Payments Views from Glenbrook Partners » Jacqueline Chilton

M-banking in the US and UK and the Necessity of a Consumer Focus

Jacqueline Chilton — Sun, 25 Jul 2010 19:37:02 +0000

The potential of mobile banking, for the realization of ‘anywhere, at anytime’ transactions, is well documented. However, interest is starting to develop regarding a more consumer-orientated vision of what mobile banking and payments can offer. Glenbrook’s Jacqueline Chilton recently published an article in E-Finance & Payments Law & Policy examining the ways mobile banking can develop to increase the value for consumers.

A PDF version of Jacqueline’s article is available here.

E-Finance & Payments Law & Policy magazine provides all those involved in this fast evolving sector with practical information on legal, regulatory and policy developments. E-Finance & Payments Law & Policy focuses on developments within the UK and the EU but includes articles on developments elsewhere, particularly the US.

Glenbrook Payments Views and Payments News readers can sign up for a free trial here: www.e-comlaw.com/trial.htm

AT&T Announces a Test of 2D Barcodes for Mobile at Point of Sale

Jacqueline Chilton — Mon, 29 Mar 2010 18:53:46 +0000

Today, AT&T announces a test of 2D barcodes for mobile at the point of sale (POS). This pilot will be watched with interest. If it works, couponing/loyalty applications on the phone will no longer need to wait for chipset or hardware development to interact with the point of sale. From Glenbrook’s perspective, the most interesting implication is that retailers and marketing services companies can develop applications for point of sale. AT&T is wise to stay in front of this development. AT&T will use technology from Mobile Tag Inc., a provider of universal bar code reader technology.

According to the announcement AT&T is selecting up to 12 enterprise customers to participate in its charter program across key sectors including consumer packaged goods, retail, hospitality and financial services. The consumer barcode technology can be used across a variety of mediums including indoor and outdoor signage, packaging, catalogs, television, the internet, as well as traditional print and mail advertising.

Other examples of 2D barcodes and mobile couponing:

The Starbucks/mFoundry launch that creates a prepaid card management tool with a 2D barcode that can be read from the phone at point of sale. The hope had been that this required no infrastructure changes, but unfortunately, it seems Starbucks is adding to their traditional POS devices to read the new bar codes. (See more on the mFoundry website here)
JCPenny and Cellfire are also involved in this area with announcements last September, 2009. (CellFire page here)

For additional information on mobile couponing on visit the archives of our sister blog Payments News here.

Mobile Payment Themes from CTIA

Jacqueline Chilton — Sat, 27 Mar 2010 19:28:39 +0000

I am just returned from the 25^th anniversary International CTIA Wireless conference Las Vegas. An estimated 40,000 people were expected to attend and from the look of things, that number seemed right.

It was encouraging seeing companies willing to travel for a conference and presenting new innovations in the mobile space. The conference is focused on carriers with new handsets, bandwidth solutions, and partner announcements. Wireless innovations in energy, healthcare, education, entertainment, retail and transportation all accentuated the need for speed and theme of 4G investment and broadband conservation/management. For those of us in payments, there was a whole day at the beginning of the conference dedicated to Money over Mobile (organized by Kate Kingberger, CTIA & Javelin’s Jim Van Dyke as MC) in addition to many payments vendor booths and educational sessions.

Over the four-day conference, it was apparent that a framework is needed to untangle the confused conversation when it comes to mobile payments. People were talking apples and oranges at times and a little clarity of language goes a long way. Glenbrook Partners has separated mobile payments into Payment Domains: Point of Sale (POS), eCommerce, Person-to-Person, Bill Payment and B2B. (For those of you interested in the future of mobile payments at the point of sale check out the upcoming Glenbrook Partners webinar Mobile at the POS in the U.S. – Scenario Analysis)

These are the major payments themes I observed at CTIA 2010:

