Cross Border E-commerce: Challenges and Opportunities Howard Bell, Head of Online Payments, Barclaycard Internet Retailing ‘Payments & Fraud’ 11th February 2010

Challenges and Opportunities european eCommerce trends market opportunities and challenges for retailers beating fraud Cross Border eCommerce Feb 11th 2010

European e-commerce: online retail sales In EU markets, where internet penetration is low, e-commerce is growing rapidly ….. European e-commerce: online retail sales (Source: Forrester) € millions Source: Forrester Research 2008 Cross Border eCommerce Feb 11th 2010

The European E-commerce Landscape The Headlines The European eCommerce payments market is worth €230 billion; €95 billion from the UK Visa and MasterCard are top 2 EU payment methods; PayPal is 3rd There are approximately 500,000 e-commerce merchants across the EU – and 1/3 of these are internet only stores France, Spain and Italy are the fastest growing markets but currently have low internet penetration PCI DSS is a Global (and hence pan-European) requirement Increasingly Tier 2 EU merchants are seeking a hosted paypage (acquiring and gateway combined) Source: Barclaycard Proprietary Research, 2010 Global Payment Acceptance Barclaycard SmartPay – EU Marketing & Roll-out – 07.01.2010 Cross Border eCommerce Feb 11th 2010

European shoppers expect choice Simple payments? “Which payment method (s) do you prefer when you buy products online?*” Credit card 40% 60% 35% 26% 51% 51% 19% 34% Electronic bank transfer 26% 3% 3% 56% 20% 14% 43% 43% Debit/payment card 24% 43% 57% 3% 14% 10% 14% 17% PayPal 23% 35% 16% 22% 14% 26% 11% 11% Cheque/accept giro 19% 5% 17% 31% 2% 19% 37% 13% Cash 10% 3% 3% 10% 32% 19% 16% 24% Maestro/Solo UK Carte Bleue FR ELV DE iDEAL NL Source: Forrester Research Inc * Forrester allowed Consumers to select preferred methods and allowed multiple votes (hence totals>100%) Cross Border eCommerce Feb 11th 2010

Opportunities are real; challenges need active management New Markets New Payment Streams New Shoppers PCI DSS Fraud & Chargebacks New Payment Methods Tesco.com. Amazon, Asos recently recorded 20% profit growth Cross Border eCommerce Feb 11th 2010

International CNP Fraud* International CNP fraud, Nov 2009 Headlines Decline in CNP Fraud (-13%) vs 2008 CNP Fraud still 60% of total fraud Top 5 buyer countries are US, Spain, Ireland, Cyprus and France Mix skewed towards Credit but Debit increasing (Credit 48% , Debit 40% , Charge 12%) * as at Nov 2009 Cross Border eCommerce Feb 11th 2010

Barclaycard’s Approach to Beating Online Fraud Industry-Leading Performance–losses 40% lower than UK average Robust vetting and advanced risk analytics Partnership approach with customers Active collaboration with card schemes to identify & block fraudulent buyers Leading Influence over Risk Policy e.g. PCI DSS New Propositions “Fraud Reporter” – online daily file (PGP) to prevent dispatch to fraudsters Cross Border eCommerce Feb 11th 2010

your questions? Confidential

What is Payment Card Fraud? Involves the use of a credit/debit card without the consent of the genuine cardholder or the account itself has been set up fraudulently. Fraud types include: CNP Fraud – merchant, retailer or service provider has no physical access to payment card. e.g. Internet / Mail Order / Telephone / Fax Counterfeit Fraud (cloned / skimmed) – A plastic card that has been printed, embossed or encoded so as to purport to be a genuine payment card issued with the authority of the genuine issuer Identity Theft / Fraud – Where someone uses your personal information such as name, payment card number or other identifying information without your permission to commit fraud or other crimes Mail Interception / Social Engineering / Phishing / Malware Attacks / Raiding Bins Other Fraud Types – Lost & Stolen / Non Receipt of Mail / Application Fraud Cross Border eCommerce Feb 11th 2010

What is acquiring fraud? Collusive 1st Party Fraud by BPA Retailer Fraud Occurs at Retailer Genuine 3rd Party Fraud at BPA Retailer Chargeback right.. Shopper has rights Issuer has no chargeback right Where cardholder authentication exists - Chip & PIN or 3DS) Issuer Chargeback right exists CNP / No 3DS Card Present - No supporting evidence, signatures etc Shopper has rights Issuer has no chargeback right Where cardholder authentication exists - Chip & PIN or 3DS Issuer Chargeback right exists CNP / No 3DS Card Present - No supporting evidence, signatures, verification etc Loss.. Fraudulent funds recovered as a result of freezing bank accounts & diverting pdq Acquirer loss. No loss to BPA or retailer Issuer Loss Retailer loss Loss to BPA = Retailer unable to pay chargebacks Fraud Debt owed to BPA. Resulting from fraud activity at the retailer. Cross Border eCommerce Feb 11th 2010

Customer Recruitment – Best Practice Online customer additional information – Best practice Customer service number E-mail address to contact company Statement on risk & fraud controls Delivery methods & timings Age verification methodology (age restricted goods & services) Refund & returns policies Privacy statements (permissible uses of customer information) Depending on the type of customer, perhaps a terms of service and / or acceptable use policy Cross Border eCommerce Feb 11th 2010

Customer Recruitment – Best Practice Trading information Nature of goods & services Design of home page & location of billing pages Price patterns Merchant location (Physical & Legal) Ave or projected turnover Ave or projected refund volume & refund policy Ave or projected chargeback or fraud rates Disclosure of all payment mechanisms offered Disclosure of all sales channels inc all URL’s or referral sites Check validity of telephone numbers / email addresses / listed [personal & other contact information Cross Border eCommerce Feb 11th 2010