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

Agenda Regular payments – the opportunity The benefits The problems Proposed solutions Summary

Regular Payment Opportunity European Regular Payment market estimated at circa €1tn * Key sectors include Insurance, telecommunications and subscriptions Regular Payments represents 30% of EU PCE Less than 1% of this business is transacted on Visa cards EU Regular Payment sector value €1tn < 1% processed on Visa Cards Clear sector opportunity * Source Global Insight 2003

French Regular Payments market 2003 Source: Visa Analysis of Carte Bancaire data

UK Regular Payments market 2003 Cash and Cheques = £ 50 bn Source: 2004 APACS report (excludes rent & mortgage) Iceland Regular payments > 16% Visa POS CEV

Regular Payment Benefits Cardholders Easy to set up and convenient for remote environments - Internet Merchants Easy mechanism to initiate remote payment and improved renewal rates Convenience Members Increased revenue. Cuts costs of cheques. Visa Increased transaction volume

But there are problems 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

First Transaction – Best Practice Best Practices Risk CNP Fraud is the highest single loss category Chargebacks for MoTo 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

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

First Transaction - Card Verification Value 2 Best Practices CVV2 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 CVV2 used Reduces merchant back office costs

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

First Transaction – Verified by Visa Best Practices VbV enables a merchant to request confirmation of the cardholders identity from the Card Issuer If an eligible merchant offers VbV, he will not be liable for identity-related fraud Merchants should also keep other fraud prevention tools to maintain eligibility

Is the transaction suspicious? Be Vigilant Best Practices Is the transaction suspicious? High value Hesitant customer Urgent delivery Random or multiple orders Differing addresses Use of multiple cards

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

Fraud Screening Best Practices Commercial Fraud Screening tools can be very effective Use in addition to other fraud prevention measures

First Transaction - More information Best Practices Visa Merchant Best Practice Guide Talk to your Visa Acquirer

Subsequent transactions – Visa’s response 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. 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 Demonstrated the value of developing an automated mechanism to refresh card numbers Results varied based on frequency of billing and operational procedures at the merchant

Subsequent Transactions - Strategic initiatives Build an automated service to refresh merchant card number databases Incorporate a facility for cardholders to stop Regular Payments

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

Summary A large sector opportunity exists for more efficient and convenient payments Best practices can make a huge difference for first transactions Current card based solutions for subsequent transactions are archaic and not suited to developing the sector Strategic solutions have been designed.