Carrier Billing Payment Solutions

Carriers are taking further steps to use the customer bill to fund digital download ecommerce payments. Dollar thresholds for these payments limit the risk for the carrier. Generally, although the ticket is low, high margins can be achieved. Richard Borenstein from Zong (more from Payments Views on Zong here) spoke on monetizing gaming and tapping into carrier billing. Most gaming customers know their cell phone number but not their card number. Also representing carrier billing payment solutions, Ron Hirson from Boku (more from Payments Views on Boku here) spoke during Monday’s Money over Mobile sessions on applications. Verizon and Danal announced Monday their BilltoMobile payment service. Verizon Wireless customers will be able to pay for online content downloaded from Danal’s network of participating e-commerce merchants up to a monthly limit of $25. (See the article Will Verizon Move Bring Momentum to Mobile Transactions also on Payments News). Wireless carriers payment solutions have typically charged fees equal to 20 – 50% of the transaction value. The new Danal / Verizon BilltoMobile service charges a combined total fee of 15% and it is unclear if other carrier payment models will follow this pricing or defend their value in the market place.

Mobile Banking Is More Than Online Banking On The Phone

On Monday, I moderated a panel with Sarah Overcash from SunTrust Bank, Peter Ho from Wells Fargo, Tim Ruhe from FiServ and Rebecca Loevenguth from Western Union to discuss the banks’ perspective on mobile payments. The panelists identified the features of mobile banking that appealed to customers and discussed the convenience test of new mobile services. “Place the phone beside your computer and decide – which device would I use to perform this task.”

Bringing Western Union to the panel was an interesting choice but one intended to remind us that the target for mobile bank services extends beyond typical online banking customers. SunTrust who is targeting their offline as well as online customers with new mobile banking services echoed this point. See the article on the session “Wells Fargo, Western Union: Mobile financial services all about convenience” in Mobile Commerce Daily. Convenience leading to loyalty was another key sentiment echoed by Walmart’s Aaron Kribs in a subsequent panel. (Walmart exec at CTIA: Mobile commerce all about convenience, trust)

Related announcements/articles:

Mobile Phone Card Acceptance – A Growth Opportunity

The ability to accept payments via a wireless device has been available from point of sale providers for a long time. What has changed is that developers are now enabling that capability on a device you already own (not lease) and allow you to accept payments anywhere. Intuit was at CTIA with its well-positioned GoPayment solution. Many expect mobile phone card acceptance to target small businesses and reduce their potential point of sale costs. Intuit’s access to small businesses and back office integration through QuickBooks makes it a strong player in this market. (Other players can be found in the Washington Post coverage that describes Verifone’s PAYware mobile for iPhone and mobile startup Square. TSYS has also launched MobilePASS for Blackberry in October 2009.)

Unattended Terminals Are Growing

In addition to the phone as a mobile card-accepting device, several other mobile point of sale devices were on display. New technologies taking advantage of Machine-to-Machine (M2M) communication provided a glimpse of the changes in unmanned terminals and cashless vending. (See the Teli/USA Technologies announcement here)

Point Of Sale – Sharing The Revenues

This is a big topic to summarize so quickly, but here goes. In the area of NFC and point of sale mobile payments there has been talk about consortium negotiations, and even government involvement, to share payment revenues between the banks, service providers and carriers. The discussion at CTIA this week demonstrated that it’s unlikely to be about splitting 1-2% in fees for card payments at the point of sale unless the carriers are willing to take on the credit risk. Attendees talked more about incremental value the carrier/phone provides in location-based services, coupons, loyalty and customer knowledge. These new services will deliver carrier revenue.

Alcatel-Lucent announced their Mobile Wallet Service targeting the mobile networks operators and providing them control of the both the payment applications and business rules in the wallet. The Alcatel-Lucent offering is a hosted service with a variety of potential payment applications including person-to-person, remote ticketing, loyalty or coupons, mobile ecommerce and proximity payment at the point of sale with NFC (with or without stickers). (See Business Week article here) Control of the business rules in the mobile wallet in the hands of the Mobile Network Operators – now we can talk about sharing revenue!

