Feature Articles
Several times monthly, CardNotPresent.com’s writing staff tackles subjects that merit a deeper look than our news items. Our feature articles deliver original reporting on the latest trends, issues, companies and technology impacting the CNP payments space.
Articles:
Bitcoin: Speculative Investing Fad or Real E-Commerce value?
By D.J. Murphy, Editor-in-Chief
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Last week, over an astonishing few days, the exchange rate for Bitcoin, the decentralized virtual currency that had been enjoying a run up in value for several months, went crazy. So crazy, in fact, that comedian Stephen Colbert devoted an entire segment to the issue on his Comedy Central show on Wednesday night, entering Bitcoin in the mainstream pop-culture zeitgeist.
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Staples Velocity Lab: Ideation to Innovation at Warp Speed
By D.J. Murphy,
Editor-in-Chief, CardNotPresent.com
You may not know it, but Staples, the big-box office-supplies chain that introduced us to the “easy button,” is an e-commerce juggernaut. In fact, the company ranked second on the most recent Internet Retailer list of the top 500 U.S. e-commerce retailers, trailing only Amazon.com in online sales. But, as focused as Staples is on reaching customers through the online channel, sales in its brick-and-mortar locations still account for 60 percent of its total sales revenue.
That relative balance means the company believes it is uniquely positioned to understand and leverage all of its assets—technological and traditional—in omnichannel efforts that are beginning to define retailing.
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MasterCard’s Digital
Wallet Reaches Next Stage of Evolution with MasterPass
By D.J. Murphy,
Editor-in-Chief, CardNotPresent.com
At the recent Mobile World Congress summit in Barcelona,
MasterCard unveiled the next generation of its digital wallet. The company has
rebranded its PayPass Wallet Services as MasterPass and enhanced the service to
give merchants a flexible way to offer the omnichannel shopping experience they
want to deliver to consumers, according to Ed Olebe, group head of MasterPass
Services for MasterCard.
Olebe calls MasterPass an evolution of PayPass Wallet that
saw the service morph from a wallet enabling e-commerce or in-store checkout to
a service that looks at digital commerce “more holistically.” He notes a
dichotomy that emerged between MasterCard’s merchant partners and issuer
partners that were leveraging PayPass Wallet.
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Guest Perspective: The Future of Payments - We Need a Paradigm Shift
By Bill Deichler, Manager, Payment Methods, Murphy Oil USA
We are all very familiar with the history of plastic for payments—first credit and then debit cards. Historically payment cards were a financial institution play to help merchants expand both the frequency and the amount of its customers’ purchases. It has rolled along pretty smoothly for a number of decades.Then came the rapid increase in product pricing (interchange)—especially in the petroleum sector—and the cost of those card purchases grew to unacceptable levels.
To handle this unfair expense, merchants, one of the most entrepreneurial segments of our economy, went begging for regulation. And they got it. But, now where are we? It's time to reimagine the cost structure of the payments world and it looks like it will be up to merchants to lead this effort.
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W.net Brings Women in Payments Together
By D.J. Murphy, Editor-in-Chief, CardNotPresent.com
Only a few days after a massive blizzard blanketed the northeast United States with up to three feet of snow, a group of professionals navigated the partially plowed streets of Boston to mark the expansion of an organization dedicated to supporting women working in the electronic payments industry. W.net (Women Networking in Electronic Transactions) was founded in 2005 to give women working in the male-dominated payments workforce access to and support from highly successful trailblazing women who had come before them.
The networking group runs what it calls LINC (Local Interest Network Circle) events in seven geographical regions where payments professionals can gather in person to socialize, network and inspire each other in an environment they might not experience on a daily basis. Since the organization’s genesis, W.net LINCs have sprung up in Atlanta, Chicago, New York, Northern California, Phoenix and Texas.
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After the Dust Settles: N.J. Fraud Ring Raises Questions for Acquirers, Merchants
By D.J. Murphy, Editor-in-Chief, CardNotPresent.com
When news broke recently about a massive credit-card fraud ring based in New Jersey, the headlines screamed about the $200 million in losses that U.S. Attorney Paul J. Fishman said could grow as knowledge of the extent of the sophisticated scams grew. Instead of targeting consumers and buying big-ticket items with stolen credit card information, however, the 18 men charged in federal court mostly defrauded financial institutions, getting tens of thousands of credit cards issued to more than 7,000 false identities.
Even more problematic, the thieves allegedly created dozens of completely fictitious businesses that were able to receive merchant accounts and card-acceptance capability, highlighting what some in the industry are calling “woefully inadequate” underwriting coupled with market conditions in which shrinking margins are ratcheting up the pressure to onboard merchants quickly.
