In this session we will discuss the business case for a proactive, real-time fraud prevention strategy which enables you to maximize revenue opportunities whilst minimizing fraud. During the session we will create a fraud management check list which combines People, Processes and Technology, underpinned by data, analysis and tailored rules.

2. Online fraud is still a big problem and as long as the number of online shoppers continues to grow, so will the
number of fraud cases. According to the European Central Bank there were 7.9 million cases of fraud with a value
of 1.16 billion euros in 2011 of which 56% took place in e-commerce.
European Merchant Services organizes the EMS RISK EVENT annually for retailers who are active in e-commerce
and multichannel. It is an excellent opportunity to increase your knowledge in the field of online fraud, risk
management and advanced fraud prevention and detection tools. We help you to stay ahead of online fraudsters
and to protect your online business by sharing the knowledge and experience of our fraud and risk experts, our
customers and our partners.
Do you want to attend next year’s EMS RISK EVENT?
Please contact the EMS Marketing Department at T +31 20 660 3054 or send an email to
marketing@emscard.com. For more information visit www.emscard.com/riskevent
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3. Understanding the impact of
your fraud strategy
Kieran Mongey
Senior Fraud Consultant, EMEA
24th September 2013
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4. What we are going to address
• Understanding drivers behind the business case for your fraud strategy
• What are the most effective strategies we should be adopting?
• How can we safely embrace new market opportunities – US Cards example?
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5. First, a word about ReD
Specialist provider of fraud prevention and payment services
to card issuers, acquirers, merchants, switches and processors worldwide
• Services are agnostic of payment type, payment channel and currency
• Provided as managed services, hosted services or installed software
• Tailored, by expert analysts, to the needs of individual customers
• More than 300 large, blue-chip customers, on six continents
• Hundreds of additional merchants connected through Payment Service Providers
• Proprietary technology and databases; patented neural network technologies
• Privately owned, debt free, profitable and high growth
Trusted by the world’s biggest
brands – and by global and
regional partners
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6. The Business Case
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7. Understanding Profit & Loss in your own business
How is managing fraud different in each sector?
• Retail – Furniture & Homeware
• Retail – Electronics
• Telco – Top Up
• Telco – Contract (with Handset)
• Insurance – Car
• Gaming
• Credit Risk
• Travel
• Financial Services
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Revenue – Costs = Profit

8. Revenue considerations
• Competitors
• 3DSecure
• Payment Methods (cost per txn)
• Payment Methods (fraud)
• Payment Methods (new customers)
• International card acceptance
• International business expansion
• Saturation point - Products
• Fulfilment risk
• Marketing strategies
• Customer Service ethos
• Product Margin
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9. Costs to consider
• Manual Review FTE
• Manual Review (other)
• Chargeback Processing
• Fraud Vendor Costs
• Cash Management / Finance
• Customer Service alignment
• Fulfilment monitoring
• IT roadmap
• IT systems capacity
• Head Office Time / Head Count / Consultancy
• Audit (Internal)
• Acquiring Interchange (3DS)
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10. Business decisions – how do they impact your fraud team?
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Fraud
Team
Systems API
Marketing
Fulfilment
Budget &
Finance
Product
assortment
Acquiring/
PSP process
functionality

11. Cost centre or revenue centre?
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Decline Rate
- Fraud
- False positives
Manual Review Rate
- Staff
- Other costs
New Channels
- Cards
- Fulfilment
- IP
-40
-20
0
20
40
60
80
1 2 3 4 5 6 7 8 9 10 11 12
Net Contribution
Net Contribution

12. Best Practice Fraud Strategies
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13. People and process supporting technology
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Data
Analysis
Reporting
Education
Rules

14. Profiling – why is it so critical? (both positive & negative)
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Consumers are continuously presented with offers to spend more money
Banks, Insurers & Retailers are great at it – all driven through marketing and customer
profiling