Attorney Dax Hansen from Perkins Coie moderated a panel on international perspectives for Money over Mobile. Dax was particularly interested at CTIA in the prospects of adding location based phone capabilities to the carrier side of potential point of sale payment services. See the article “Mobile LBS blowing up but monetization is a challenge”. We enjoyed a brief but lively chat on the topic of “revenue sharing versus value-added services” between banks and carriers that echoed a discussion at the Money 101 panel. See more on the panel discussion – “MasterCard, PayPal reveal conflicting views of mobile financial services” which also included perspectives from Clairmail, First Data and Qualcom’s Firethorn. The question is one of risk and value.

That’s all for today – more to come. (In the meantime, refer to previous mobile payments posts on Payments Views here and see Glenbrook Partner Carol Coye Benson’s Mobile Musings here).

Glenbrook Partners at CTIA in Las Vegas, March 22-25

Jacqueline Chilton — Fri, 12 Mar 2010 19:39:52 +0000

Are you planning on attending International CTIA WIRELESS 2010 March 22-25 at the Las Vegas Convention Center? Jacqueline Chilton will be moderating a panel and meeting with vendors and industry leaders. We’d enjoy talking to you so please reach out.

Glenbrook’s Jacqueline Chilton will moderate Bank Perspectives, a session on innovation and consumer uptake of mobile within the SIS – Money Over Mobile track on Monday morning March 22. Jacqueline will be joined by leaders from the wireless industry representing Wells Fargo, Fiserv, SunTrust and Western Union.

Mobile banking has become an essential channel for banks in offering electronic services to their clients but is it a revenue generator? Hearing about innovation and adoption from this panel will help banks and their vendors differentiate the hype from actual impact on consumer behavior and the bottom line.

“Mobile innovation continues to drive rapid change for business and personal interaction, and this spring’s CTIA educational program will address next generation technologies, new players and emerging opportunities,” said Robert Mesirow, vice president and show director for CTIA. “We are delighted that Glenbrook Partners’ Jacqueline Chilton will be contributing to the discussion.”

About CTIA

Celebrating 25 years as the premier global mobile marketplace, International CTIA WIRELESS 2010 brings together all industries advanced by wireless technology for three days of intense business, learning and networking in Las Vegas, March 23-25. International CTIA WIRELESS IT&E 2010 takes place in San Francisco, October 6-8. Visit www.ctiashow.com.

CTIA-The Wireless Association is the international association for the wireless telecommunications industry, representing carriers, manufacturers and wireless Internet providers. For more association information, visit www.ctia.org.

Under Attack! Threats to Deposit Accounts: an Interview with FICO Fraud Solutions

Jacqueline Chilton — Fri, 12 Mar 2010 16:12:41 +0000

I had the opportunity to speak with Mike Urban, FICO Senior Director of Fraud Solutions, about how criminals are enhancing their margins in ATM and debit card fraud.

The trend towards ATM compromises is largely a result of increased point of sale security. Criminals move to the weaker link, or the easiest approach, and ATMs are accessible 24/7 with no one to confront the person doing the tampering. Criminals are focusing their efforts on compromising PINs and debit cards to increase their profit margins in card fraud.

Encrypted PIN pads have been forcing criminals to capture PINs on the other side of the PIN pad. The ingenuity going into devices on the front of ATMs can be seen in a January article from Krebs on Security. The use of false fronts and pinhole cameras is hard to detect, even with a trained eye.

ATM compromises to obtain the unencrypted card track information have also been combined with alternative approaches to stealing PINs. Criminals have devised several ways to compromise PINs beyond their traditional methods of video capture. PINs can be compromised with ”spear phishing” or the newer SMS text message initiated version “SmiShing” or through other bank channels like online banking, telephone and automated voice response banking. Much of these compromises start with a physical change to the facade of the ATM.

