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SpendTalkThe latest payments, eCommerce and security trends from Bank of America Merchant Services

WINTER | 2020

THE LATEST PAYMENTS, ECOMMERCE AND SECURITY TRENDS FROM BANK OF AMERICA MERCHANT SERVICES SPENDTALK | WINTER 2020 | 2

Welcome back to SpendTalk from Bank of America Merchant Services

SpendTalk is a seasonal publication from Bank of America Merchant Services that shares our take on trends that are reshaping global commerce and, specifically payments. In this edition, we explore the future of subscription services and how businesses can use subscription models to meet customer needs while expanding their sources of revenue. We also take a deep dive into gift card fraud and how you can help protect your business, as well as examine the technologies retailers are using to shorten shopping lines this holiday season. Finally, we provide a quick roundup of the key points from our recent webinar, Take Charge of Chargebacks.

Consider SpendTalk a springboard for discussion with your Bank of America Merchant Services business consultant. It’s our privilege to serve you and help your business stay on top of the latest payments, eCommerce and security trends. Let’s keep the conversation going.

WINTER | 2020

Learn more

https://merch.bankofamerica.com/enterprise-merchant-services/solutions/


ContentsWhy more companies could benefit from a subscription-based model . . . 4

How retailers are shortening long lines this holiday season…and year round . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4 critical takeaways from our “Take Charge of Chargebacks” webinar . . . . 8

3 unique cases of gift card fraud and how to help protect your business . . 9


Why more companies could benefit from a subscription-based model As more consumers sign up for subscription services, companies have an opportunity to expand their sources of revenue

Subscription services, once thought to be the exclusive domain of software providers, have taken the retail world by storm over the past few years. Boosted by the popularity of streaming services such as Netflix and Spotify, subscriptions are fast becoming an essential tool for retailers of all stripes. In fact, over the past five years, the subscription market has grown by more than 100% each year, according to the consulting firm McKinsey.1

“We’re entering a whole new retail environment,” says Robin Reodica, product management executive director at Bank of America Merchant Services. He says today’s consumers care less about ownership and more about access; they want goods and services delivered to their door or phone, an experience curated specifically for them, and they don’t want to spend time thinking about how or when to pay. Subscriptions deliver on each of these fronts.

And they’re not just for software and media providers. Subscription services span all industries and markets, from pet food to airplane tickets to meal prep and shaving supplies. Now, companies that may have thought subscriptions wouldn’t fit their business model may want to reconsider.

“You would think a company that builds or installs garage doors couldn’t offer a subscription,” says Reodica. “But what if they

offered an app at $9.99 per month that allowed customers to check if they left their garage door open? That’s a subscription that meets a need.” And meeting customer needs, Reodica says, is what subscription services are all about.

A win for both retailers and consumersSubscription services benefit customers by making payments as frictionless as possible. Typically, subscribers set up a recurring payment — monthly is most popular — enter their payment information, and sit back as the goods or services are regularly delivered.

But what are the benefits for businesses? “The biggest benefit is increased engagement with customers,” says Emma Clark, chief of staff for Recurly, a subscription billing management company and Solution Partner for Bank of America Merchant Services.

Engagement drives two other, interrelated benefits, says Clark: increased customer loyalty, and more and better customer data. Loyalty is baked into the subscription model itself since subscription services are based on consistent customer engagement. And with regular engagement comes more data about customers, from how much time they spend on your app or website to what kinds of products or services they prefer.


A company that offers monthly apparel boxes, for example, can gather data on the style of clothes a customer prefers, and use that data to send increasingly more personalized boxes to the customer as time goes on. More personalized products and services can in turn inspire even greater customer loyalty, accelerating a cycle that benefits retailers and consumers alike.

Subscription services can also bring in regular, relatively predictable profits. Meanwhile, adding a subscription service to more traditional sales avenues can deliver a new revenue stream to a business.

Limiting churnSubscription services do present some challenges for businesses, including retaining customers who intend to just “test” the service. Subscribers who leave often do so shortly after signing up for a service: more than a third of consumers who sign up for a subscription service cancel in less than three months, and over half cancel within six months.2

Some amount of churn is inevitable — about 5.5% of subscribers is typical, says Clark — but the most successful subscription companies have figured out strategies to limit the exodus of new customers.

One way is to avoid offering too-good-to-be-true enticements for new customers. If a new subscriber is lured by free trials or other extreme discounts, they may be quick to unsubscribe as soon as those introductory offers expire. “Many businesses new to the model get so caught up in winning new subscribers that they fail to develop a strategy to prevent customers from abandoning the subscription a month or two later,” says Clark.

Companies should start tackling this potential issue by distinguishing between voluntary and involuntary churn. Clark says about a third of all churn is involuntary —

for instance, a subscriber drifts away after an expired credit card can’t be charged. If a customer needs to act to change payment methods, businesses should send out gentle reminders via email. The best emails, says Clark, serve not only as payment prompts but subtle reminders about what a particular customer might be missing out on, like a favorite product or a competitive price.

Voluntary churn means a customer isn’t finding enough value in the subscription — and it’s up to the business to figure out why. Price point and competition are two common factors, but the reasons differ from customer to customer. Businesses can reach out directly to customers who have stopped subscribing and collect data that may tell them, for example, that customers with plans at a particular price point are more likely to drop out.

