. Profiling your customer
Card number
Amount
Purchase velocities
Billing / shipping details
Email
CV2 AVS
Shopper history
Global negative lists /
merchant specific positive lists
Marketing/loyalty programmes
Product / delivery / customer details
Payment details / 3DS responses

9.  Merchant Confirmed Frauds and Blacklisting
 Issuer, Scheme and Chargeback Files
 Country – Specific Industry Hot Card Files
 Stolen Personally Identifiable Information sold within Online Forums
Other sources of fraud intelligence Remember OFAC
compliance ….
Access to global intelligence supports entry to new verticals / countries
and enables faster adjustment of rule strategies

10. Merchant Type: # Hits : Value: Avg Txn Value:
European Retail Merchants 5870 £651,348 £110.96
Virtual Goods Merchants 1476 £60,880 £41.24
Global Travel Merchants 14616 £1,169,808 £80.03
Latin American Merchants 2906 £170,684 £58.73
Other Merchants 3458 £37,607 £10.88
EU Payment Service Providers 34483 £1,890,889 £54.83
Telecommunication Merchants 13399 £200,167 £14.94
US Retail Merchants 91562 £5,795,978 £63.30
Hits against ReD’s Global Negative Database in a 6 week period
Never under-estimate the value of data

11. Cross-industry information sharing - everyone benefits
• Issuers and Acquirers get early warning of compromised or fraudulent merchants
• Issuers can proactively alert Cardholders, improving customer experience
• Merchants benefit from faster fraud detection and reduced chargebacks
• Acquirers and PSPs can provide added value to merchants
• Together, we achieve a safer payments ecosystem

12. Flexibility

14. Protection with and without 3D Secure
 Implementation varies by country
- mandated in some countries, with fines for non-compliance
 Consumer attitudes also vary
- 3DS generates cart abandonment in US and Germany;
sales uplift in UK and Russia
 Post-verification fraud screening can provide additional authentication support
- and enable genuine sales declined by 3DS

15. Tailoring

16. Tailoring fraud strategies and rules - by country
Online transactions with cards issued in France
IP City Attempted Fraud Rate % Volume % Attempted Fraud
Paris 1.7% 18.0% 17.3%
Marseille 3.1% 2.9% 5.1%
Lyon 2.4% 3.4% 4.7%
Caen 3.8% 1.9% 4.0%
Rennes 2.1% 3.1% 3.8%
Orleans 2.7% 2.0% 3.2%
Lille 1.8% 3.0% 3.1%
Toulouse 1.9% 2.8% 3.0%
Nantes 1.7% 2.6% 2.5%
Bezons 1.8% 2.2% 2.3%
Bordeaux 1.7% 2.3% 2.1%
Others 1.6% 55.7% 48.9%
Total 1.8% 100.0% 100.0%
Online transactions with cards issued in Belgium
Billing Country Attempted Fraud Rate % Volume % Attempted Fraud
Belgium 0.3% 95.0% 57.6%
France 3.0% 1.2% 8.8%
Netherlands 2.5% 0.9% 5.6%
South Africa 33.3% 0.0% 3.2%
Spain 32.4% 0.0% 3.2%
Australia 75.0% 0.0% 3.2%
Norway 43.5% 0.0% 2.7%
New Zealand 50.0% 0.0% 2.7%
Switzerland 10.9% 0.1% 1.9%
Ecuador 75.0% 0.0% 1.6%
Denmark 9.5% 0.0% 1.1%
United Kingdom 0.4% 1.1% 1.1%
Other 2.1% 1.5% 7.5%
Total 0.4% 100.0% 100.0%

17. Tailoring fraud strategies by channel and
payment types
Web
• Domestic markets are maturing - customer experience is the priority
• Higher risks in less mature International markets
Mobile
• Shift of fraud to mobile channel
- volumes small but demands greater scrutiny
Call Center
• Migration to this channel of fraudsters avoiding 3D Secure elsewhere
• Internal fraud/collusion

18. You can monetize cross-border opportunities safely
by
 Obtaining Local Knowledge
 Gaining access to global fraud Intelligence
 Achieving the Flexibility to trade effectively across cross-borders
 Tailoring rules, by country, channel and payment type
18
Don’t block cross-border revenue opportunities
– make it safe to accept these transactions, and grow your business

19. A World of
Opportunity
- with a little LIFT !
Chris Harper
charper@redworldwide.com