Every financial institution and ATM location needs a plan to prevent ATM tampering. While bank ATMs are not immune to skimming, they are generally under surveillance and a less-attractive target for cyber-thieves than ATMs in convenience stores, gas stations, airports, etc. FICO suggests the following precautions for ATM managers:

Have a plan that is reviewed with employees in associated departments and/or third parties
Adopt visual standards and keep a picture readily available to compare
Frequent inspection of ATM facades and and surrounds
Contact law enforcement if there is any evidence found
Increase inspections when there is a known threat, including after hours
Consider upgrading video surveillance
- Image sent to 24 hr monitoring service with sound and voice
- Identify changes in the image
- Identify specific motions, sounds
- Identify long time intervals for a single user
- Link video to transaction

Working together, financial institutions are more likely to spot fraud. Three opportunities for collaboration are recommended by FICO:

The Fraud Alert Network Forum is a secure portal for financial institution, law enforcement and industry peer-to-peer collaboration www.FraudAlertNetwork.com – enables fraud characteristics and specific incidents sharing with the 6,000 plus registered users.
FICO also supports an ATM photo resource guide to create a directory of participating financial institutions and their contacts that handle ATM photo requests; and
Fraud Forum monthly calls are ideal for peer-to-peer communication.

FICO Fraud Solutions offers several products that can support financial institutions in detecting fraudulent debit transactions and/or compromised ATMs, including Falcon Fraud Manager, which although traditionally known for credit card transaction monitoring can be used for DDA and debit card transaction monitoring as well.

FICO has developed a specialized PIN debit model that ties cards across ATM and the debit network. Transactions are scored relative to what is normal for a cardholder. These cardholder profiles take a few weeks to mature in the model and then live forever to identify what is normal or abnormal behavior and score the risk of transactions across products. Real time use of transaction scores enables transaction to be blocked before funds are removed from the deposit account.

For a white paper on Deposit Fraud see the FICO website here.

Based on our work with analytic and technology solution providers, Glenbrook believes Financial Institutions should work to optimize their detection models for PIN Debit and ATM transactions. Having an enterprise perspective for fraud is helpful for data architecture and cross-channel attacks, but specific channel and product fraud experience is critical to successful fraud detection and reduction of false positives. Financial institutions should also implement an ATM inspection plan working from photos to detect changes to the façade of the ATM. The third equally important step in fighting criminals is to share compromise data across the industry.

These three steps will help combat fraud making it harder for criminals to make money from debit products and the ATM. Early discovery will reduce the long-term, sustained losses possible in ATM and Debit fraud.

Transit Moves Contactless Payment [Smart Card Alliance 2010 Payments Summit]

Jacqueline Chilton — Wed, 24 Feb 2010 20:50:54 +0000

Glenbrook’s Jacqueline Chilton is in Salt Lake City for the Smart Card Alliance 2010 Payments Summit.

If you have been fortunate enough to travel internationally lately, you will have noticed the efficient use of payments in many city transit systems. From the Oyster Card in London to the Octopus card in Hong Kong and many other urban centers, smart cards are being used to make ticketing more efficient and commuting easier. Many US cities including Washington, D.C., San Francisco, and Los Angeles transit agencies are also working to move commuters to contactless smart cards.

Mass transit is the fastest growth area for contactless smart cards globally and is forcing technology improvements to lower costs and improve processing speeds.

Locating the Summit in Utah was no accident. The local transit authority provides an excellent case study of contactless payments with its recent implementation of a new electronic fare collection (EFC) system – “Utah Transit Authority (UTA) Showcases Open Payment System.” UTA’s implementation is based on an open payment philosophy and is considered particularly interesting as they did not issue cards but rather accept all other cards that can communicate with their terminals.

