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

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

3. 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

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

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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

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

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

17. Subsequent transactions – Visa’s response
Tactical Improvements
Working with key merchants on ‘best practice’ to contain the problems
Summer 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

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

19. 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

20. 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.