Regular Payments First and Subsequent Payments Steve Clough

Regular Payments First and Subsequent Payments Steve Clough Direct Response Forum EU Amsterdam, April 2005 VISA INTERNAL USE ONLY

Agenda n Regular payments – the opportunity n The benefits n The problems n Proposed solutions n Summary VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 2

Regular Payment Opportunity n European Regular Payment market estimated at circa € 1 tn * – Key sectors include Insurance, telecommunications and subscriptions – Regular Payments represents 30% of EU PCE EU Regular Payment sector value € 1 tn < 1% processed on Visa Cards n Less than 1% of this business is transacted on Visa cards * Source Global Insight 2003 VISA INTERNAL USE ONLY GBM 05 -141 Clear sector opportunity Brand Architecture – 3

French Regular Payments market 2003 Source: Visa Analysis of Carte Bancaire data VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 4

UK Regular Payments market 2003 Cash and Cheques = £ 50 bn Source: 2004 APACS report (excludes rent & mortgage) Iceland Regular payments > 16% Visa POS CEV VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 5

Regular Payment Benefits Merchants Cardholders Easy mechanism to initiate remote payment and improved renewal rates Easy to set up and convenient for remote environments Internet Convenience Visa Members Increased revenue. Cuts costs of cheques. VISA INTERNAL USE ONLY GBM 05 -141 Increased transaction volume Brand Architecture – 6

But there are problems n Existing card scheme solutions have evolved over 30 years and do not necessarily meet the requirements of all parties: – First transaction is usually Card Not Present, which needs specific risk precautions – merchants often hold invalid card number information – difficult to stop Regular Payments - regulatory impact Cardholder and merchants are reluctant to use card based Regular Payments VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 7

First Transaction – Best Practices • Risk • CNP Fraud is the highest single loss category • Chargebacks for Mo. To are five times Face-to-Face rates, and e-Commerce rates are eight times higher • Cardholder authentication is the major problem But… not everyone suffers equal losses. Fraudsters will find the weakest link VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 8

First Transaction - Authorisations Best Practices • Authorise all transactions • but remember authorisation isn’t a guarantee of payment • Collect and submit the Expiry Date • Ensure your transactions have correct data • Merchant Category Code • CNP indicators VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 9

First Transaction - Card Verification Value 2 Best Practices • CVV 2 is highly effective against CNP fraud • Simple to implement and use • Already on all cards • Gives up to 70% savings in losses • Transaction approval rates are higher when CVV 2 used • Reduces merchant back office costs VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 10

First Transaction - Address Verification Service Best Practices • AVS enables a merchant to validate the cardholder’s billing address with the Issuer • UK Addresses only • Merchants should • Review all AVS failures • Research partial AVS matches VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 11

First Transaction – Verified by Visa Best Practices • Vb. V enables a merchant to request confirmation of the cardholders identity from the Card Issuer • If an eligible merchant offers Vb. V, he will not be liable for identity-related fraud • Merchants should also keep other fraud prevention tools to maintain eligibility VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 12

Be Vigilant Best Practices • Is the transaction suspicious? • High value • Hesitant customer • Urgent delivery • Random or multiple orders • Differing addresses • Use of multiple cards VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 13

Be Vigilant Best Practices • Maintain records of cardholder’s previous transactions and shipping address(es) • Monitor for suspicious transaction frequencies • Monitor for account generation attacks • Consider confirming high value purchases with the cardholder VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 14

Fraud Screening Best Practices • Commercial Fraud Screening tools can be very effective • Use in addition to other fraud prevention measures VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 15

First Transaction - More information Best Practices • Visa Merchant Best Practice Guide • Talk to your Visa Acquirer VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 16

Subsequent transactions – Visa’s response n Tactical Improvements – Working with key merchants on ‘best practice’ to contain the problems – Summer 2004 3 UK credit Issuers undertook a refresh of card numbers for 5 Regular Payment merchants. n. Provided a statistically high level of either refreshed card numbers (18. 5%) or confirmed to merchant that they were currently using the most recent card number n. Demonstrated the value of developing an automated mechanism to refresh card numbers n. Results varied based on frequency of billing and operational procedures at the merchant VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 17

Subsequent Transactions - Strategic initiatives n Build an automated service to refresh merchant card number databases n Incorporate a facility for cardholders to stop Regular Payments VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 18

How will the VAU / Stop Service Work? On-line stop instructions Issuer Customer Service Centre Acquirer Submission of enquiry file (merchant determines Frequency) Issuer Card Management System Batch card number updates (minimum monthly) VISA INTERNAL USE ONLY Acquirer submits enquiry on merchants behalf GBM 05 -141 VAU / Stop Service Merchant receives • Refreshed number or • Confirmation of existing number • Details of any stop transactions Brand Architecture – 19

Summary n A large sector opportunity exists for more efficient and convenient payments n Best practices can make a huge difference for first transactions n Current card based solutions for subsequent transactions are archaic and not suited to developing the sector n Strategic solutions have been designed. VISA INTERNAL USE ONLY GBM 05 -141 Brand Architecture – 20