Seattle Digital Identity and Commerce Slides

Welcome to the Seattle Digital Identity & Commerce Tour!September 13, 2016

2DIGITAL IDENTITY & COMMERCE TOUR

Agenda9:15 – 10:15 am Opening Keynote: Cyber Threat Trends with

The FBIThis session will cover the recent trends the FBI is seeing in fraudulent schemes, including cyber-based as well as more traditional frauds, targeting both individuals and businesses.

10:15 – 10:45 am Extend Customer Lifetime Value with Intelligent Payments Data with VantivMerchants are constantly focused on identifying new revenue streams, increasing customer retention, and streamlining operations. This session from Vantiv examines the frequently overlooked rich data nuggets: response info gleaned from payments processing, account updating, fraud management, and digital wallets, that can all identify critical attributes that can help drive higher revenue-per-customer.

10:45 -11:15 am What every eCommerce Seller needs to know about Sales Tax with AvalaraWhen do you need to collect sales tax for online transactions? How much? With every state making up their own rules, it’s hard to keep up. In this session, tax expert Shane Ratigan will break down the rules and share the latest on sales tax laws impacting eCommerce. Learn what states are doing to force online merchants to collect sales tax on every transaction, and how you can prepare your business.

11:15 – 11:45 am Identity Verification for Digital Commerce with Whitepages ProFraudsters hide behind their computer precisely because they believe you cannot identify them. And if you are without an identity verification tool, they are right. Learn about how fraud teams work with identity verification data to reduce fraud and speed good transactions to clear.

https://www.fbi.gov/

https://www.vantiv.com/

http://www.avalara.com/

https://pro.whitepages.com/


Agenda11:45 – 12:45 pm Lunch with Open Merchant Q & A

12:45 – 1:30 pm Global Payments Survey with The Merchant Risk CouncilThe MRC will be summarizing results, key findings, and analysis from its 2016 Global Payments Survey. Benchmarking results from the MRC’s Global Payments Survey are a valuable benefit as they help MRC members assess trends on a variety of key performance indicators (KPIs), metrics, and data points. As a result, members are able to analyze their own systems, processes, and policies in comparison to merchants in different regions and sectors, and optimize their businesses in the process.

1:30 – 2:30 pm What’s Top of Mind in Payments and Fraud for Microsoft, Zillow, and ExpediaIt is a fact, that there are an overwhelming number of new technologies that merchants can deploy to maximize their online operations. In this panel, three Seattle-based merchants will describe the key areas of focus for their companies in regard to data analytics, payments and fraud. With a focus on interaction with the attendees, this panel will provide thought leadership, operational ideas and a chance for you to ask some industry experts their opinions on breaking trends.

2:30 – 3:30 pmClosing Keynote with Remitly CEO, Matt Oppenheimer

3:30 – 4:30 pm Happy Hour at Frolik Kitchen & Bar Sponsored by The Merchant Risk Council

https://www.merchantriskcouncil.org/

https://www.microsoft.com/en-us/

http://www.zillow.com/

https://www.expedia.com/

https://www.remitly.com/us/en/

http://frolik.motifseattle.com/

http://frolik.motifseattle.com/

https://www.merchantriskcouncil.org/


Content

• Risk, fraud, law enforcement• Online sales tax• Emerging payments and security• Global expansion• Identity verification• Big data management• Team structures and tools• Regulatory changes and trends


Who is here?

• Online merchants• Financial services companies• Solution providers• Consultants


The Sponsors


Tom Donlea, emcee

• 3 years @ Whitepages Pro• 7 years @ Merchant Risk Council


Why are we here?

• Growth of this channel• Complexity of our space• Consumer expectations• Global expansion• Organizational changes • Industry trends and regulatory issues


History – Mary Meeker Slides







Goals for Today

• Connect with peers• Share best practices• Hear from expert practitioners• Hear from industry leading solutions• Expand your minds…saving money and

time!


Trivia #1 - Customer Service

• A disgruntled customer recently left this item in a Florida Wendy’s as a prank:A. A garbage bag full of sewageB. GatorC. Box of soiled diapersD. All of the above


Trivia #1 – Customer Service

B. Gator


Trivia #2 - Consumer Trends

• How many states require online sales tax even if a merchant doesn’t have a physical presence in the state?A. 23B. All 50C. 12D. None of the above


Trivia #2 - Consumer Trends

A. 23

Extend Customer Lifetime Value with Payments Data Paul FinleySr. Director, eCommerce SolutionsVantivSept. 13, 2016


Who is Vantiv?

