Prepaid Cards & eCommerce

Presenter: Lori Breitzke, President Date: Tuesday, January 10, 2012 Location: AECF

OVER 25 YEARS

OF SUCCESSFUL

PRACTICE

TOPICS TO DISCUSS

•  Prepaid cards 101

•  Trends

•  Ecommerce and Prepaid

•  Fraud Cases

•  Best Practices

PREPAID 101

DEFINING PREPAID PROGRAMS

•  Prepaid  programs  are  considered  either  “Open”  or  “Closed”    

•  Open  programs  are  those  where  the  value  can  be  depleted  at  ATMs  or  at  more  than  one  merchant  and  usually  bear  the  logos  of:  

–  MasterCard®  

–  Visa  ®  –  American  Express  ®  

–  Discover  ®    –  One  or  more  of  the  PIN  debit  networks  –  STAR,  Pulse,  etc.  

•  Closed  programs  include:  –  Proprietary  “Store”  GiN  Cards  

–  Transit  Cards;  migraPon  away  from  closed  to  open  loop  cards  –  University  ID  Programs  encompassing  local  merchants  

–  Telephony  including  Long  Distance  and  Wireless  

–  Loyalty  and  Affinity  Programs  

OPEN LOOP

Carries network logo

Sold in bank branches, internet, malls, retail

Issued by a bank - Regulated by state/federal government

Can be used anywhere network accepted

Typically consumer pays a small fee for the purchase of the card

Card has some type of consumer service fees

Examples: SIMON mall gift card, Staples Visa Rewards

     DIFFERENT TYPES OF PREPAID CARDS

PRIVATE LABEL

Open network but restricted access

Does not carry network logo

Can be used within specific stores only

Typically consumer only pays for the face value of the card

Typically card has no consumer fees

Issued by a bank - Regulated by state/federal government

Examples: AT&T Wireless, Spa Escapes, Marriott Hotels

CLOSED LOOP

Store or mall logo

Can be used within specific stores only

Typically consumer only pays for the face value of the card

Typically card has no consumer fees

Regulated by state government

Issued by a retailer

Examples: Best Buy, Home Depot, Joe’s Pizza Place

CONSUMER GIFT

Has short-term expiration date

Sold in bank branches, internet, malls, retail

Card can not be reloaded; initial load is consumer’s money

Generally, card has purchase fee but no ongoing consumer fees

Issuer can not attempt to recoup ECV

Issued by bank; processed by 3rd parties

Example: SIMON mall gift card

DIFFERENT TYPES OF PREPAID CARDS

B2B INCENTIVE

Has shorter-term expiration date

Is given to the consumer as a reward, rebate or incentive

Card can not be reloaded; initial load is corporate funds

No fees to the consumer

Corporate sponsor will attempt to recoup ECV

Issued by a bank - Regulated by state/federal government

Examples: Verizon/AT&T Wireless Rebate; Bluegreen Timeshare Incentive, Smarty Pig

CONSUMER GPR

Has longer-term expiration date

Can be sold in bank branches, retail stores or given to employees as payroll card

Card is reloadable by consumer and/or employer

Typically consumer pays purchase, monthly and reload fees (not direct deposit)

Issuer can not attempt to recoup ECV

Issued by bank; processed by 3rd parties

Example: Money Card by Green Dot, Univision

PREPAID CARD* TYPE DEFINITIONS

Card  Type DistribuPon Typical  #  of  Loads Network Examples Payroll   Employers Unlimited Open ADP  Total  Pay  Card