Who would have thought your ski pass could also work on transit? An open payments approach has created savings by using student cards, ski resort passes, and employer identification for contactless payments eliminating card issuance costs. UTA accepts all major contactless cards including Visa payWave, MasterCard PayPass, American Express expresspay and, in trial, a new Discover Zip sticker. The Department of Defense has also worked with UTA to evaluate providing government employees with a transit capability on the government employee personal identity verification – PIV card. (Link for more information on government smart card activity).

The “tap on/tap off” approach provides valuable data that the transit agency will use to adjust services to reflect ridership patterns. UTA is now able to track 95% of all taps and trips. They use a hosted processing platform based in California to support the data gathering. The benefits of tracking ridership and eliminating ticketing are considerable.

The implementation challenges in transit are significant. In a major US metropolitan area there are usually multiple companies to pull together. Installing readers on all bus doors that work with those at every train station entrance, providing payment validation on all platforms, and technology for conductor enforcement to verify payment requires extensive planning and project management.

There are many jurisdictions in the US introducing smart cards for payment. They range from the large city centers to recent examples like Miami-Dade Transit EASY Card system, Spokane Transit Authority GO SmartCard, and King Country Metro/Sound Transit ORCA Card to name a few.

The UAT experience demonstrates that the transit use case for contactless payments is effective in increasing customer convenience, reducing costs, and improving services with better data. There have been lessons learned in accepting multiple card types. UTA has also encouraged progress in speeding the verification process for the conductors on the trains. These learnings will support other transit agencies using this technology. The success of contactless cards for mass transit in the US and globally illustrates the leadership transit is taking in the growth in use of smart cards. The debate at the Smart Card Alliance 2010 Payment Summit now turns to the point of sale merchant environment – a different challenge.

Localization of Payments: Lessons from Online Travel

Jacqueline Chilton — Wed, 03 Feb 2010 17:39:29 +0000

Written by Jacqueline Chilton based on a speeches and panel discussion at ATPS 2009 – Airline and Travel Payments Summit (Link to presentations) – Save the date for ATPS 2010 in San Francisco, Nov 30 – Dec 1, 2010

Localization is one of the key trends influencing the future of payments. At Glenbrook we believe that although businesses and consumers travel, sell and source globally, payments are inherently local. Many merchants are looking to expand Internationally and as they do so are confronting domestic payment options in foreign markets. Many are wondering whether or not acceptance of these incremental payment methods will improve the bottom line.

The most important thing in selling anything – a service, digital goods or physical goods – is to get paid. Lower cost is nice, but growing the top line is even more important than reducing expenses

So why consider local payment alternatives? There are three reasons: 1) the promise of increased sales, 2) lower transaction costs and 3) improved processes.

At the Airline Travel and Payment Summit, Colm Lyon (CEO of Realex Payments – a leading European payment service provider- suggested you need to be in appropriate payments, not every payment type. Much like the alternative payments discussion of the day before (See “Alternative payments and Airlines”), making a solid business case in choosing which payment and where is critical.

Driving Sales

In markets where international credit card penetration is low, local payments become essential. It is important to assess the local preference for debit, bank transfers or cash, at what ticket size, which channels and for what types of merchants. Local payment options can add to consumer convenience and potentially increase consumer adoption.

New customer segments can be targeted that are not interested in, or are unable to get international cards. We heard from paysafecard at ATPS 2009 that cash payments can attract new customers. They measured that 52% of customers using their cash ticket vouchers for online payment were new customers to the airline on which they bought a flight.

Reducing Costs

Local payments can also have significantly different acceptance costs and fraud rates and access to dynamic currency conversion. Some payments use a good funds model with lower disputes and chargebacks, such as iDEAL in the Netherlands. There is a clear need to understand the risk framework for disputes, chargebacks and fraud as these can drive up the cost of acceptance.

Process Improvements

Integrating to domestic processing can improve speed of payment processing and also support local customer service in response to payment questions. The challenges come in the implementation, potentially in settlement timing / workflow and increased complexity in back office and banking relationships.