• We’re the second-largest payments acquirer in the United States.

• Our eCommerce division processes payments for companies like Hulu, Netflix, Ancestry.com, Overstock.com, and Wayfair – among hundreds of others.


Agenda

• Rise of Recurring Payments and Key Metrics• Payments Data and Customer Lifetime Value• Use Cases for Payments Data• The Next Frontiers in Payments Data

Rise of Recurring PaymentsAnd key metrics for customer value

24DIGITAL IDENTITY & COMMERCE TOUR24

“Recurring revenue business models are not a little bit better than non-recurring models. They are 10x better.”

– Jeff Bussgang, General Partner, Flybridge Capital

http://bostonvcblog.typepad.com/vc/2014/07/recurring-revenue-is-magic.html

http://bostonvcblog.typepad.com/vc/2014/07/recurring-revenue-is-magic.html


Recurring Payments

Installment Payments


Customer Lifetime Value (CLV)

CLV (simple)

Revenue per Customer * Lifespan of the Customer

CLV (complex)

Gross Margin per Customer * Discounted Retention Rate

Approval Rates and Churn


Measuring outcomes – it’s about approval rates

What does an increase of 1% in authorization approval rate

mean for your revenue?


1M auths / month * $10 * 85% Approval Rate = $8,500,000

1M auths / month * $10 * 86% Approval Rate = $8,600,000

$100,000 / month lift

Approval rates – a hypothetical example


What does an increment of 1% in approval rate mean for your revenue?

$100,000 * 12 months = $1.2M in annual revenue

Measuring outcomes – it’s about approval rates

31DIGITAL IDENTITY & COMMERCE TOUR31

“1% - 2.5% churn per month is acceptable. Higher than that, you are filling a leaky bucket.” -- David Skok, a VC with Matrix Partners

http://www.forentrepreneurs.com/saas-business-models-slide-deck, slide 41

http://www.forentrepreneurs.com/saas-business-models-slide-deck


Churn – The Key to Longevity

More than 2.5% churn = a leaky bucket

Early on, new bookings outpace churn.

4 years on, churn gets harder to replace with bookings!


Small Moves = Big Gains

More than 2.5% churn = a leaky bucket

Low churn + upsell =negative churn

Negative churn requiresconsistent approval rates


Account Updater - 2013-2016 Disruption

Payments Data and CLV Available data and use cases


Payments Data That Impacts CLV

Revenue per Customer:- Method of payment (Visa, MasterCard, wallet, direct debit)- Card type (credit, debit, prepaid, gift card)

Lifespan / Churn Rate - Approval rate and decline responses- Account updater participation by the issuing bank- Card type- Issuing bank


Payments Data That Impacts CLV

Gross Margin per Customer- Account updater participation- Method of payment- Fraud check response data


Account Updater Data – Take Action

• Account Number Changed and Expiration Date Changed responses – look for “spikes” that indicate a breach or portfolio swap

• Closed Account – these are not temporary blocks! You’re going to need another method of payment.

• Contact Cardholder – could be temporary. Retry, resubmit AU request, reach out to the customer



Issuer Does Not Participate – DO NOT IGNORE THIS

Contact high value customers immediately for a new payment card after hard declines

Ask your processor for a list of issuers that do not participate in account updater



One account update request per month is not enough

If you receive a “no change” response, but get a decline, keep requesting as

you recycle


Stark Differences – Credit / Debit / Prepaid

Ask your processor to indicate for each transaction:

• Credit / Debit• Prepaid – Reloadability, Available Balance• Corporate / Consumer / Country of Issuing Bank


Method of Payment – Take Action

Credit Cards:

• Type of card can indicate capacity to spend• Visa Signature, MasterCard WorldCard have higher

limits

Debit Cards:

Recycle on Fridays (payday!) – we have seen a 3% lift in approval rate


Method of Payment – Take Action

Prepaid Cards:

• Block non-reloadable cards for recurring and installment billing products

• If you MUST accept prepaid cards for installment payments, consider a wallet (PayPal or pre-authorized direct debit account)

• Don’t recycle non-reloadable cards

• Leverage partial authorizations to recoup CAC


Decline Responses – Take ActionResponse Action

Soft Declines Retry aggressivelyHard Declines Request account updates, retry

conservativelyRestricted / Lost / Stolen Card Beware of card testingCVV Decline Remove CVV

for recurring payments

The Next Frontiers in Payments DataIssuer Data and Wallets


Issuers – What are they thinking?

