Dynamic management of riskDynamic management of risk and fraud online

Paul Stanley - Chief Executive Officer23 November 2012

Agenda

• Growth in fraud and online commerce

• The requirements for effective fraud prevention

• Best practice examples

• New standard for cross-industry collaboration

Growth of online commerce

• Online commerce forecast* to record compound annual growth

1,600,000record compound annual growth rate (CAGR) of 23.1%, 2011–14

• US and Chinese markets to draw1,000,000

1,200,000

1,400,000

ent m

arke

t $m

)

$1.4tm

US and Chinese markets to draw level in 2014 - China poised to overtake in early 2015

600,000

800,000

, ,

Onl

ine

Paym

esiz

e ($

$727bn

• 80% percent of North American and European online sellers to expand into Brazil, Russia, India, Africa Japan or China by 2013**

0

200,000

400,000

2011 2012f 2013f 2014f Africa, Japan or China by 2013**

Source: * Datamonitor ** Gartner

2011 2012f 2013f 2014f

Source: Datamonitor Gartner

Global card fraud

12Global card fraud losses$ BN • Global card fraud losses reached

$6.8 billion in 2009 - expected to

6

8

10 reach $10 billion annually by 2015

• Card fraud losses in UK increased by 9% Jan-June 2012 to £185

2

4

6 by 9% Jan June 2012, to £185 million

• UK online banking fraud losses also i d b 28%0

2011 2012 2013 2014

increased, by 28%

Source: Nilson Report 2010

ReD prevented $2 billion in attempted online payment fraud Jan-Oct 2012 Attempted fraud increased by 7% in volume and 48% in value over this period

Fraud has a product lifecycle – continuing to innovate is key

Solutions implementedto reduce fraud

New solution implementedto reduce fraud

ValueTime lag for solutionsto take effect

Value of fraud

F ili i i h k

Fraud begins to rise as new technologies are cracked and new weaknesses are found

Familiarity with weaknesses in cards and technology drives the value of fraud up

Time

Source: Datamonitor

Fraud prevention for online merchants

Requirements for effective online fraud prevention - merchants

• Fraud decisions in milliseconds

• Support for multiple payment types and channels

• Solutions tailored to sector and customer needs

• Global data and support for international expansion

• Collaboration across the payments value chain

The need for speed

Challenges• Instant delivery e.g. digital download• Click & Collect• Order before 6pm, receive the next day • Smaller delivery windows (e.g. digital goods) provide a greater

window of opportunity for fraudsters

Implication• Need for intelligent, real-time fraud prevention solution • Ability to instantly accept, challenge or deny transactions • Different fraud strategies for different fulfilment deadlines

“Click & Collect” in 15 minutes

Challengesg• Sales blocked to good customers by fraudsters testing cards• High manual review costs• Rejecting, insulting & losing genuine customersRejecting, insulting & losing genuine customers• Turning away transactions from high-risk postcodes

SolutionSolution• Unlimited bespoke rules on unlimited variables • Real-time processing supporting all payment types• Clear KPIs against which to monitorClear KPIs against which to monitor

Proliferation of channels

ChallengesC t h i lti l h l• Customers purchase via multiple channels – difficult to know how they will engage next time

• Volumes of customer data in different places/channelsDiff t f d fil h l• Different fraud profiles per channel

• Providing a seamless customer experience across all channels

Implications • A flexible and customised fraud strategy for each channel• Fraud strategies must be different but channels must not operate as silos• Increased data must be utilised – to enable better decisioning

Complexity of the payment landscape

Challenges• Visa & MasterCard are regulated country-by-country, not globallyg y y y, g y• Many payment types to support• Multiple technical integrations and maintenance• Merchant security requirements (PCI) y q ( )• Multiple currencies and languages• Reporting & reconciliation

Implications• Requires ability to accept and screen all payment types for maximum

customer satisfaction (ensure customers don’t go elsewhere)• Need for a fraud solution which is payment agnostic

Enabling multi-channel retailing across Europe

Challenges• Grow online channel to maintain competitive position • Take advantage of international marketsg• Offer customers alternative payment types• Throughout, maintain excellent customer service

Solution• Customised fraud strategy• ReD Shield® implementation• Regular risk reviews and rule updates

Results• Enabled over £500m new channel revenue • Enabled acceptance of alternative payment types such as PayPal• Used tools such as ‘time on file’ to seamlessly migrate customers

across channels

ReD profile segmentation

Same day/next daydelivery

Mobile payments

PayPal / alternative paymentsNon registered / registered

Click & collect

High risk technologyCall centre sales ReD Shield® real-time

fraud prevention for ecommerce merchants

International

Aligned to customer service proposition

Marketing segments 3D Secure status

Risk strategies aligned to business requirementsRisk strategies aligned to business requirements