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Guest Perspective: Another Run at 3-D Secure and Issuer Liability in E-commerce
By George Peabody, Payments Innovation Road Trip
Recently, I spoke with Mark Nelsen, Visa's head of risk and authentication product development, who is responsible for the new Visa Consumer Authentication Service (VCAS). Announced November 26, it is a service targeted toward issuers but, in my view, the larger potential beneficiaries are the e-commerce and m-commerce merchants, although some integration work will be required on their part to take advantage of the service. A skeptic might call VCAS "son of 3-D Secure." It appears to be a big improvement, though, on its parent's shortcomings.
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Ring in the New: CNP Ruminations for 2013
As 2012 has given way to 2013 we at CardNotPresent.com thought it was time to turn some space over to the many constituencies that comprise our readership. The priorities, challenges and opportunities for the year ahead vary widely for the merchants taking card-not-present payments and the medley of service providers that support them. We’ve invited several of them to make predictions or pass along their thoughts about the coming year. What issues will dominate the list of concerns for those engaged in the CNP payments space? What’s in store for e-commerce and mobile payments in 2013? Our experts tell us what’s on their mind.
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Multi-Channel Retailing Ushers in New ERA for D2C Marketers
By D.J. Murphy, Editor-in-Chief
The Electronic Retailing Association (ERA) has evolved in the more than 20 years of its existence from a television-centric group lobbying Washington in the face of increased regulatory scrutiny to a professional trade organization addressing the concerns of direct-to-consumer (D2C) marketers in the midst of a shift—like many other retail segments—to a multi-channel sales environment. Direct-to-consumer marketing traditionally is defined as a retailer using primarily audio/video to tell compelling stories that drive consumer response and sales. Initially, this meant infomercials persuading consumers to pick up the phone and place an order through a call center, according to Julie Coons, president and CEO of ERA.
“About ten years ago, the National Informercial Marketing Association (NIMA) became the Electronic Retailing Association,” Coons says. “As time went on, these traditionally television-centric companies that sold product through long- or short-form infomercials began using more channels including radio, e-commerce and now mobile applications on phone or tablets."
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Affinity Oversees Evolution of Card-Linked Offers
By D.J. Murphy, Editor-in-Chief
In the early years of the new millennium, New York City-based Affinity Solutions—a company that had been providing loyalty solutions to retailers since 1998—saw an opportunity to leverage ever-increasing amounts of transactional payment card data into a shift from traditional reward programs funded mainly by credit-card issuers to a new paradigm reliant on the retailers themselves for funding. Merchant-funded rewards were born and Affinity Solutions was a pioneer in the space. In the intervening years, as the model morphed and became known as card-linked offers, Affinity has partnered with more than 4,000 financial institutions providing data for marketing programs driving increased traffic to more than 25,000 retailers.
The road from merchant-funded rewards to card-linked offers was not a quantum leap. It was a process during which both issuers and retailers had a lot to learn, according to Jonathan Silver, president and CEO of Affinity Solutions.
“For us it’s been a continuum,” Silver says. “It hasn’t been a bright line between merchant-funded rewards over here and card-linked offers over here. It’s been the gradual evolution of banks recognizing that in order to deliver enough value to the marketer, they had to make the channel access more dynamic and more fluid."
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FreeMonee Makes 2013 the ‘Year of the Gift’
Optional Language Choice: Spanish 
| French 
By D.J. Murphy, Editor-in-Chief
A three-year old startup is harnessing the power of big data and no-strings-attached cash to drive more traffic and more spend to online and brick-and-mortar retailers. Merchants spend hundreds of millions of dollars each year on consumer incentives designed to bring more shoppers through the doors, but they’re not spending that money as efficiently as they could be, according to Jim Taschetta, chief marketing officer for San Mateo, Calif.-based FreeMonee.
Taschetta says one can look no further than gift cards for an incentive that works better than any other—especially coupons, which are the primary incentive vehicle currently used by retailers.
“There is a product already on the market retailers use that’s incredibly effective at drawing consumers in the door—the gift card,” he says. “When retailers use gift cards they find they’re ten times more effective than anything else they can do to bring customers in the door.”
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WhitePages PRO Taps Phone Data and More to Identify CNP Fraud
Optional Language Choice: Spanish | French
By D.J. Murphy, Editor-in-Chief
In the Internet stone age of 1997, when Alex Algard founded a Website that put a national phone directory online, he appropriated the generic name WhitePages to evoke the old phone book that showed up periodically on front porches, at the end of driveways and in mailboxes. Fifteen years later WhitePages.com and its sister Websites (411.com, Address.com, PeopleSearch.com, PhoneNumber.com and Switchboard) comprise one of the largest repositories of consumer and business contact information on the Web. The company counts 40 million unique users and performs approximately 2 billion searches each month.
