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

2. 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

3. 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

4. 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)

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

6. 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

7. 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.

8. 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

9. 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

10. Bank information is ‘public knowledge’
Algorithms check are available from the Federal Bank of Germany
Valid sort codes (Bankleitzahlen) are available as well
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)

11. 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