STATE OF THE U.S. EMV ROLLOUT : Online and Card Not Present Payments
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
©2016 GA Javelin LLC
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
©2016 GA Javelin LLC
13%
20%
15%
55%
55%
35%
32%
25%
49%
0% 20% 40% 60% 80% 100%
Hybrid merchants
Physical goodsmerchants
Digital goods merchants
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
©2016 GA Javelin LLC
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
©2016 GA Javelin LLC
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
Digital goods merchants
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