As time went by, those billions of searches began to reveal some interesting information about those millions of users and what, exactly, they were trying to accomplish. Algard, the company’s CEO in addition to being its founder, says analysis showed many cases of multiple searches originating from a single IP address.
“We noticed time and time again that certain users were conducting up to dozens of searches in a day,” Algard says. “We researched where these searches were coming from and it turned out that e-commerce merchants were using Whitepages.com as an improvised, ad hoc solution to prevent fraudulent transactions. They were doing searches on phone numbers to verify addresses and reverse lookups to match phone numbers to names.”
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FICO Identifies Growing Threat of CNP Fraud
By D.J. Murphy, Editor-in-Chief
For nearly 20 years, predictive analytics firm FICO has gathered information on millions of payment card transactions per year to form a picture of card fraud in the U.S. In an analysis of credit- and debit-card losses in 2011, FICO, the company that set the standard for measuring consumers’ credit risk, found that overall fraud ticked up, but fraud in card-not-present transactions increased significantly. FICO found in a recently released fraud study that CNP-fraud losses increased at twice the rate of counterfeit-card losses.
While the same trend has been attributed in other countries to the introduction of Chip-and-PIN cards, in the U.S.—where the EMV standard has yet to be implemented—other factors are at work, according to Doug Clare, vice president of product management at FICO. Prominently among them is the explosion of debit use, even online where consumers traditionally have been reticent to pay with debit.
“We’ve been seeing this shift for a while,” Clare said. “Clearly there are more transactions, especially on the debit side. Debit transactions have increased pretty significantly as consumers have gotten more accustomed to using debit for darned near everything.”
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Merchant Groups Aiming to Speed up Process in Interchange Settlement Battle
Objecting merchants can sign on with unusual move
By D.J. Murphy, Editor-in-Chief
Last week, home improvement mega-retailer Lowe’s became the most recent influential merchant to go public in its opposition to the proposed settlement of a class action suit accusing Visa, MasterCard and more than a dozen credit-card issuing banks of violating federal antitrust rules in the way they set interchange rates.
Public statements are only the first salvo, however, in a battle to derail the settlement agreement—nearly seven years in the making—before it ever leaves the station. Large retailers and national merchant trade associations are now in the process of trying to convince a federal judge to end the legal fight before the agreement receives preliminary approval; a tactic attorneys on both sides agree is exceptionally uncommon.
According to the settlement agreement made public in July, members of the class have the right to object to the settlement in a written statement to the court “within the Class Objection Period.” (180 days after the judge grants preliminary approval and 90 days after the last official notification to members of the class). In the vast majority of cases, once a settlement agreement has been negotiated, this is the process the parties use to register dissatisfaction with the settlement.
Not this time. Several plaintiffs from the original lawsuit, including NACS—the trade group representing U.S. convenience stores and gas stations that was one of the first groups to object when the settlement was revealed in July—are spearheading a movement to circumvent the usual process and bring it to an end quickly.
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The Devilish Details of the Interchange Settlement Proposal: What’s a Merchant to Do?
By D.J. Murphy, Editor-in-Chief
The settlement proposal in July between Visa, MasterCard and several top credit-card issuers and the class of merchant plaintiffs that sued them over credit-card interchange fees initially was hailed as a compromise that would end a long-running battle over fees most merchants feel are excessive and set in violation of antitrust law. Merchant opposition, however, has mounted in subsequent weeks and an Oct. 19 deadline now looms for merchants in the class (or, rather, classes—more on this later) to decide if they want to officially notify the court they object to the proposal.
Should retailers take the money and run or should they reject the proposal? And if they oppose the settlement, how should they proceed? The answer will be different for different merchants, but details of the settlement proposal that have not received much visibility are important for merchants to know if they are to stake out an informed position.
Initial media reports focused mainly on the size of the total payout and merchants’ ability under the proposal to surcharge customers who pay with a MasterCard or Visa credit card. Opposition to the proposal has coalesced mainly around the release of the defendants from any future legal action, but there are other concerns—and opportunities—for merchants contained in the settlement.