• Track decline codes by issuer

• Don’t send “made-up” data for AVS or Expiration Dates – leave it blank!

• Monitor sudden drops in approval rate, month-over-month

• Don’t over-react to large approval rate swings over short time periods

• Does the issuer like your MCC? Compare your data to that of other merchants in your MCC


And what about wallets?


And what about wallets?

• Unquestionably higher conversion

• But provisioning is key

• Do your users have an Apple Pay account? An iPhone 6? A MasterCard or Visa?

Ask your customers, then implement!


Trivia #3 – Global Expansion

• Which is happening in Brazil?A. Tourists fretting about ZikaB. Olympic athletes dealing with raw

sewageC. Live impeachment hearings of President

RousseffD. All of the Above


Trivia #3 – Global Expansion

D. All of the above

What every online seller needs to know about sales taxShane RatiganSept 13, 2016

“We don’t want to grow our business” - said no successful company,

ever.

Where is your company obligated to comply with sales tax rules?

• This is The Threshold Question for E-Commerce Sales Tax Compliance

• Decide if what you sell is Taxable in those places only after you learn where to look.

Businesses need to reach customers quickly to stay competitive

• Manage inventory in new places• Distributed warehouses• Fulfillment by Amazon• Drop shipping• Affiliate Advertising• 1099 contractors or sales people• Installation, Support, Maintenance

More tax laws being considered

• Amazon Laws • Economic Nexus Laws• Streamline Sales Tax (SST)• Marketplace Fairness Act (MFA)• Online Simplification Act

…which can increase your tax exposure!

• Taxability• Exemptions• Special Rates• Sales Tax Holidays• Bundling• Digital Objects, Software, Services

Now you know where you should comply, so comply!

Not to mention…

12,00070,00014,000

Building a best-in-class ecommerce engine

“Having Avalara in place allows us the freedom to focus on our business, not on sales tax management or burdensome maintenance. Having a sales tax solution that’s automated and takes care of itself is one less thing to worry about.”– Adam Litvack, Ecommerce Manager

End-to-end compliance

© Avalara CONFIDENTIAL & PROPRIETARY

Thank you


Trivia #4 – Facebook Future

• Which of these is NOT (as far as we know) a part their strategy?A. Acquisition of all known competitors B. Virtual Reality C. Augmented Reality D. Payments sent via “Messenger”E. Free internet access in many emerging marketsF. AI powered chatbots and digital assistantsG. Battling privacy and security concerns with

consumers and regulators in every single market they operate.


Trivia #4 – Facebook Future

A. Acquisition of all known competitors

Identity Verification for Digital CommerceKatie McGinn, Account Executive eCommerce Whitepages Pro

Jason Cheung, Fraud Operations ManagerTireBuyer.com


Fraud Operations Manager

Jason CheungJason is the Fraud Operations Manager at TireBuyer.com. He has been working in the risk space for the past 14 years, previously working in ID theft and risk analysis for new and existing programs and services at T-Mobile U.S.A. He currently serves on MRC’s Fraud Committee.


TireBuyer.com, is part of the largest tire and wheel wholesaler in the U.S. and Canada. American Tire Distributors (ATD) Tire Buyer is an online retail channel for ATD– It leverages ATD’s 100+ distribution

centers, and thousands of locations within their dealer network to provide tires and wheels at competitive prices, with the quickest delivery possible.

Many items qualify for same day delivery to a partner dealer without any additional shipping costs.


Tires often cost $400+ a set, and are very expensive consumables with an average replacement cycle of 18-36 months. They’re not a luxury item, for most people they’re a life necessity.Tire Buyer experiences many different levels of fraud: • Individual friendly fraud (e.g. paying for 2

tires and claiming they never arrived, etc).• Small localized fraud groups who would

like these products for personal use.• Large domestic fraud groups who resell

locally and regionally.• International fraud groups attempting to

export the items to their native country (e.g. Russia, Ukraine, Ghana, Venezuela, Mexico, etc).