The panel discussing local payments at ATPS 2009 was:

Klas Bäck , President, Netgiro North America
Paul C. McTaggart, Sr Product Manager Global Payments & Risk, Expedia, Inc.
Katherine Abbott, Vice President & Treasurer, Orbitz Worldwide, Inc.
James Filsinger, CEO and GM, Moneydirect

Netgiro is a full service payment solution provider for e-merchants around the world. They provide global payment processing as part of the Digital River Group Global ecommerce solutions company. Klas identified the key decision criteria in selecting local payment options and discussed how to identify where to be in the future. New payments can be evaluated with a business case and the implementation needs to be justified with sales. Netgiro supports online companies like Expedia and Orbitz in simplifying their acceptance of local payment types in foreign countries.

Expedia is taking a ‘go local’ approach to optimize the costs of payments and offer local payment methods. Orbitz is also taking a local payments approach. Both discussed the benefits in customer acceptance and challenges in implementation. In particular they pointed to the complexity of the number of foreign banking relationships required to accept direct deposit from all domestic banks. In looking at local payments options, the payment settlement timing and how it fits to the current order to delivery process are key considerations.

Moneydirect is focused on the complexity of business-to-business payments in the Airline and Travel space. James highlighted the complexity of collecting net payments from travel agents, paying hotels for airline crew lodging and transportation, paying suppliers for ancillary content, providing appropriate vouchers for stranded passengers, keeping up with regulatory compliance and making it all reconcile despite the multiple countries and currencies. Solutions like Moneydirect (an Amadeus and Sabre joint venture) provide multi-channel payment processing solutions to support business-to-business payments in the travel industry globally.

Payments organizations looking to expand their local payments options should consider their payments vision – What is motivating the company to consider local payments options? Payments can organizational cut across many departments that need to be heard as the local payments strategy is developed. With the vision in mind, a business case should be built with local knowledge of payment acceptance, expected incremental sales, processing costs and implementation considerations for work-flow and banking relationship requirements.

Mobile Payments: Replacing Cash in the “Last Mile”

Jacqueline Chilton — Sun, 10 Jan 2010 16:55:30 +0000

Editors note: This post describes the third in a series of panel discussions on mobile payments. The series is organized by MPay Connect and seeks to tap innovators in Silicon Valley and link them to mobile payment pioneers overseas, fostering understanding and discussion of how to apply lessons from the developing world to other markets. See also our Payments Views posts from the first and second events in the series.

Thursday evening a group of Wharton, Harvard alumni and payments professionals met at Google to discuss “Will Mobile Payments replace cash in the last mile?” Money in is the “first mile” of using cash to fund a mobile account and Money out or payment for goods is the “last mile.” Today, typically agents – called human ATMs – are receiving the cash to get it into the mobile payment scheme and a subscriber must go to an agent to get the cash out. Agent commissions make these programs difficult to scale as costs grow as volume grows, unless the mobile money transfer network can move to electronic payments in or out.

The session was moderated by Menekse Gencer from mPay Connect Consulting. The panelists were

Thor Hauge, Vice President, Digital Ventures at Western Union International
Toffene B. Kama, President, WillStream
Benjamin Lyon, Executive Director of Frontline SMS: Credit

There was an interesting discussion of the distinction between the developed and the developing world. The developed world has little friction in the current payment models. Many of the economic models that encourage cash replacement will succeed in developing markets but are not expected to work in developed economies. In many environments where cash is being replaced, the consumers are working in a what is called a “delegated payment” environment. The person funding the transaction and the person in the store making the purchase are different (perhaps a wealthy uncle or an immigrant sending remittances home provides the funding). Mobile wallets can enable control by the funds originator (the uncle or immigrant overseas) of how funds are sent.

An excellent example of the benefits of electronic money transfer comes from Afghanistan. When the payroll for the local military /police force was moved to direct deposit they thought they had received a 40% raise. No one had realized how much the agents distributing the cash payroll were skimming. (See further discussion of mobile payments in Afghanistan from the first in the series of mobile payment panels back in September ’09.)