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Semafone Turns CNP Industry’s Attention Back to the Telephone
Optional Language Choice: Spanish 
| French
By D.J. Murphy, Editor-in-Chief
In the CNP payments firmament, e-commerce shines brightest. But payment via telephone is entrenched firmly in CNP’s DNA and a U.K. company has introduced patented technology that helps merchants that operate call centers reduce fraud and PCI scope associated with taking payments over the phone, which still accounts for billions of dollars in potential revenue each year, according to Stu Carty, sales manager in North America for London-based Semafone.
Semafone formed in 2009 when a team of call center professionals began looking into solutions to address PCI compliance but couldn’t find any.
“As they started to embrace the PCI compliance standards, they were feeling the pain of those standards,” says Carty. “They recognized a need, looked around in the market and saw there was nothing available. They developed some technology internally, then realized they could take the technology to market.”
The company has received several rounds of financing, including from noted London investment company Octopus Ventures. The most recent in 2012 added nearly $3 million to Semafone’s coffers. Since then, the company has built up a strong customer base spanning multiple markets including government, finance, retail, insurance, debt recovery, OSP, travel & leisure and broadcast with Rupert Murdoch owned satellite broadcaster Sky. Business up to now has been predominantly in the U.K. and Europe with inroads being made in North America. Semafone’s most significant milestone, however, came just last month when the company secured a U.K. patent on its technology.
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MeS Acquisition Driven by Technology not Geography
By D.J. Murphy, Editor-in-Chief
Until very recently, Redwood City, Calif.-based merchant acquirer and processor Merchant e-Solutions (MeS) was a 300-person company serving 70,000 U.S. merchants—most of which tally between $10 million and $100 million per year in credit card volume. E-commerce merchants account for about half of MeS’s client base, according to Kevin Gallagher, general manager of e-commerce for MeS.
When the company was founded by Bank of America Merchant Services veterans 13 years ago, it was with the idea that MeS could build a state-of-the-art platform that would be more feature-rich and flexible than many of the existing legacy systems. And, Gallagher said during an interview at the recent CNP Expo in Orlando, Fla., the organization has spent the intervening years adding features and functionality that have enabled it not only to compete with larger legacy providers, but to exceed them in many ways. As a smaller, nimbler company, Gallagher said MeS could make changes and enhancements to its platform sooner than other larger acquirers (MeS began offering tokenization, for instance, nearly five years ago). He proudly noted at the time that 100 percent of the company’s technology and 100 percent of its service and support—front-end authorization platform, payment gateway and back-end settlement services—were in house.
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Q&A with Adyen’s Roelant Prins and Peter Caparso
Optional Language Choice: Spanish | French
By D.J. Murphy, Editor-in-Chief
CardNotPresent.com sat down with Roelant Prins, Adyen’s chief commercial officer, and Peter Caparso, the company’s North American president during the CNP Expo to talk about growth, serving a new type of merchant and how mobile is leading to a convergence of the online and POS channels.
CardNotPresent.com: How, in the past year or so, has the type of merchants you’re working with changed?
Peter Caparso: We originally worked with a lot of video gaming and digital content companies, but now we find, in addition to them, we’re working a lot with retailers, software download companies and some travel companies. We continue to sign and board significant merchants. Not necessarily big merchants, but medium-sized companies, cool tech companies etc.
Roelant Prins: When we started five years ago, people very much liked our story but quite a few prospects said it was not the right time or they really like the solution but the company doesn’t have a lot of experience. So, we started with these tech companies that didn’t mind how young we were. We were in the same phase and they really liked our technology so it was easier. At some point, the larger companies began to recognize we were still out there and heard a lot of good stuff about us.
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GlobalCollect Eyes Expansion in Latin America
Optional Language Choice: Spanish | French
By D.J. Murphy, Editor-in-Chief
Earlier this month, e-payment service provider GlobalCollect acquired Buenos Aires-based e-commerce processor Sub1, expanding its presence in South America with an eye on beefing up operations in the entire Latin American region. The Dutch CNP processor, which enables merchants to sell via the Internet to consumers in more than 200 countries, specializes in offering a wide array of local and global payment methods for online purchases. Sub1 will enable GlobalCollect to leverage a familiar and proven platform in the region to serve consumers in a burgeoning e-commerce market—especially Brazil, according to Tom Staudt, GlobalCollect’s CEO since January 2011.
“Overall, e-commerce is growing 30 percent-plus annually throughout Latin America and the largest area of growth is Brazil,” Staudt tells CardNotPresent.com. “Brazil represents upwards of 50 or 60 percent of the overall e-commerce marketplace in the region, with Chile, Peru, Mexico, Argentina and Colombia being the other predominant markets.”
The payment environment in the region, Staudt notes, is not dramatically different from North America, with American Express, MasterCard and Visa establishing themselves as strong payment brands in Latin America along with a growing list of alternative payment types.
