Introduction to e Commerce Payments Processing Payments Past

Introduction to e. Commerce Payments Processing: Payments Past, Present and Future Laura Lacroix, Leader, Relationship Manager Stephen Arnold, Senior Relationship Manager

A World of Payments 2

What is Card Not Present CNP is a payment card transaction made where the cardholder does not or cannot physically present the card for a merchant's visual examination at the time that an order is given and payment is effected. Examples of card not present transactions include mail-order transactions by mail or fax, over the phone, or via the internet

4 Terms to Put on Your Radar Card-Not-Present (CNP) Transaction in which a merchant honors the account number associated with a card account and does not see or swipe a physical card or obtain the account holder’s signature Customer Lifetime Value Prediction of the net profit attributed to the entire future relationship with a customer Omni-Commerce Retailing strategy concentrated on a seamless consumer experience through all available shopping channels Payments Intelligence The ability to better know and understand customers through data and information uncovered from the way they choose to pay 4

The Past 5

Improving the World of Payments 1994 - first online sale and online banking 1995 – Amazon begins online selling 1997 – Mobile commence begins with coke Machines accepting payment via SMS 1999 – Pay. Pal offers pay service 2002 – e. Bay acquires Pay. Pal 2003 – i. Tunes store is launched 2007 – First i. Phone introduced 2008 – First Android phone introduced

The Present 7

Top of Mind • Omni-Commerce • Digital Wallets/alt. payments • Recurring Payments • International Markets • BIN/Issuer Analysis • Cardholder Affluence • Intelligent Routing • Interchange Optimization Approvals Optimization Cost Minimization Payments Intelligence Risk Mitigation • • CNP Fraud • Consumer Authentication • Tokenization • i. Frame 8

Who’s Who Merchant • A commercial entity or person authorized to accept cards and access devices when properly presented; an organization that uses credit cards to receive payments from its customers pursuant to agreement with card brands Payment Processor • Company appointed by merchants to handle card transactions for merchant acquiring banks Acquirer • Bank or financial institution that processes credit and/or debit card payments for a merchant Networks / Card Brands • Member-based corporations that connect consumers, businesses, and banks to transact through electronic payments instead of cash and check; also establish and enforce rules amongst members and promote the brands (popular card brands include Visa and Master. Card) Issuing Bank • Any association member financial institution, bank, credit union, or company that issues (or causes to be issued) plastic cards to cardholders 9

Who else is involved Gateways Fraud Providers Fulfillment Billing System CRM

Credit Card Payment Cycle Cardholder Merchant Payment Processor Issuing Bank Card Brand Networks 11

Payment Types Credit – Pay Later • Revolving line of credit • Monthly payments required Debit – Pay Now • Attached to a bank account • Transaction amount deducted from bank balance Prepaid – Pay Before • Pre-funded with some sort of payment • Reloadable or non re-loadable • Government issued • Payroll • Gift cards 12

Alternative Payments There are over 300 payment types world wide and complexity, as well as payment types will vary by geographic location. Credit cards are not always the preferred method of payment and alternative payment methods include: • e. Check/ACH • e. Wallets • Mobile Payments • Digital Currency 13

What Am I Paying For? Processor • Fees charged to a merchant for services agreed upon between the merchant and the payment processor Interchange • Fee paid between banks for the acceptance of card-based transactions; typically a fee that the merchant’s bank (acquiring bank) pays to a customer’s bank (issuing bank); fees are set by the card networks and are usually the largest component of the various fees most merchants pay for card acceptance Assessment • Fees paid directly to the card brand networks to offset the brands’ costs to operate and regulate the networks; these fees are passed along in some form to the merchant 14

Processor Price Models Pass-Through Pricing Form of card processing pricing that allows the actual cost of processing (interchange, assessment, and processor fees) to be passed directly to the merchant; benefits of this pricing model include transparency and potentially lower costs when compared to discount rates Discount Rate Fee paid by merchants to credit card processors associated with accepting general-use credit cards (like Visa, Master. Card, etc. ); all applicable fees are bundled into a single, percentage rate which typically includes interchange, assessments, and processor fees 15

Payment Models • One Time Payments • Payment is made for the entire purchase amount in one transaction • Installment Billing • Transaction amount is divided into smaller increments • For example: $100 cart amount broken into 4 $25 payments • Recurring / Subscription Billing • Monthly. Quarterly, and Annual continuity payments for product or services 16

Customer Lifetime - Account Updater and Recycling • Account Updater • Receive updated card information without contacting each customer individually. • Reduces declines, improve customer satisfaction, and generates more revenue • Recycling/Re-try Logic • Visa – 4 retries in 16 days • Other card brands 7 retries in 27 days • DO retry soft declines – do not honor, insufficient funds, and generic declines • DO NOT retry hard declines – invalid acct #, expired card, lost/stolen and restricted card (unless using and updating service) 17

Chargeback Cycle Chargeback Period Re-Presentment • Return of funds to a consumer, forcibly by the issuing bank of the instrument used by a consumer to settle a debt; reversal of a prior outbound transfer of funds from a consumer’s bank account, line of credit, or credit card • The number of calendar days from the endorsement date of a transaction receipt (or processing date, as applicable) during which time the issuer may exercise a chargeback right • Process by which a merchant can dispute a chargeback with an issuing bank; allows merchant to present evidence to prove the chargeback is not warranted Reversed Chargeback Arbitration • Chargeback that a processor resolves in the merchant's favor by transferring the chargeback liability back to the account issuer • A process where the card brand determines financial liability between members for interchange transactions that are presented and charged back 18

Chargeback Thresholds Network Visa Program Visa Chargeback Monitoring Program (VCMP) Early Warning Standard High-Risk Master. Card Excessive Chargeback Program (ECP) CMM Thresholds. 75% and 75 cbks (count) 1% and 100 cbks (count) 2% and 500 cbks (count) 1% and 100 cbks (count) ECM 1. 5% and 100 cbks (count) 19

Preventing Chargebacks Internal • Use fraud tools • Monitor and adjust • Don’t be stingy with refunds • Engage your payment processor 20

Addressing Fraud at all Points of the Payment Cycle As fraudulent activity progresses, the impact accumulates. • Lost Sales • Expenses of manual review • Lost hard goods • Chargeback fees • Representment/arbitration Fees 21 • Reputational Damage

Fraud Prevention International Prepaid Velocity CVV AVS Visa TC-40 Fraud MC Safe Report 22

The Future 23

Omni- Commerce Omni commerce can be defined as a retailing strategy that delivers a seamless customer experience through all available shopping channels. Brick & Mortar Brand Loyalty Catalog Omni Commerce Seamless Experience Mobile Online 24

Top Tools for Fraud Machine Learning True IP & Geolocation Biometrics Device Reputation & Fingerprinting 25

Cross Border and Beyond Help expand your businesses globally and price products and services in multiple International currencies • $1. 7 Trillion in Global e. Commerce in 2015 reported Juniper Research • 66% of shoppers abandon cart if not able to pay with preferred payment method. • 45% of shoppers abandon cart abandon altogether if can’t pay in local currency. • Approval rates increase by 5 -10% when merchants process though a local entity. 26

Questions? 27

Contact Information Stephen Arnold 978 -275 -5269 Stephen. Arnold@vantiv. com Laura Lacroix 978 -275 -6683 Laura. Lacroix@vantiv. com If you have any questions about the presentation, go to our Linked. In Group (the Payments Education Forum) and request an invitation (this is a closed group specifically for the payments industry). 28