General  Purpose  Reloadable

Retail  /  Direct  to  consumer

Unlimited  but  max  amt  allowed

Open Green  Dot

Corporate  GiN  &  IncenPve

Employers Once   Open CiPbank  Prepaid,  Carlson  MarkePng

Government  Disbursements

Government Varies   Both  Open  &  Closed  

SSN,  WIC,  Disaster  Relief,  EBT

Instant  Issue  GiN Retail Once;  somePmes  unlimited

Both  Open  &  Closed

Simon  Mall

Travel Retail,  Banks,  Employers

Unlimited Open Travelex  MasterCard

* Prepaid cards are defined by their distribution, load method and network

PREPAID CARD ATTRIBUTES

•  Closed  loop  cards  can  have  any  number  of  digits  but  don’t  fall  into  a  branded  BIN  range  

•  Open  loop  cards  have  BINs    -  Older  cards;  may  not  be  traceable  

-  Newer  cards:  are  traceable  because  of  Durbin  

•  Older  cards  have  stricter  expiraPon  ranges;  newer  cards  can  have  10  years  •  All  of  these  cards  can  be  used  online  •  Older  cards  may  or  may  not  have  CVV2  

TRENDS

THE e-GIFT CARD MARKET IS GROWING RAPIDLY

The  dollar  volume  of  virtual  gi1  cards  will  grow  from  less  than  a  half-­‐billion  dollars  in  2010  to  nearly  US$10  billion  in  2015.  -­‐Aite  Group  

“Although  electronic  and  virtual  P2P  gi1ing  providers  would  love  to  replace  all  paper-­‐based  payment  methods,  that  is  not  going  to  happen  in  the  short  term…There  are,  however,  customer  segments  that  are  ripe  for  migraHon  to  virtual  gi1ing  soluHons—these  segments,  in  aggregate,  represent  US  $25  to  US  $30  billion  in  paper-­‐based  P2P  gi1ing.”  -­‐  Aite  Group  

A  recent  survey  found  that  51%  of  gi>  card  vendors  offer  instant  online  delivery,  that’s  up  10%  since  last  year.  -­‐Bankrate.com  

BANKS ARE ADDING PREPAID ISSUING

•  Eleven  Banks  Sign  on  with  i2c  since  October  •  In  under  45  days,  together  these  banks  manage  23  different  prepaid  programs  

marketed  to  consumers  across  the  United  States  

•  i2c’s  new  bank  clients  will  leverage  such  features  - Digital  coupons  and  mobile  soluPons  to  increase  acPvaPon  rates  

-   Drive  usage  and  extend  card  life  for  their  payroll  - GiN  and  GPR  programs  

“Banks  have  realized  the  strategic  value  of  offering  prepaid  products,”  said  Amir  Wain,  i2c  CEO.    

VIRTUAL CARDS IN EUROPE

•  Transact  Network  and  Ixaris  to  Issue  Virtual,  PlasPc  Prepaid  Visa  Cards  •  The  deal  marks  Transact  Network’s  first  large-­‐scale  Visa  implementaPon  since  

announcing  its  ability  to  offer  services  through  Visa  Europe  

•  As  one,  the  company  can  now  offer  increased  choice  and  flexibility  to  exisPng  and  new  program  managers    

“Given  the  success  of  the  partnership  with  Transact  Network,  it  was  only  natural  to  expand  our  relaHonship  to  include  virtual  and  plasHc  prepaid  Visa  products,”  said  William  Lorenz,  banking  director,  Ixaris.  

COMPANIES THAT PROVIDE DIGITAL GIFT CARDS

BENEFITS OF e-GIFTING

•  Consumers  want  it  

•  Immediate  fulfillment,  thus  increasing  retail  sales  

•  It  is  a  more  secure  method  of  delivery  because  no  cerPficate  is  shipped  and  a  new  card  can  be  easily  reissued  

•  It  reduces  shipping  and  handling  costs  for  business  •  It  saves  Pme  

•  It  can  work  with  exisPng  giN  cards  or  cerPficates  

PREPAID CARD FRAUD

   NEGATIVE BALANCES

•  NegaPve  Balances  do  and  will  happen  with  Prepaid  Cards  

•  How?  