Thursday’s panel generally agreed that cash might be eliminated for specific types of transactions, but mobile payments will not replace cash more broadly. Perhaps delegated payments is an example of suitable electronic payments but they do not represent all transactions. Cash is frictionless and too well understood to be replaced all together.

The primary challenge in electronifying the last mile is merchant acceptance. The panel discussed the problems of limited merchant acceptance leading to lack of use. In the Philippines with Smart Cash, the users are doing mobile top-up but not necessarily using the card issued with that account. Even though the chip card associated with the account rides the MasterCard rails there still is a lack of point of sale merchant penetration.

Mobile faces the age-old payments problem: you need enrollment of consumers and enrollment of merchants – not just a great network in between. Perhaps some of the payments views readers have thought through the merchant side of this equation… your comments, as always, are appreciated.

Fraud and the Airline Industry: ATPS2009 Day 1

Jacqueline Chilton — Tue, 15 Dec 2009 16:44:21 +0000

The pre-workshops and part of the first day at ATPS 2009 focused on fraud. Here’s a round up of my impressions after a full day of panel discussion, presentations, and breakout sessions. Once the presentations are up on the ATPS site I will provide links to each speaker’s deck. Presentations are here.

According to 41^st Parameter, a fraud detection firm focused on device intelligence, card not present fraud and account opening fraud, 21st Century cyber criminals are highly sophisticated:

They have credit cards that pass validation
They can mask their IP, country and city location
They book reservations under the cardholder name often burying the traveler as an additional passenger on the reservation
They tumble and swap names and email (e.g. Jan123@xxx, Jan456@xxx)
They create imposter agencies where real customers pay them real money for fraudulent or non-existent tickets
They book multi-leg flights and ditch all but one leg of the trip.

Profit losses for 2009 in the airline industry are estimated to be $11 billion according to International Air Transport Association. The new study from Cybersource estimated online fraud alone in the airline and travel segment to be $1.4B in 2008 or ~1.3% of online revenues (see previous post). Fighting fraud and reducing false positives across all channels can have a real impact on airline profitability. The three most significant themes from ATPS on fraud were around patterns of fraud, positive data and collaboration.

The three most significant fraud themes from ATPS were patterns of fraud, positive data, and collaboration:

Patterns of Fraud

Fighting fraud requires understanding the patterns of fraud through sophisticated and flexible modeling. Airlines are fortunate to have much more data than most merchant categories in fighting fraud; the correlation of multiple data points supports better fraud identification. Solutions like 41^st Parameter and Accertify can have significant impact on reducing chargebacks and also reducing false positives leading to higher sales.

41st Parameter discussed the benefits for airlines of using all the data available to fight fraud. Sources include the passenger reservation and itinerary information, member loyalty programs and in addition, 41^st can bring to bear the customer’s digital signature and Ethoca’s pooled merchant database of e-commerce fraud. Continental has had a positive experience implementing 41^st Parameter and SouthWest airlines has had postivie experience implementing Accertify (case study). Both airlines shared the benefits they’ve experienced, including reduction in bad debt, manual reviews, staff for manual review and false positives.

Collaboration

According to Ethoca, 40% of fraud has happened before to another merchant – either another airline or a company in another business. They provide a large transaction database pooling member experience across industries into a single repository for analysis of trends to find fraud.

Martinair had high fraud experience a couple year ago that motivated them to collaborate. They work with European payment services provider Ogone in the virtual world and, on five continents, at airports and in call centers. IATA was also in attendance to announce their efforts in data collaboration to stop fraud, a solution called Perseuss. Perseuss is a web based community allowing airlines to cooperate to identify and fight fraud schemes.

One of the most interesting conversations around the sharing of fraud experience was whether this should be implemented at an airline, Card Issuer or Card Association level. If airlines share their transaction data and fraud experience, can the associations package this data to the issuers for their decision and authorization process?

