ULTIMATE RETAIL PAYMENTS FIELD GUIDE Everything Merchants Need to Know from Those in the Know YOUR ULTIMATE GUIDE Today’s payments landscape is the stuff of dreams for merchants. New markets are in your grasp. New payment methods offer unlimited potential. And new customers knock at your doors. But those dreams can quickly become a nightmare without the right strategies and solutions to bring them all together. In this guide, you’ll get expert insights into the hottest issues in retail payments. We’ll explore new frontiers in payments, examine investment trends and even help prevent chargebacks. And that payments jargon? Consider it covered. TABLE OF CONTENTS 1 INVESTMENT TRENDS IN RETAIL ...................................................................................................................4 2 CROSS-BORDER eCOMMERCE EXPANSION: AN ACI FRAUD PERSPECTIVE ..............................5 3 FIVE SIMPLE STEPS TO PREVENTING MORE CHARGEBACKS ..........................................................8 4 NEW FRONTIERS IN MERCHANT PAYMENTS............................................................................................10 5 DECIPHERING PAYMENTS JARGON: EIGHT KEY TERMS DEFINED .................................................12 2 3 RETAILERS ARE BATTLING RISING COSTS THROUGH INVESTMENT INVESTMENTS IN INNOVATION 48% of retailers have suffered from a rise in payment operating costs TRENDS IN over the last three years. To combat this, retailers are investing in their 1 payment platforms. 48% expect to increase their investment in payments over the RETAIL next 18-24 months 36% are investing in payment acceptance capabilities to support growth In 2018, ACI® and Ovum 16% want to improve the integration between payments and partnered to produce the 2018 other systems to drive efficiencies Global Payments Insight Survey KEY TAKEAWAY for Merchants. In it, global Strategic investments in payments will deliver more integrated and merchants shared their opinions cost-effective platforms that can enable growth. on investment choices, real-time payments, and the challenge of protecting consumers while FRAUD PREVENTION CAN SIT AT ODDS WITH delivering a superior experience. DELIVERING A GREAT CUSTOMER EXPERIENCE Conversion is still key for most retailers, with 64% claiming abandoned HERE ARE THE HIGHLIGHTS carts are a bigger concern than fraud losses or chargebacks. This is backed by 54% of retailers who want to avoid reducing the quality of the user experience to prevent fraud. BUT…actions speak louder than words. 42% have decreased the number of areas in which they accept card payments to reduce the risk of data breaches KEY TAKEAWAY When it comes to protecting or delighting their customers, retailers must balance fraud prevention against sales. RETAILERS ARE BUYING INTO REAL-TIME PAYMENTS Throughout the world, there’s one thing that seems to unite retailers: a love of real-time payments. 82% believe real-time payments can enhance the customer experience, while 80% expect to see cost savings from real-time payments. With these numbers in mind, it’s easy to see why 77% of global merchants expect real-time payments to replace cards over time. KEY TAKEAWAY Retailers overwhelmingly view real-time payments as a net positive, forcing them to work with banks and intermediaries to evaluate real- time opportunities. Download the full research report by visiting www.aciworldwide.com/merchantinsights. 4 CROSS-BORDER eCOMMERCE 2 EXPANSION: AN ACI® FRAUD PERSPECTIVE For merchants expanding their online presence overseas, enabling the right locally- preferred alternative payment methods and connecting to local acquirers can be a critical determinant of success. But without considering a fraud management strategy in tandem with a payments strategy, the road to cross-border success could be a bumpy (not to mention costly) one. In this section, through analysis of situational examples, we aim to uncover some of the essential fraud precautions that should be considered before expanding internationally. We will also identify differences in the cross-border eCommerce strategies for high-risk verticals, providing best practice examples. In this context, cross-border will refer to an eCommerce purchase where the IP country, card issuing country and shipping country differs from that of the merchant. CASE 1: MOVING TO THE U.S. WITHIN A HIGH- So, what sort of precautions could be taken in this case? Let’s RISK VERTICAL start with analyzing the U.S. heat map. A high-end retail brand, which only accepts online orders The darker blue on the heat map represents where the highest with U.K. billing and shipping details, opens a new store in the chargeback rates (by state) occur. When operating in the U.K., U.S. and makes their online business available to the entirety the merchant had limits in place to only allow U.K. billing and of the U.S. market. Additionally, a huge campaign is rolled shipping details. Similar logic should be applied to the new out to generate awareness. The publicity is necessary