15. Card number
Amount
Purchase velocities
Billing / shipping details
Email
CV2 AVS
Historically
Standard profiles / data
Low chargebacks or
low insults – not both
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16. Profile data
Card number
Amount
Purchase velocities
Billing / shipping details
Email
CV2 AVS
Payment details / 3DS responses
Shopper history
Global negative lists / merchant
specific positive lists
Unlimited bespoke data field functionality
Product / delivery / customer details
Today
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17. Profile segmentation
Same day/next day
delivery
Click & collect
International
Marketing segments
PayPal / alternative paymentsNon registered / registered
High risk technology
Aligned to customer service
proposition
3D secure status
Mobile payments
Call centre sales
Risk strategies aligned to business requirements
Today
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18. Turning data into rules
Data
Analysis
Reporting
Education
Rules
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19. Industry standard merchant KPIs are improving
Prior to Collaboration Today
FRAUD EXPOSURE
REDUCED BY
41DAYS
1. Chargeback received from Acquirer 40 days
• 72% within 30 Days of Transaction Date
2. Reporting developed 2 days
3. Screening Database Population 1 day
4. Analysis of data 2 days
5. Education / Present findings 1 day
6. Rule changes 2 hours
TOTAL 46 days
1. Fraud data received from Acquirer 3 days
• 72% within 3 Days of Transaction Date
2. Reporting developed - BI 15 minutes
3. Screening Database Population 5 minutes
4. Analysis of data 2 hours
5. Education / Present findings 1 day
6. Rule changes 2 hours
TOTAL Under 5 days
Data
Analysis
Reporting
Education
Rules Data
Analysis
Reporting
Education
Rules
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20. Fraud affects all players in the payments chain – what are the issues?
CardholderMerchant
IssuerAcquirer
• Security and confidence
• Speed (to enable faster delivery)
• Positive customer experience
• Reduced fraud and chargebacks
• Reduced costs of managing fraud
• Protection for genuine customers, to enable sales
• Speed (to enable faster delivery)
• Support for merchants in tackling fraud
• Fraud prevention re-sell opportunities
• Control of merchant fraud
• Reduced fraud losses and control of chargebacks
• Faster fraud detection for improved cardholder experience
• Robust, scalable fraud prevention solutions to support growth
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ReD Fraud XchangeTM

21. Data – fast detection leads to minimal exposure
Key negative data points to be tapping into:
• Negative Databases
• 500,000 distinct data fields loaded in June 2013
• Fraudulent card, email, phone, address, IP, Device and generic customer data
fields – therefore detects ‘LIVE’ data elements
• Fully automated processing ensures efficiencies in loading data quickly and
therefore value of ‘current’ fraud detected
• Data feeds from Underground Online Fraud Lists
• Automated Merchant chargeback files
• Click & Block declines
• Work with Acquirers & PSPs to leverage their intelligence
• Internal databases – marketing / operations / fulfilment
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22. Data – not just Chargeback monitoring
• Related Fraud, Confirmed Fraud & Chargeback Analytics
• Fraud / Data Flags – Profile Building
• Data can be marked in accordance with business objectives – not just fraud
• Marketing / New Business / New Markets
• Products
• Payment Types
• Proactive Fraud Alerts
• Rule Effectiveness Reporting ensures efficiencies are maintained
• Continuous enrichment of data as retailers grow and new fraud trends emerge. What
you see as fraud today will not be the MO or trend tomorrow – but it still needs to be
stopped!
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23. Extracting intelligent data
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• Self-service Business Intelligence portal and Operational portal
• real-time and near-real-time access to transaction data
• proactive fraud alerts

24. Intelligence into effective & quantifiable rules
Rule Functionality
1. Silent Rules – profiling & understand rule impacts pre deployment
2. Click & Block - instant Blacklisting / Whitelisting stopping / accepting immediately
3. Hard / Soft Rules – prioritise rules according to impact & risk appetite
4. Auto analyst rules – reduce volumes in review queues during peak times
5. Auto pilot rules – create subset rules for a defined duration from certain rules
6. Sub-client rules – aligned to how the rule strategy in segmented / KPIs / available data
7. Bespoke rules – commonly building multi-layered rules (5 data combinations)
8. Tumbling & Swapping / Velocity – detects auto-generating cards and emails
Rule Maintenance
1. Rule Effectiveness Reporting – ability to constantly monitor and substantiate
performance of rules / modify accordingly
2. Rule Manager – rules can be changed through an easy to use Interface OR through
working with your risk analyst
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25. Rules aligned to sales strategies
Fraud strategies aligned to
marketing campaigns to deliver ROI
DENY MORE THAN 4 CARDS PER IP IN 3 DAYS NOT IN EXCLUSIONS LIST
TOTAL HITS IN LAST 30 DAYS 158
TOTAL FRAUD IN LAST 30 DAYS 28
FRAUD RATE 17.7%
MARKETING CAMPAIGN TO UNIVERSITIES LATE SEPTEMBER
TOTAL HITS IN 3 DAYS 419
TOTAL FRAUD IN 3 DAYS 7
FRAUD RATE 1.7%
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26. The devil is in the detail
Related
fraud
volumes
International
delivery
reject rates
Mobile
payment
revenue
3D Secure
drop out
Marketing
campaign
success rates
Positive list
performance
Foreign
card
acceptance
Call centre
overheads
Challenged
and released
revenue
Continuous performance improvement delivering ROI