These are just some of the many tools with features and approaches that can result in your business reducing fraud, improving prioritization for manual review, and reducing false positives. Selecting the right player to support your fraud detection efforts deserves careful consideration. Let us know if Glenbrook can help your company evaluate its fraud options.

Alternative Payments and Airlines: ATPS2009 Day 1

Jacqueline Chilton — Tue, 15 Dec 2009 16:20:33 +0000

Alternative payments were the first topic of the day at ATPS 2009. Here’s a round up of my impressions after a full day of panel discussion and presentations. Once the presentations are up on the ATPS site I will provide links to each speaker’s deck. Presentations are here.

Merchants have increasingly moved to accept payments other than credit cards. Moneta’s Dr. Guido Sacchi suggested that this move to alternative payments has been driven by:

Consumer adoption of debit
Decreasing credit supply
Interchange fee pressure
Regulatory actions
Security concerns

He cited PayPal as evidence of the trend with over 15% share of the US ecommerce market and 9% of global ecommerce payment volumes (Forrester estimates). Alternative payments are now accepted by 63% of the airline respondents surveyed by Edgar Dunn produced in cooperation with SeaMountain and Airline Information. Several presenters throughout the event discussed the move to accept debit and prepaid cards and the consideration of wallet players like PayPal.

Merchants are considering the pros and cons of various payment methods. The first step is to have a strategy and “identify appropriate payment types” {a quote that is attributed to Colm Lyon, CEO, Realex a European payment service provider, in reference to local payments, but applies equally in this context}. Each alternative payment scheme offers different levels of consumer adoption, access to new consumer segments, processing costs, fraud, chargebacks, customer experience, abandonment and implementation considerations a that drive a business case for that scheme. Merchant steering and incentives for lower cost payment mechanisms are expected to accelerate the adoption of credit card alternatives online.

Alternative payment adoption is driven by expectations of increased revenues (attracting new customers) and lower cost (payment processing and fraud). As well, in considering which payment types to offer, operational complexity is a key factor. Laurie Gablehouse, Project Manager of Technology and Fraud Prevention for several airlines including Continental presented with 41^st Parameter. She explained that some alternative payments are offline processes that in airlines require the separation of reservation and ticketing. [I would add that the physical goods analogy is the separation of order and shipping. Going to the bank website for payment often provides a payment with good funds and no chargebacks, but may not provide instant settlement. Physical goods retailers can hold the order until funds are confirmed.]

Card Issuance

For many years airlines have been involved in card issuance through co-brand programs related to loyalty programs. New opportunities to offer prepaid and UATP cards have renewed their interest in card issuance. UATP cards are particular to the Airline industry and are like commercial cards issued to corporations for travel. UATP enables airlines to issue cards in their name to their corporate customers. The cards have no merchant service fees for tickets purchased for their flights and receive merchant service fee revenue when their card is used elsewhere. With a focus on corporate customers, this payment scheme has historically experienced lower fraud.

Surcharging

In recent years, surcharging has been introduced outside of the US. Quantas has been surcharging for approximately four years. Their rates are $6.60 – $7.70 for domestic and $18-$25 for all other international flights. SEPA and PSD allow surcharging in Europe. This experience is not always positive for the consumer as highlighted in recent articles looking to the Australian experience in credit and debit as a model for the US. [See article synopsis on Payments News here.]

The panel on “Balancing payment costs versus co-brand credit card income: Which is more important to the travel industry?” had a spirited debate focused on cost savings versus revenues. The most interesting consideration for airlines is the apparent conflict between airline loyalty miles and reduction in payment costs. Panelists argued that airlines are not going to lower payments costs with a push for miles cards and co-branding as this increases the uses of credit cards and moves away from alternative payments. The highly spirited debate participants were from Wirecard AG, eNett, Airline weekly and PayPal and their banter was well received by the audience.

We will post a link to the presentations from Day 1 of ATPS 2009 once they are on the conference website.