Direct Response Forum – Basel, 25./26.04.2006 Case Study: Direct Debit Sven Krahn

Lycos is one of the leading European portals. Introduction to Lycos Lycos is one of the leading European portals. Top 5 Top 10 Other Results from a Roland Berger Ranking of Top-Brands Source: Manager Magazin Online 2002 Rank 1 Coca Cola Lycos Rank 32 T-Online Rank 42 MSN Rank 77 Amazon Rank 83 Marlboro Rank 94 BMW Rank 115

International business Introduction to Lycos International business bank-/post-/ autogirot T-Pay 4B MasterCard Debit 4B Maestro Debit Visa Electrón Debit Premium SMS Premium Rate Numbers

Challenges for Lycos Multi-Service Billing (for all the different Lycos Premium Services) Integration (bring all the different bills on one invoice) Service bundles, packages (apply price and discount plans to a set of services) Flexible pricing (transparency and visibility to user AND product manager)

Challenges and requirements Integration means to bring the charges for all premium services to one consumer invoice.

We require core competency within each module. Lycos Core Billing Platform We require core competency within each module. 3. Customer Care T-Pay Account receivables, debtor management 4. Payment processing usage/ orders Core Billing Platform customer data invoices 1. Premium Services signup CDB Lycos Sign Up 2. Sign up and customer database

Germany and Netherlands are direct debit countries Importancy of Direct Debit Germany and Netherlands are direct debit countries Offline bank transfers are fully substituted by Direct debit. Target group has no credit cards.

Pros and Cons of Direct Debit Customer Merchant Very common for all types of recurring payments (utilities, subscriptions, membership fees, …) Secure and simple Customer-friendly chargeback policies 100% coverage (Everybody has a bank account) Control of the payment date Fast (payment notification after 2-4 days) Low costs (per transaction fee) Pros Customers need to control debits on their accounts Some countries require very complex mandate handling (fulfillment) procedures High chargeback risk Long revocation periods Easy to fraud Cons

Germany is an ‘easy’ Direct Debit country The ‘mandate issue’ Germany is an ‘easy’ Direct Debit country Pre-authorized direct debit The payer (debtor) pre-authorize the debit of his account on the initiative of the beneficiary (creditor) Legal framework between five parties: Creditor and creditor‘s bank Debtor and debtor‘s bank clearing house or payment supplier (optional) The different systems operate on basis of three contracts: agreement between all participating banks agreement between debtor and creditor  mandate agreement between creditor and his/her bank Non pre-authorised direct debit No mandate before the direct debit process actually occurs The creditor has to present the collection instruction to the debtor as a request for authorization After authorization by the debtor, the debtor’s bank will execute the direct debit Possible revocation period of 6 weeks for the consumer without stating a reason

Bank information is ‘public knowledge’ Algorithms check are available from the Federal Bank of Germany http://www.bundesbank.de/zahlungsverkehr/zahlungsverkehr_pruefziffernberechnung.php Valid sort codes (Bankleitzahlen) are available as well http://www.bundesbank.de/zahlungsverkehr/zahlungsverkehr_bankleitzahlen_download.php For fraudsters, it is easy to get “real” bank information that will pass any of the algorithm checks For customers it is very easy to make a chargeback Internet Merchants need additional customer validation, e.g. PIN (SMS or bank statement) phone validation address verification initial active fund transfer by customer (prior to direct debit)

Direct debit is a MUST for Lycos Europe Summary and conclusion Direct debit is a MUST for Lycos Europe Direct debit is perceived as the most consumer-friendly and “secure” payment method in DE and NL. Direct debit (DE and NL only) makes 30% of all our European payment methods. Direct debit ranks up to 85% in DE and NL. Relevant parts of our target groups do not own a credit card (credit cards are not common in Germany) Other countries (besides DE and NL) have too complex requirements and/or direct debit is not so popular