27. The US Opportunity
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28. The opportunity
• US ecommerce estimated
to reach $278.9 billion by
2015 (Forrester)
• 2.84 million tourists visited
the UK from the USA in
2012
• These tourists spent £2.4
billion (almost £1 billion
more than any other
country)
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$280bn

29. The size of the problem
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0,00% 0,20% 0,40% 0,60% 0,80% 1,00% 1,20% 1,40% 1,60%
USA
Australia
France
Canada
Brazil
Netherlands
UK
Germany
Italy
Spain
Norway
Denmark
Saudi Arabia
Belgium
Switzerland
Sweden
UAE
Japan
Portugal
Russian Federation
Attempted Fraud Rate (by value)
by card issuing country
Source: ReD European customers, January – June 2013

30. What makes accepting US cards so difficult?
Problems
• Fraud is high compared to the
genuine volume
• Scheme fines and blocks
• Business decision to block
transactions
• European fraudsters are buying
US cards, and monetising through
European retailers
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Causes
• Genuine volume is low
• Business decision to accept US
cards leading to increased fraud
• Fraudsters prefer to use US cards
– costs less

31. What is driving European fraudsters toward US cards?
• Compromised US credit cards are cheaper to buy
• $10 compared to $50 (Federal Court Case in the US)
• supply and demand - the market is flooded with cards from the US
• Lower US security - cards are easier to compromise and use
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USA Card Country and Time on File <14
Ship
Country
Accepted
TXN
Confirmed
Fraud
Confirmed
Fraud Rate
Related
Fraud
Related
Fraud Rate
UK 1849 624 34% 1470 80%
Spain 37 24 65% 30 81%
USA 741 11 1% 20 3%
Italy 22 5 23% 15 68%
Turkey 7 4 57% 6 86%
Macedonia 40 4 10% 40 100%
Others 90 3 3% 22 24%
Total 2786 675 24% 1603 58%

32. Case study – large European airline
Problem
• Denying all US (and Canadian) cards
through internal fraud rules, due to
scheme requirements
Solution
• Worked with ReD to create a
targeted rule strategy to release US
transactions
Results
• Released transactions worth €2.7m
in the first 3 months with a
chargeback rate of 0.1%
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33. Case study – growing MVNO UK telco
Problem
• Declining all transactions on US
cards, but during the Olympics
wanted to open up market
Solution
• Targeted rules opened channel
allowing low value top ups,
targeting tourists and students
Result
• Now accepting c.1000
transaction per month and
growing
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34. Case study – large UK travel company
Problem
• 90% of chargebacks
coming from US cards,
fined heavily by schemes
Solution
• Created tailored rules
Results
• Reduced chargeback
rates from 18% to 1.2%
• US cards now account
for only 26% of all
chargebacks
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Solutions
implemented
to reduce fraud New solution
implemented
to reduce fraud
Time
Value of
fraud
Fraud begins to rise as
fraudsters adapt
Source: Datamonitor
ReD continues to track fraudsters’ movements through
reporting and business intelligence tools

35. Let’s monetise the US opportunity – safely!
• Use your data
• Tailor your rules
• Continuously report and monitor
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Data
Analysis
Reporting
Education
Rules
Don’t block the US revenue opportunity
– it is possible to safely accept these transactions

36. What have we learnt?
Our fraud management checklist:
• The importance of understanding how Fraud impacts Profit outside of just
the chargeback line of a P&L – thus driving appropriate fraud strategies
• Adopt best practice strategies at both a micro and macro level
• Use your fraud strategy to open up new revenue streams
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37. Thank you
Kieran Mongey
Senior Fraud Consultant, EMEA
kmongey@redworldwide.com
+44 (0) 7957 494 119
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