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Dwolla Provides Fast Access to Cash at Low Cost
Optional Language Choice: Spanish | French
By D.J. Murphy, Editor-in-Chief
The month of February capped off a stunning year-plus for payments startup Dwolla. Early last month the company, which was founded in 2008 but didn’t launch publicly until December 2010, announced it had secured $5 million in new funding. For a company that began because its founder, Ben Milne, simply wanted to run his online business without paying so much interchange to credit card issuers, it’s heady stuff. But, Milne, who is also Dwolla’s CEO, says the company will succeed based on adherence to a coherent philosophy:
“On any device that connects to the Internet, we believe you should have access to your cash and be able to exchange it in a very fast way at very low cost to everyone involved in the direct action,” Milne tells CardNotPresent.com. “In a world where money doesn’t physically move any more—the ownership of it just kind of shifts—there’s really no reason technically why that shouldn’t be possible.”
What Milne envisioned was a cash-based system that worked along the same lines as the Automated Clearing House (ACH)—an electronic network that facilitates transactions to and from users’ bank accounts—but that overcame the some of the issues most admit ACH needs work on.
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Chase Paymentech Eyes Holistic Approach, Mobile
Optional Language Choice: Spanish | French
While fraud, chargeback and reversal rates are important measures, implementing an anti-fraud solution for CNP merchants requires an enterprise-wide perspective, according to Casey Bullock, vice president and general manager of fraud solutions for Chase Paymentech. Bullock, on the job with Chase for about two years now, says the company’s international scope and broad client base puts the company in excellent position to fight fraud now and gives it the wherewithal to spot and leverage important industry trends such as the coming wave of consolidation and the explosion in mobile commerce as both consumers and merchants become increasingly comfortable with the technology.
Wider Perspective
To find the right anti-fraud solution, Bullock explains it’s important to have a holistic view of the client.
“It starts with defining what you’re ultimate risk exposure is,” he says. “Most of the merchants I work with tend to think about fraud in absolutes: What is my chargeback rate? What is my reversal rate? There is a more effective way to view a merchant’s fraud landscape.”
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Moving Beyond the Device: Three-part Executive Summary
Optional Language Choice: Spanish | French
Part III
Device Identification—an online fraud prevention tool that only recently has begun to gain mainstream acceptance—establishes a unique ID for a device attempting to access a Website. Devices are assigned tokens that can be tracked across multiple user transactions, providing a unique identifier that makes it possible to differentiate one entity from all the other entities accessing the site. A new white paper from Sarasota, Fla.-based e-commerce payments consultancy The Fraud Practice describes methods required to integrate Device Identification into an overall fraud solution. CardNotPresent.com will offer an executive summary of the detailed document in three parts. Today: Part III.
Three Logical Areas for Device ID Integration
Because device identification is just one tool within your overall solution, it’s important to understand the methods you can employ to move beyond the device. There are three logical areas to employ Device Identification within your overall fraud solution: authentication, profiling and blocking.
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Moving Beyond the Device: Three-part Executive Summary
Optional Language Choice: Spanish | French
Part II
Device Identification—an online fraud prevention tool that only recently has begun to gain mainstream acceptance—establishes a unique ID for a device attempting to access a Website. Devices are assigned tokens that can be tracked across multiple user transactions, providing a unique identifier that makes it possible to differentiate one entity from all the other entities accessing the site. A new white paper from Sarasota, Fla.-based e-commerce payments consultancy The Fraud Practice describes methods required to integrate Device Identification into an overall fraud solution. CardNotPresent.com will offer an executive summary of the detailed document in three parts. Today: Part II.
The Limitations of Device Identification
The technology behind Device Identification is by no means fool-proof. No fraud prevention technology is.
Device Identification’s strength lies in detecting patterns after repeat visits. It provides limited-to-no-value when it comes to fraud prevention for true first-time consumers. The method simply provides a unique token ID for that user. There will be no way of knowing whether or not the user is trustworthy.
Read the full article here...
Moving Beyond the Device: Three-part Executive Summary
Optional Language Choice: Spanish | French
Part I
Device Identification—an online fraud prevention tool that only recently has begun to gain mainstream acceptance—establishes a unique ID for a device attempting to access a Website. Devices are assigned tokens that can be tracked across multiple user transactions, providing a unique identifier that makes it possible to differentiate one entity from all the other entities accessing the site. A new white paper from Sarasota, Fla.-based e-commerce payments consultancy The Fraud Practice describes methods required to integrate Device Identification into an overall fraud solution. CardNotPresent.com will offer an executive summary of the detailed document in three parts. Today: Part I.