Rules tailored to sector needs

Travel Sample rules• More than x txns in y days • More than x cards per y emailMore than x cards per y email • More than x amount in y days • Internal negative lists • Internal positive lists• Card origin

IP i i• IP origin• Passenger details

• Origin• Destination• One way / returny• Class of travel• Time to departure• Payment method• Product type

• Flight• Flight• Hotel/car• Accessories

Rules tailored to support international expansion

Challenges• High transaction volumes during kit launches and• High transaction volumes during kit launches and

promotions - reviews must not delay despatch• Concerns about expansion into high risk markets

SolutionSolution• Customised fraud strategy• ReD Shield® implementation• Regular risk reviews and rule updates

Results• Chargebacks now 0.22%• Manual reviews now 7% - down by 71%• Club now confident to offer delivery worldwide• Club now confident to offer delivery worldwide

Fraud prevention for merchant acquirers

Fraud prevention challenges for acquirers

• Maintaining a healthy merchant portfolio and managing attrition• Predicting likelihood of collusive or fraud-targeted merchant activity• Profiling merchants and monitoring ecommerce behaviour/transactions• Recognising fraudulent merchant applications• Stopping fraud trends such as ‘forced authorisations' and ‘authorisation reversals’• Predicting Bust-Out frauds• Managing and supporting merchants new to e-commerce (to minimise regulatory

penalties and fines)

• Offering fraud prevention as a value-added service to merchants

How financial institutions are combating card fraud

• Implementation of Chip and PIN• Increased PCI DSS compliance among retailers• Rollout of Dynamic Data Authentication (DDA)• Rollout of updated chip cards (with integrated circuit card verification value iCVV)• Use of sophisticated fraud detection tools (real time/analytical/ profiling)• Widespread use of Verified by Visa and MasterCard SecureCode• Continued education of merchants on how to protect POS/PIN devices from attack• Continued investment by cash machine owners in technical defences

Scalable, tailored fraud prevention

• Powerful transaction monitoring and risk management

P di ti f d d t ti f dit d bit d i t ReD PRISM® scalable• Predictive fraud detection for credit, debit and private label cards

• Sophisticated neural models built to individual

ReD PRISM® scalable fraud prevention for acquirers and issuers

customer needs

• Taking multiple factors into account, to ensure robust decisioningg

• Combining real-time decisioning with post-authorisationmonitoring, for optimal combination of speed and analysis

• Scalable and adaptable – a long-term solution keeping pace with changing patterns of fraud

The power of PRISM®

• 100% transactions

• Tailored neural models

• Positive and negative databases

• Real-time rules

l i l i• Near-real-time analysis of fraud events

PRISM® Proof Positive

Card Issuer# CardsDebit - 7+ million

# transactionsDebit - average 4.5 million daily

# PRISM usersDebit 7+ million Credit - 4.4+ million

Debit average 4.5 million daily Credit - average 1.3 million daily 35 FTE

PRISM client since 1999

PRISM delivered:

Debit ScoringCredit Scoring Credit - Analysis and Review

Debit Real-TimeCredit Real-Time

PRISM delivered:

• 50% reduction in fraud losses

• $1.1 billion annual loss avoidance (credit card)

• 3 basis points (credit card)

Cross-industry collaboration

Fraud prevention across the payments value chain

Network SwitchesAcquirers RULESPLUSPRISM

Card IAcquirers

PINPOINT

RULESPLUSPRISM Merchant

Monitor and predict

merchant behaviour

PRISM Real TimeReal time fraud management

Issuers

ReD Shield

PRISM Near Real TimeNear real time fraud management

Analysis and review

behaviour Real time fraud management

ReD Fraud Real time fraud management

Industry Hot Card FilePoS fraud

Xchange

RED1 Gateway

International

protection

ConsumersMerchants

International payment gateway

ReD Fraud Xchange™

In conclusion

• Dynamic, real-time management of payment fraud is essentialy , g p y

• Solutions should be tailored to deliver maximum benefit

• Access to global data and experience gives you a fighting chance

• Cross-industry collaboration is the ultimate goal

ReD

• A specialist in fraud mitigation and secure payment gateways

• Global presence and experience

• Global solutions, tailored to individual customer need

• Industry leading foresight and expertise

• Trusted by the world’s biggest brands

Thank you

Paul Stanley, Chief Executive Officerpstanley@redworldwide.comp y@

Tel: +44 (0) 7876 470192

www.redworldwide.com