for the U.S. channel. The recommendation is to initially only allow U.S. company to grow its footprint in the new region, however billing/shipping and U.S. issued cards through the new U.S. this kind of mainstream hype can also draw the attention of channel. These limits, while more restrictive, can always be localized fraud networks. lifted once your company has settled into the new market and better understands the fraud landscape. # U.S. STATE CB RATE 1 Florida 0.40% 2 Nevada 0.36% 3 New York 0.35% 4 Georgia 0.35% 5 Louisiana 0.34% 6 California 0.34% 7 Arizona 0.31% 8 Delaware 0.30% 9 Alabama 0.30% 10 Illinois 0.30% 5 It is also possible to moderate higher-risk states by using a depending on localized fraud trends, country-specific laws variety of velocity and value-based rules. Florida was the U.S. and business requirements. Let’s look at some figures around state with the highest risk in 2017, with a 0.40% chargeback shipping to Spain in 2017 to understand how this could work (CB) rate. The CB rate is calculated by dividing genuine in practice. transactions by the reported chargebacks (CB/TXN = CB Rate). New York (0.35% CB rate) and California (0.34% CB When breaking down the customer base for goods shipped to rate) also featured high rates, so a tighter rule balance strategy Spain, Spanish-issued cards made up 83% of the transaction is best, at least initially, when trading in these states. volume with Italian-issued cards coming second with 4%. The most fraudulent card-issuing countries with Spanish shipping The exact strategy chosen will depend on the risk of a addresses in 2017 were Norway (2% CB rate), Austria (1.71% CB company’s vertical. Retailers selling high-value products are at rate), Netherlands (4.65% CB rate), Czech Republic (10.84% the most risk and typically fall into a higher risk vertical. This CB rate) and Taiwan (8.53% CB rate). is because targeted items will have a higher resale value and desirability once acquired fraudulently. When entering a new Completing the same analysis for France in 2017, French cards market, within a high-risk vertical, it’s recommended that you made up 89.15% of the transaction volume with Spain (0.38%) apply tighter limits in the ruleset. coming second. The most fraudulent card issuing countries with French shipping addresses were Taiwan (3.85% CB rate), The biggest consideration when implementing a tighter Croatia (3.27% % CB rate) and Mexico (1.73% CB rate). ruleset is how false positives (rejected genuine transactions) could increase, and in turn, how this could impact the overall Using this type of information, it would be possible to customer experience. Particularly for a business trying to incorporate rules around high-risk card issuing countries, optimize for sales in a cross-border context, false positives are adding limitations if fraud continued into 2018-19. never welcome. Therefore, this type of strategy is generally best when working with the high-risk verticals. The advantage of implementing a tighter ruleset is that chargebacks will be minimized. Chargebacks can be very # SHIP COUNTRY CB RATE costly, and losses can be as much as double the initial recommended retail price of the product. This is due to 1 Estonia 0.20% products being unrecoverable, as well as the merchant’s liability to pay back the bank. Additionally, if the chargeback 2 Spain 0.18% rate reaches a certain percentage, additional penalty charges will be levied by the card schemes. 3 Serbia 0.09% 4 France 0.09% Considering all these factors, the recommendation when entering a new region with a high-risk vertical is to start with 5 U.K. 0.07% a focused ruleset, relaxing the criteria when the business has settled and the ruleset has matured. A ruleset can mature in 6 Latvia 0.07% several ways; the evolution of targeted rules, the development of negative lists, the maturity of “time on file”-based fields 7 Iceland 0.06% and the experience of how these new localized fraud networks operate, will all contribute to safe and secure trading. 8 Greece 0.06% 9 Slovenia 0.06% CASE 2: EUROPEAN EXPANSION 10 Belgium 0.06% In another example, a U.K.-based merchant has made the business decision to expand their CNP (card-not-present) business into several new European countries. Each country requires its own channel and ruleset — effectively its own rollout. The highest risk European shipping countries (where the goods were sent) in 2017 were Estonia, Spain and Serbia. Note: Other countries were removed due to low transactional counts causing exaggerated chargeback rates (for example Andorra and Armenia). When integrating with your fraud provider, ensure that each country is set up on a different channel. This will allow a new ruleset to be created per country without affecting any of your existing traffic. It will also enable you to vary the rules 6 COMMON CROSS-BORDER FRAUD TRENDS KEY TAKEAWAY As a merchant, you should be aware of common fraudulent FOR MERCHANTS trends and how configuration of the front-of-house website can affect your fraud solution.