Overview of Device Identification
Device Identification—also known as device authentication, device fingerprinting and device ID—is a technique used to establish a “fingerprint” of a user’s computer or other web access device in order to track their activity and determine linkages between other devices. Device Identification has grown into a very sophisticated science, with active and passive versions, both of which have the ability to be deployed so that they are completely transparent to the end user.
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ThreatMetrix: Fighting Fraud with Device Identification
Optional Language Choice: Spanish | French
The roots of Los Altos, Calif.-based fraud prevention company ThreatMetrix were planted nearly 7,500 miles across the Pacific Ocean from Silicon Valley. The company’s story began in 2005 not with e-commerce, but with a project for the Australian government to stop and prosecute email spammers.
"We were tracking botnets, so we built aggregated intelligence to essentially have a credit score for an IP address," says Alisdair Faulkner, chief products officer for ThreatMetrix.
When the ThreatMetrix team concluded its public service and was looking to translate its aggregated intelligence technology to the private sector, still the founders did not consider fraud prevention at the top of their list.
"We were exploring different markets and the original intention was to look at security and integrate that intelligence in firewalls and appliances," says Faulkner.
How Fighting Spam Informs Fraud Prevention
What Faulkner, who previously had founded a networking technology company that prioritized packets in applications over networks providing real time response, and co-founder David Jones, whose experience was in email filtering, realized was the current methods being used to screen for anything—new account origination, money transfer or online credit card transactions—were not taking basic security intelligence into account.
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Special Feature: Post-Durbin Winners and Losers
Optional Language Choice: Spanish | French
With the Durbin Amendment to the Dodd-Frank Act slated to go into effect on Oct. 1, how the interchange caps and transaction routing rules will affect all the players is still an open question. Wells Fargo has announced it will begin testing a $3 monthly fee for customers that use debit cards to make purchases in an effort to recoup some of the revenue it expects to lose starting in October. That move and Visa’s recent announcement that it will modify its fee structure are clear signs of the scramble taking place in a post-Durbin world.
In an effort to sort out the winners and losers, Boston-based Aite Group looked at the payments landscape and what all the players can expect after D-Day. In short, says Madeline Aufseeser, senior analyst at Aite Group, merchants will gain the upper hand at the expense of the big banks and the card networks.
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Think Locally, Act Globally
Optional Language Choice: Spanish | French
Peter Caparso, president of the North American unit of Dutch e-commerce payments processor Adyen, has some advice for merchants when dealing with their processor: don’t put yourself in a multi-year deal and always be dealing with more than one processor. It may be counterproductive for Caparso if his clients take his suggestions to heart, but, from a merchant’s perspective, he says, it’s the right thing to do.
“All your readers should give me their business,” he laughs, “but always be in contact with a second payments provider. As a business owner that’s how you give yourself the best chance to succeed.”
Adyen grew out of Bibit, another Dutch payments company formed in the late 1990s that had been acquired by RBS WorldPay in 2004. In 2006, Caparso, who had been with RBS WorldPay as the head of its CNP division in the U.S., ran into some of the former Bibit founders who had left the merged company.
The chance meeting lasted much longer than expected and Adyen was born. Having had access to high-level merchants in his position with RBS, Caparso was privy to their pain points and to what they wanted to see. Going with Adyen, he saw, was the right thing to do.
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Fraud Management Solutions, Buy Versus Build, a Case Study
Optional Language Choice: Spanish | French
"Building a fraud solution in-house is not for the faint of heart, it requires a lot of time, resources, money and experience in fraud management."
There has been a lot of change in CNP fraud management over the past 15 years but today, just as with the early pioneers in e-commerce, whether to buy or build a fraud management solution is still a question we are asked to consider by some of our clients. While the types and volume of fraud attacks have grown over the years, so have the number of fraud solution providers and techniques for combating fraud. Today merchants have a plethora of choices--end-to–end solutions as well as strong niche fraud tools--so why would anyone still want to consider building their own fraud solution?
To be clear, when I talk about building a fraud solution I am not simply referring to hard coding some rules into the back end of an e-commerce system. I am talking about building out the infrastructure for a fraud mitigation program, which, for starters, means being able to write rules dynamically, manage rules, maintain lists, run velocities, scorecards, perform manual reviews, manage data, perform reconciliation and connect to third-party data sources. Building a fraud solution in house is not for the faint of heart. It requires a lot of time, resources, money and experience in fraud management. It is very rare when the business environment, business case and available resources to accomplish the task are aligned to make this a viable option. The fact is, I have seen some very large and technologically sophisticated organizations struggle, and in some cases abandon, their efforts to build in house.