Local Economies Versus Global Product Costs & Availability = Fraud Drivers


Decrease in Fraud Rates

Source: CyberSource Annual Fraud Benchmark Report North American Edition 2016


Increase in False Positives

Source: CyberSource Annual Fraud Benchmark Report North American Edition 2016


How Whitepages Is Leveraged











ONLINE ORDER PLACED

Phone NumberSUBSCRIBER NAMELINE TYPECARRIER

COUNTRY CODEIS CONNECTEDIS VALIDIS PREPAID

GEOLOCATIONIS PROXYDISTANCE TO

ADDRESS

IPDISPOSABLE EMAILFIRST SEENPREFERRED NAMEVALID STATUSIS AUTO-GENERATED

Email

LINKED TO PHONELINKED TO ADRESSLINKED TO EMAILFAKE OR CELEBRITY

NamePHYSICAL LOCATIONUSAGE TYPERECEIVING EMAILRESIDENT NAMEDELIVERY POINT

Address

Double-Digit Reduction in Insult Rates


Order

Manual Review

Tools

Optimize the Order Review Process

Accept

Rules & Models

Reject

Whitepages Pro API

Whitepages Pro Web

Confirm the validity of a phone number, including carrier and line type, in every country in the worldGlobal email address coverage provides first-seen date, validity the email, and domain creation date.

Confirm the validity of the building or unit’s address, or the street itself, in every country in the world.

We have worldwide IP data that provides proxy status, geolocation, and connection type information.

International Data for Identity Check


IP AddressPHONE• Valid / Invalid• Auto-Generated Flag• Disposable Flag• Email-to-Name• First Seen Date• Domain Creation Date

• Valid / Invalid• Line type

• Carrier

• Valid / Invalid• Proxy Flag• Geolocation• Distance from Address• Distance from Phone• Connection type

International Data Attributes

ADDRESS EMAIL

Mobile Non-fixed

VOIP Fixed VOIP

Landline Premium Toll-free

• Valid / Invalid• Level of Verification


Questions?


Trivia #5 – Amazon History

• Which of these were used as desks by early amazon employees?A. Shelves torn out of independent book

storesB. Sides of antique book boxesC. Pizza boxesD. Doors


Trivia #5 – Amazon History

D. Doors

Merchant Risk Council

BenchmarkingMeasure KPI’s

Highlight

Issues

Identify Opportuniti

es

Investigate

Options

Implement

Solutions

2016 Global Payments Survey

23%9%

49%

2%17%20%

8%

43%

19%9%

Type of MerchantMRC

$5M – <$25M

$25M – <$100M

$100M – <$1B

$1B + NA

10%20%

37%

23%

10%

38%

10%

25%

5%

21%

Size of MerchantMRC

MRC49%

Non MRC 51%

MRC vs. Non-MRC

n=94n=

99

Total Sample – 193

Sample Demographics

Mexico

Japan

Australia

Russia

Spain

Germany

Canada

4%7%

4%3%

11%11%

3%19%20%

39%43%

51%23%

67%

7%9%9%11%

19%5%6%7%

11%25%

32%52%

48%86%

Mentioned as Top 5 e-Commerce MarketsNorth

America

Europe

Asia Pacific

South / Central America

China Makes First Appearance in Top 10

Cards Wallets Bank Transfer / Invoice

Gift Cards(Voucher)

Other (CoD, Crypto, Carrier Billing)

99%66% 49% 36% 21%

% of Merchants Supporting the Payment Method

Cards Wallets Bank Transfer / Invoice

Gift Cards(Voucher)

Other (CoD, Crypto, Carrier Billing)

