Cross Border E-commerce: Challenges and Opportunities

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

2. Challenges and Opportunities • european eCommerce trends • market opportunities and challenges for retailers • beating fraud

3. 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

4. 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

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

6. Opportunities are real; challenges need active management • New Markets • New Payment Streams • New Shoppers Opportunities Challenges • PCI DSS • Fraud & Chargebacks • New Payment Methods

7. 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

8. 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

9. your questions? Confidential

10. 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

11. What is acquiring fraud? • Collusive • 1st Party Fraud by BPA Retailer • Genuine • 3rd Party Fraud at BPA Retailer Fraud Occurs at 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.

12. 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

13. 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