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Digital River Puts Wealth of E-Commerce Experience to Work
Optional Language Choice: Spanish | French
Between operating thousands of e-commerce sites globally—many for top brands including Microsoft, Adobe, Electronic Arts and Kodak—and as a pioneer in selling digital software products online, Minnesota-based Digital River, Inc. has access to a wealth of data and knowledge. As the company has expanded organically, via acquisitions and by adding clients, it is leveraging that trove of data to extend its payment and fraud prevention services through its new World Payments solution, and has made them available to online merchants on a standalone basis.
According to Paul Bridgewater, vice president of World Payments, the payments experience of managing tens of thousands Web stores around the world has enabled Digital River to understand, “based upon the demographic of the consumer and the types of products being sold by merchants, what payment options matter and how those payment options should be formatted and presented to consumers in the checkout experience.”
Bridgewater notes the knowledge accrued operating e-commerce sites since its launch in 1994 has provided the company the basis to develop template payment pages that merchants can experiment with to find the ones that are most effective. The templates, which are deployed by the merchants themselves in the World Payments command console, represent Digital River’s own “best practices” for payments pages on their e-commerce sites.
Bridgewater says Digital River’s payment programs are all designed to grow revenue.
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Accertify Leverages American Express’s Global Reach
Optional Language Choice: Spanish | French
Accertify’s anti-fraud solution is relied on by some of the largest U.S.-based and global brands to manage card-not-present and other types of risk. Last fall, following several years of growth, the company was acquired by American Express. Accertify co-founder and CEO Jeff Liesendahl says in 2011 the company will concentrate on global expansion of its fraud prevention platform and promoting its new chargeback management service.
Origins
A decade ago, Liesendahl and the rest of the management team of the online travel startup Orbitz were struggling with how to address fraud in an industry where individual transaction value is high and margins are miniscule.
Liesendahl and other Accertify founders were dissatisfied with commercially available fraud solutions at the time, which they believed failed to address many parts of the screening, review and other processes that were necessary for stopping fraudsters.
The Orbitz team looked at all the data they had as merchants—generated internally and externally—and built an end-to-end system from scratch that was more comprehensive, data-driven, automated and capable of evolving as fraud scams did. The system successfully solved Orbitz’s fraud problem and provided a springboard for the platform Liesendahl and his team later created at Accertify.
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Kount 'Quietly Doing the Laundry'
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Steve Rouse, chief operating officer of Kount, bills the Boise, Idaho anti-fraud software provider for e-commerce merchants as a four-year-old company “with about 13 years of experience.” The company that evolved into Kount actually began as one of the merchants it now serves, Rouse explains. In the late 1990s, Rouse and the team at Kount operated an online business that sold e-books and software called ClickBank. It got into fraud prevention simply as a way to address its own needs as a merchant.
“We quickly figured out as an online business that you have to have fraud protection, so we invented some technologies that really underpin the fraud protection business today like device fingerprinting and proxy piercing,” Rouse says. “Those are technologies we invented and patented to protect our own merchant business.”
Rouse says it became quickly apparent that the anti-fraud technologies patented by ClickBank could sustain a separate business. But, the company instead decided to sell some of its technology. It reacquired the patents and rode out a seven-year non-compete before launching Kount four years ago.
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CNP Meets Brick-and-Mortar with AisleBuyer
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Standing in an aisle at Best Buy two years ago, Andrew Paradise was stumped. The self-described “techno dork,” who had built and recently sold a business in the image recognition and online advertising space, couldn’t decide between two nearly identical memory cards he had been shopping for. So, he fell back on a trusted piece of technology: he whipped out his iPhone and Googled the cards to compare their features as he stood in front of them at the store.
Paradise, whose background in addition to deep programming experience includes time in venture capital, was struck by an idea. As smartphones gain a toehold with consumers (30 percent penetration right now, estimated to increase to 50 percent by yearend, he says) is there a way to incorporate the online and offline shopping experiences so that a retailer doesn’t lose engagement with consumers even while they’re in the store?
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The CNP Spotlight – Retail Decisions
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Long before the Internet existed as the e-commerce behemoth it has become, Retail Decisions (ReD) and its forebears were screening card-not-present transactions for fraud. The international fraud prevention group, which has grown to include payment processing in addition to providing custom CNP anti-fraud software for clients around the globe, grew out of two separate firms on either side of the Atlantic Ocean.