4.3 5.2 3.5 2.9 2.7

Average Number of Payment Methods Supported

182 120 90 65 39

Payment Methods Supported 2015

20.0 19.312.2 9.3 13.09.7 6.3 7.8 4.9

9.9

Number of Payment Types Currently UseMRCNon MRC

Number of Payment Types Currently Use

Number of Payment Types Plan to Add

14.5

1.8

7.6

1.3

Number of Payment TypesMRCNon MRC

MRC Merchants Support Twice as Many Payment

Types as Non MRC Members

BankTransfersWallet

Cards

Gift Cards / Vouchers

North AmericaCards 94%

Wallets 57%Bank

Transfer 27%

Gift Cards 35%

APACCards 94%

Wallets 69%Bank

Transfer 25%

Gift Cards 50%

EuropeCards 88%

Wallets 64%Bank

Transfer 52%

Gift Cards 27%

South / Central America

Cards 94%Wallets 50%Bank

Transfer 56%

Gift Cards 11%

While Cards are Supported Widely, Other Methods are Popular Depending

on Country

95%

59%49%

56%

13%

33%24%

96%

64%

42%

63%

8%

34% 31%

Sales Channel Supported – YOYOverall 2014

Mobile Channel Support Has Increased

98%

69%57% 59%

9%

36% 35%

95%

60%

27%

67%

7%

32%26%

Sales Channel Supported – 2015

MRCNon MRC

MRC Merchants Are Early Adopters

Number of Mobile Payment Types Currently Use

Number of Modile Payment Types Plan to Add

1.6 1.21.2 1.1

Number of Mobile Payment TypesMRC

1.72.3

1.32.1

1.3 1.0 1.01.5

1.0

Number of Mobile Payment TypesMRC

Mobile Payment Types Supported

68%

47%57%

27%

41%33%

22%

5% 9%

76%

56% 54% 51%41% 38%

31%22%

9%3%

Mentioned in Top 5 KPI 20142015

77 147 54 108 65 105 31 98 47 79 38 73 25 60 6 42 10 18

Top KPIs Measured Remained FairlyConsistent with Prior Year

90%

64% 65%51%

36% 36%29%

20%10%

2%

63%

48% 44%51%

45%39%

33%23%

9%3%

Mentioned in Top 5 KPI MRCNon MRC

85 62 60 48 61 44 48 50 34 45 34 39 27 33 10 23 9 9

MRC Members are Focused on Sales Conversion

Site Visits

Add Items to Cart

CheckoutEnter Payment Info / Selectfrom Stored Payment CredentialsComplete Order66%

53% of the respondentsdon’t know or don’t track.It is critical to track these KPIs

Merchants Seem to Use Different Definitions ofConversion Rates as Their Results Ranged from 1.2% to 100%

Conversion Rates

What Point in the Funnel Do You Start Measuring?

Emphasis on Cards but PayPal, ACH, and Gift Cards are Also Common

Worldwide Credit Card PayPal ACH

Country Average n Average n Average nUnited States 83 110 87 50 94 20Canada 88 57 92 22 96* 8*

*Caution – small base

Authorization Rate in the Region by Payment Type

Authorization Rate – North America

Authorization Rate in the Region by Payment Type

WorldwideCredit Card

County / Region-Specific Cards Outside of North America

(Carte Bleue, CartaSi, Solo, etc.) PayPal

Country Average n Average n Average n

United Kingdom 81 64 73 14 83 40

Germany 81 37 96 7 84 26France 78 30 75 13 77 21Spain 71* 14* 78* 11*Italy 77* 9*

Highly Fragmented, Adopting New Methods, Bank Transfers and Invoice Payments Also Common

*Caution – small base

Authorization Rate – Europe

45%31%

46%

72%

35%46%

% of Merchants Running Pre Auth –

by Merchant Type

Overall 46% Merchants run PreAuth, no difference for MRC vs. Non MRC

Yes46%

No 54%

All Merchants: Run

Pre-Autho-rization

Services, excluding travel (e.g., consumer finance, payment services, business services, advertising, education, government, charity, etc.)

Pre Authorization Usage Among Merchants

The sample is small to put a chart by merchant type but the directional results show that Subscription Merchants retry most number of time across all payment methods, except bank transfer.

Cards Wallet Bank Transfer Gift Card

6 53 3

Average Number of Times Retry Transaction – by Payment Method

Cards Wallet Bank Transfer Gift Card

59%35%

21% 30%

% of Merchants who Retry a Transaction – by Payment Method

n=80 n=30 n=14 n=12

Payment Retry Practices

Kick StartInternal Process

CancelAccount /

Order

InternalBlacklisting

External Shared

Blacklisting

ContactCustomer

Referring toExternal

DataSource

Provider

38%24% 23%

11% 11% 9%

When an Authorization Fails

Other CommentaryLapse plan for ecomm and customer must re-

purchasecry

▷ Typically: – Subscription services Merchants contact customer.– Physical goods and Travel Merchants do more Internal

collection and internal blacklisting.

