us emv rollout: the financial impact of fraud

STATE OF THE U.S. EMV ROLLOUT:

Online and Card Not Present Payments

Introductions

CO-PRESENTED BY

Tom ByrnesChief Marketing OfficerVesta Corporation

Al PascualSVP, Research Director and Head of Fraud & Security

Javelin Strategy & Research

Pre-/Post-EMV Reports: The Financial Impact of Fraud

MERCHANT STUDIESConducted by Javelin in 2015 and 2016 on behalf of Vesta

METHODOLOGYSurveyed 500+ merchants earning $1 million or more annually

Physical merchant: Sells only physical goods

Digital merchant: Sells only digital goods

Hybrid merchant: Sells both digital and physical goods

Merchants Pre-EMV: What Did We Discover?

FRAUD MANAGEMENT CONSUMES 13-20% OF OPERATIONAL BUDGET

$

Merchants are spending millions of dollars to combat fraud and they

expect these costs to increase

Remote channels make managing fraud threats an

expensive proposition

DIGITAL GOODS MERCHANTS EMPLOY 5X THE PERSONNEL OF PHYSICAL GOODS MERCHANTS

The burden of fraud managementtakes them away from growing

their business

THREE OUT OF FOUR MERCHANTS REPORT

MAJOR IMPACT TO BUDGET

2015 Report: Merchants Concerned About Rising Costs

48%

37%

51%

10%

20%

15%

42%

43%

34%

0% 20% 40% 60% 80% 100%

Hybrid Goods

Physical Goods

Digital Goods

Increase Static Decrease

Impact on Chargeback/Fraud Spend in the Next 12 MonthsThe then-impending EMV rollout left merchants troubled about CNP fraud, with over half of digital goods merchants expecting increased fraud and chargeback management costs

TYPE OF MERCHANT GOODS SOLD

FRAUD/CHARGEBACK MANAGEMENT AS % OF OPERATIONAL BUDGET FRAUD COSTS AS % OF

OVERALL 2016 REVENUE2015 2016

PHYSICAL 14% 14.9% 6%

DIGITAL 20% 23% 8.6%

HYBRID 13% 16.6% 8.1%Source: Javelin & Vesta Research Study

Post-EMV: Quantifying the Cost of Fighting Fraud

49% of chargeback losses are coming from online channels – 3x the amount of in-person fraud

Chargebacks: Online Channels Disproportionally Drive Fraud

1%

4%

6%

8%

16%

17%

49%

0% 10% 20% 30% 40% 50%

Other

Through an in-store, self-service kiosk

By mail

By telephone

By mobile device

In-person or in a physical store

Online store/online payment

Percentage of Chargeback Losses

This trend will increase as more physical goods merchants become EMV compliant

©2016 GA Javelin LLC

False Positives: The Impact of Friction in the Checkout Process

25-34% of all declined transactions are later determined to have been legitimate

“What we do is automated and we tend to be super conservative…when in doubt, shut them out.”CO-FOUNDER, DIGITAL GOODS MERCHANT

30%

25%

34%

0% 10% 20% 30% 40%

Hybrid merchants

Physical goods merchants

Digital goods merchants

Percentage of Declined Transactions Determined to be False Positives


CNP fraud is expected to occur at twice the rate of POS card fraud by 2019

To combat these losses, over half of digital goods merchants surveyed plan to increase spending across personnel, technology and outsourcing in the next 12 months

Fraud Management: Costs Will Continue to Increase


13%

20%

15%

55%

55%

35%

32%

25%

49%

0% 20% 40% 60% 80% 100%

Hybrid merchants

Physical goodsmerchants


Decrease Same Increase

Expect to Increase Spending in Next 12 Months

Physical Goods Merchants Face New Complications

The use of mobile wallets and in-store merchandise pickups are complicating fraud management for physical and hybrid merchants

MOBILE WALLET PURCHASESAllow fraudsters to bypass EMV restrictions at POS chip readers

BUY ONLINE, PICK UP IN STOREEliminates the need for fraudsters to physically present a stolen card at POS

Account Takeover Post EMV: Current Solutions Are No Match

Fewer than half of merchants implement any single authentication solution beyond the standard login credentials

22%

30%

34%

40%

41%

65%

0% 20% 40% 60% 80%

Device fingerprinting

Geolocation

Static knowledge-based authentication (e.g. pre-…

Two-factor authentication (i.e. one-time passwords)

Dynamic security questions (e.g. questions drawn from …

User name and password


Authentication Methods: Usage Rates

Beyond Authentication: The Need for Next Gen Fraud Tools

The unique requirements of digital goods are driving the need for new fraud technologies


26%

28%

29%

27%

33%

49%

52%

64%

36%

37%

38%

41%

42%

51%

51%

58%

0% 10% 20% 30% 40% 50% 60% 70%

Machine learning

Behavioral analytics

Transaction scoring

Device ID

Geolocation

AVS

CVV

Customer ID verification


Other merchants

Percentage of Merchants

Fraud Prevention: The Upcoming Fork in the Road

• As e-commerce and digital goods continue to scale, the limits of current technologies will translate into a growing financial impact

• To combat new innovations by fraudsters, merchants will need to implement advanced technologies such as device fingerprinting, geolocation, behavioral analytics, and machine learning — plus the staff and expertise to manage them

• The result: Merchants will have to significantly increase both CAPEX and OPEX to remain competitive

• The fork in the road: What business am I in? Fighting fraud or retailing goods and services?

Nearly half (43%) of digital goods merchants report outsourcing all or part of their fraud management, avoiding complex solutions that fall outside their business expertise

Questions

Where can I learn more about the 2016 survey results?

Visit info.trustvesta.com/research2016 to download the full report

THANK YOU

Tom Byrnes

trustvesta.com

Al Pascual

javelinstrategy.com

DOWNLOAD THE FULL REPORT ATinfo.trustvesta.com/research2016

us emv rollout: the financial impact of fraud

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