Nearly a quarter century ago, a U.S. company called Transaction Billing Services was one of the first to focus on screening CNP transactions for fraud when it began serving telecommunications companies that had introduced calling card services for travelers.
"If you were going to make a phone call from a hotel you probably didn't want to use the hotel phone directly because the rack rate was so expensive, so you used an international calling card service such as 1-800-CALL-ATT, which gave you lower rates," said Carl Clump, CEO of Retail Decisions.
Users of these services called the 800-number and were prompted to give credit card details, which Transaction Billing Services grabbed and screened against the data available at the time. "That was, of course, a CNP transaction all those years ago before people were ever thinking about online," Clump remembers.
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Secure Remote Payment Council Finishes Year One
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In August 2009—just a few months after Visa announced that its total U.S. debit volume had surpassed credit for the first time—a small group of payments professionals began discussing the problems inherent in accepting debit payments for card-not-present purchases made via the Internet and mobile device. Would security concerns derail the apparent match made in heaven between the most popular payment method and the fastest growing retail environment in the United States? The small group, which would become the Secure Remote Payments Council (SRPc), aimed to make sure that didn’t happen.
First, however, the group would have to be inclusive in a way that other associations dealing with e-commerce and m-commerce payments hadn’t, according to payments consultant Paul Turgeon, one of the SRPc’s founding members.
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PCI and Tokenization: Are Either the Answer for E-Commerce Merchants?
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E-commerce merchants spend an ever-increasing amount of time and resources trying to protect the payment card data of their customers. Compliance with the Payment Card Industry Data Security Standards (PCI-DSS) and tokenization are two arrows in the quiver of just about every merchant when it comes to ensuring their customers can pay for goods or services without fear of having their personal information stolen. According to one consultant’s estimate, nearly a third of consumers affected by the breach of a merchant’s systems will terminate their relationship with that merchant.
So are PCI compliance and tokenization serving the purpose for which they are designed? Are they worth the resources being expended on them? Increasingly, in the case of PCI compliance, the answer seems to be no. For tokenization, the benefits are clearer, but the process comes with its own set of challenges. Regardless of the strategies they choose to employ to secure data, merchants must remember why it’s vital in the first place: to preserve their brand.
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Protecting Customer Data from Internal and External Threats
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Data breaches affecting merchants and financial institutions can have damaging and far reaching implications if not handled properly. And, it is becoming a growing certainty that nearly every business will face the problem. According to the 2009 Ponemon Institute U.S. Cost of a Data Breach study, approximately 85 percent of businesses have experienced a data breach, up from 60 percent in the 2008 study. In other words, the chance your business’ data security will be compromised is overwhelming, and it’s getting even more likely as time passes.
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Does Durbin’s Debit Deal Really Help CNP Merchants?
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In the past three months, retailers have won significant victories in the area of interchange legislation, but forgive card-not-present merchants if they still feel a bit left out in the cold.
While the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 promises some relief to the seemingly endless escalation of the fees paid by merchants on payment card transactions, for now the savings will be restricted to when shoppers pull out their debit cards. Legislative efforts abroad have concentrated on debit as well, but consumers continue to choose credit cards to purchase goods and services in CNP environments, especially online, due to the perception that protections are weaker for debit cards in the event the account information is compromised.
But, while the Durbin Amendment clearly benefits card-present merchants to a greater degree, there are certainly ways CNP merchants can leverage the new law’s provisions to decrease their interchange burden. Also, a recent settlement between MasterCard and Visa and the Department of Justice will give retailers additional ways to take advantage of payment methods that cost less per transaction. Most importantly, lobbying efforts continue on behalf of legislation that will go beyond debit and address interchange rates applied to credit card transactions.
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Reducing Chargebacks through Effective Billing Descriptors
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For Card Not Present merchants, the descriptor they use to identify the charge is vital because a consumer can’t always connect in his mind a product he received in the mail (from a merchant he may not remember) with the words on the page in front of him. Often, this confusion leads to the initiation of a chargeback dispute. In most of those cases, the consumer actually did make the purchase but sincerely does not recognize the charge on the bill. The confusion is frequently genuine and completely unnecessary.
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Is My Business Generating Enough Chargebacks?
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For CNP merchants, chargebacks are generally seen as an unfortunate cost of doing business. Whether a dispute is fraudulent or sincere, if a consumer initiates a chargeback it costs businesses time and money. The energy and expense devoted to avoiding and reducing chargebacks is evident and necessary. But a question businesses operating in the CNP space also must consider is: Are my chargebacks high enough?
Growing businesses that are under the limits set by the card networks may want to take more chances to increase their orders lest they leave money on the table.
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