Merchants Rely on Internal Processes for Recovery

▷ Note: It’s % of Merchants using 3D Secure, not how much they are using.

% of Merchants Using

3D Secure

North America

United States 18%

Canada 14%

Europe

United Kingdom 40%

France 45%

Germany 46%

Yes33%

No 67%

Use 3D Secure

3D Secure Is Not Widely in Use Due to Friction Concerns

11%

8%

9%

23%

20%

22%

24%

22%

32%

43%

51%

8%

10%

13%

16%

15%

20%

29%

31%

29%

25%

35%

Non MRCMRC

Priorities Related to Paymentse-Commerce Fraud

IT ConstraintsSystem Enhancements and

Technical Integrations

Cost of Payment

Security (PCI DSS,Tokenization)

Business Growthand Expansion

Checkout Conversion

Acceptance of AlternativeForms of Payment

Staff ManagementChallenges

Data Access

OrganizationalStructure

Role of Payment Management is Changing from Cost Center to Revenue

Center

Key Takeaways

MRC members more likely to be focused on order conversion and payment success

Top eCommerce markets similar to last survey China, Japan, Russia

and Mexico joined the top 12 list

Merchants report supporting 11 payment types on average MRC merchants

14.5 types vs. 7.6 for non-MRC

Order conversion rates of 64% to 66% donot appear to vary significantly by payment method

One third of merchants support 3D-Secure Payer Authentication services in one ormore countries

Top payment priorities for MRC merchants are: Fraud, IT Constraints,

System changes and integration, cost of payment, and checkout conversion rate

Phone 206.364.2789

Fax 206.367.1115

Merchant Risk Council 1809 7th Ave. Suite 1403 Seattle WA 98101

[email protected]

Contact the MRC


Trivia #6 – Fraud Attacks

• According to the AFP, Which of these fraud attacks is likely attributing a large uptick in companies experiencing fraud?A. EMV implementationB. Targeting phishing leading to wire transfer

fraudC. Check fraud


Trivia #6 – Fraud Attacks

B. Targeting phishing leading to wire transfer fraud

What’s Top of Mind in Payments and Fraud for Microsoft, Zillow, and Expedia


Meet the Panelists

Justin Wang Scott Engel Guilherme Grund-Rafols

Data Scientist Director of eCommerce Payments

Payments Product Manager


Device ID

Fraud Platform

Identity Verification

2-Factor Authentication Biometrics

Behavior Analytics

IP GeolocationAVS

CVV

3D Secure

Chargeback Management Social Media

Email validation

Phone verification

Positive/ Negative Lists

Networks


Getting Started!• Intros• Key Issues• Mistakes• Consumer Trends• Privacy Issues


Broader Industry Trends

• Focus on Conversion

• Account Takeover

• EMV/ Chip & PIN

• Non Fraud coded chargebacks


Even More!• Maximizing the Power of Data• Consumer Engagement• Who is Breaking New Ground?


Meet the Panelists

Justin Wang Scott Engel Guilherme Grund-Rafols

Data Scientist Director of eCommerce Payments

Payments Product Manager

What’s Top of Mind in Payments and Fraud for Microsoft, Zillow, and Expedia

From Seattle Start-up to Global Payments Powerhouse: The Remitly Story


Alex AlgardFounder & CEO, Whitepages

• Alex Algard founded Whitepages in 1997, which has grown to become the leading provider of contact information in North America, with a top-40 web property, 10 top-ranking mobile apps and over 55 million monthly users.


Matt OppenheimerCo-founder & CEO

• Matt Oppenheimer is the Co-founder and CEO of Remitly, the largest independent digital money transmitter in the United States, whose customers transfer more than $1 billion annually.

• Remitly is disrupting the broken $588 billion remittance industry with its mobile-first money transfer service that is easy, affordable and secure.

• To date, Remitly has raised more than $60 million from leading venture capital firms.