–  Consumer  improper  usage  –  eCommerce  improper  usage  

–  Fraud  –  Merchant  coercion    

–  Mules  

     CONSUMER

•  Consumers  do  not  know  who  to  use  prepaid  cards  properly  

•  Balances  are  not  readily  available  

•  POS  systems  do  not  support  parPal  authorizaPon  –  MasterCard  &  Discover  mandated  reversals  April/May  2010  *  

•  Includes  JCB  and  Diners  Cards  

•  RaPonale:  

-  Consumer  do  not  always  know  their  available  balance  on  card  -  Consumer  try  to  spend  more  than  available  balance  on  card  

-  TransacPon  is  declined  and  addiPonal  fees  are  charged  

-  When  transacPon  is  in  progress  but  not  completed  -­‐  the  available  balance  on  the  card  is  temporarily  reduced  unless  merchant  reverses  the  authorizaPon  

*Merchants  are  required  to  support  reversals  with  the  excepPon  of  those  that  exclusively  process  transacPons  via  batch  uploads,  mail  order/telephone  order  (MOTO),  or  recurring    payment  transacPons  .    

RECOMMENDATION

•  eCommerce  merchants  should  support  both  parPal  authorizaPons,  balance  inquiries  and  reversals  for  all  card  types  

•  This  would  improve  the  consumer  experience  and  reduce  fraud  

•  RaPonale:    

–  Prepaid  cards  are  NOT  going  away!!  

PREPAID FRAUD

•  Happens  in  the  same  ways  as  credit  card  fraud  –  Stolen  card  numbers  

–  Unauthorized  “friendly”  use  –  eCommerce  fraud  

–  Merchant  coercion  –  ID  TheN  (example:  taxes)  

•  How's  it  different?  –  There  are  no  standard  fraud  monitoring  tools  –  There  are  no  typical  use  paoerns  

–  Load  fraud  

SPECIFIC PREPAID DATA BREACHES

•  FIS  

–  FIS  earnings  statement  for  the  first  quarter  of  2011  revealed  that  it  suffered  an  intrusion  on  its  eFunds  Prepaid  SoluPons  plaporm  in  May  2011  

–  7,170  prepaid  accounts  were  at  risk  and  three  individual  cardholders’  non-­‐public  informaPon  may  have  been  disclosed  as  a  result  of  the  breach  

•  WorldPay  

–  $9M  was  taken  from  prepaid  accounts  in  August  2007  –  Mules  retrieved  cash  from  ATMS  internaPonally  

–  Alerts  were  received  but  cards  were  not  turned  off  fast  enough  because  of  the  quickness  of  the  withdrawals  

–  The  ring  leader  was  arrested  and  prosecuted    

MONEY PAK

•  Released  by  Consumer  Fed  OrganizaPon  Dec  2011  

–  Scam  #  1  -­‐  Consumer  sees  a  great  deal  while  shopping  online,  follows  the  crook’s  instrucPons  to  pay  via  MoneyPak,  and  never  receives  the  item  

–  Scam  #  2  -­‐  The  crook  claims  that  the  consumer  has  won  a  sweepstakes  or  looery  

–  To  claim  the  prize  the  consumer  is  told  to  pay  taxes  or  other  fees  using  MoneyPak    

–  The  scammer  gets  the  MoneyPak  number  from  the  vicPm,  transfers  the  funds  to  a  prepaid  card,  and  cashes  it  in  at  an  ATM  

–  Prize  is  never  received  by  consumer    

MULES

•  Mules  are  on  the  rise  •  Prepaid  card  usage  can  be  anonymous  and  untraceable  

•  Crooks  can  use  prepaid  cards  as  payment  for  mules  

BEST PRACTICES

   BEST PRACTICES

•  Velocity  limits  

•  Load  limits  

•  ReporPng  to  common  agencies  &  law  enforcement  (example:  NCFTA)  

•  Issuers  can  look  for  behavior  paoerns  

•  Coming  together  as  an  industry  to  prosecute  &  having  a  unified  approach