Other considerations for businesses thinking about offering a subscription service:• Pricing. A big part of developing a

subscription that delivers real value to customers is finding the right price point. Start by checking out competitors to see what consumers are paying for similar services, then set your prices accordingly.

• Security. It’s critical that businesses ensure the customer data they collect is protected. Make sure to work with a payment provider that prioritizes securing personally identifiable information. That includes complying with privacy protection standards such as Payment Card Industry Data Security Standards (PCI DSS).

• Integrated systems. Subscriptions differ from traditional models in that the customer journey is much more cyclical and fluid, says Clark. As a result, companies considering a subscription-based model may want to reconsider its internal structure. “It’s no longer viable to have your marketing department in one silo and your customer service department in another silo,” says Clark. “Everyone across all departments should have access to the same systems to really understand what’s going on with your subscribers.”

If your business is interested in offering subscriptions, the first step is to talk to your payment provider about initiating a new payment model. They will connect you to experts who can help develop a strategic subscription model that targets a true consumer need and provide guidance on how to integrate the new model to your payment environment.

What subscription(s) could your business offer to meet your customers’ needs?

THOUGHT STARTER

“Subscription services can also bring in regular, relatively predictable profits.”


How retailers are shortening long lines this holiday season…and year round

With U.S. holiday retail sales forecasted to grow between 3.8% and 4.2% annually,3 top retailers are adopting digital operational technologies in-store to quickly serve more customers in a way that will encourage them to return year-round.

Target and Walmart lead this initiative with their respective Skip-the-Line and Check Out With Me technologies, both of which are a product of their mobile point-of-service (mPOS) capabilities. The companies equip associates with handheld devices that allow them to check out customers anywhere in the store, thereby reducing long lines and wait times at traditional checkout lanes.

“Customers are going to shop where the experience is best,” says Joel Larson, vice president of innovation at Innowi. “Let’s say a customer wants to buy a Christmas tree in a retailer’s parking lot. With mPOS, an employee can check out that customer on the spot, saving them time walking in and out of the store.”

What about potential sales lost by preventing the customer from entering the store and making an impulse buy? Larson says retailers should reconsider.

“Impulse buys typically happen when a customer is waiting in a long line, staring at candy or other trinkets. This is a point of friction for the customer buying a tree,” says Larson. “Yes, customers standing in line today may make an impulse purchase. But retailers with better experiences will get long-term loyalty and the sales of tomorrow.”

Indeed, technology transformations have empowered shoppers to expect more out of brands and their offerings. More than 70% of consumers have stopped buying from a company because a competitor provided a better experience.4 And almost three quarters would prefer a “cashierless checkout” so they don’t have to wait in line.5

“Getting rid of checkout lines isn’t just a holiday responsibility,” says Larson. “It’s a 365-day responsibility to help improve the customer’s experience.”

Holiday retail sales are forecasted to grow annually between

3.8% and

4.2%.3


Retailers can also benefit from new operational technologies during slower seasons. mPOS devices that are tailored to retail environments can be used to manage inventory, stock shelves and streamline other daily responsibilities unique to retail. New research from Forrester shows that creating such operational efficiencies lifts retailers’ bottom lines and can empower associates to accomplish more6 — the effects of which are then funneled to the consumer.

Office Depot CEO Gerry Smith echoed this sentiment in an earnings call, noting that highly motivated retail associates are a competitive advantage and paramount to improving the in-store customer experience.7 And Panera Bread saw more positively rated interactions between customers and associates after launching mobile order and pickup because neither had to deal with long lines.8

Fortunately, mPOS capabilities extend beyond the retail industry. Your payments provider can help you decide what functionalities would most benefit your business; whether you’re a small regional chain or an enterprise powerhouse, mPOS can be customized to revolutionize your checkout experience.

“There’s an artistic side to retail that can be leveraged to create differentiation,” says Derrick Carpenter, executive vice president of integrated payments, digital commerce & marketing at Bank of America Merchant Services. “The retailers that succeed in the future will pay attention to both efficiency and pleasure online and in physical stores, which will help them thrive in an ever more competitive environment.”

“There’s an artistic side to retail that can be leveraged to create differentiation.”

How is your business making your customers’ and employees’ experience more efficient?

THOUGHT STARTER


4 critical takeaways from our “Take Charge of Chargebacks” webinarChargebacks can cost businesses of all sizes significant time and money when they’re not managed properly. This quarter, Bank of America Merchant Services hosted an educational webinar to help businesses prevent disputes and stay abreast of regulatory updates. Here are four takeaways in case you missed it.

1 Help avoid fraud disputes by implementing security tools and following best practices

ALWAYS AUTHORIZEObtain an authorization code with each credit or debit card purchase. This verifies available funds and can help decrease the risk for fraud. If a decline response is received, request another form of payment.

VALIDATE & AUTHENTICATEIf you must hand-key card-not-present transactions, use fraud protection tools such as Address Verification Service (AVS), Card Validation data (e.g. CVC 2, CVV2, CID) and 3D Secure technology.

INPUT ADDRESS VERIFICATION INFORMATIONIf your employees must hand-key a transaction, ensure they input the billing zip code.

2 Understand dispute and chargeback reasons

If you receive a cardholder dispute, you’ll see one of several codes depending on the reason for the dispute. Here are a few examples:

CANCELED RECURRING TRANSACTIONThe cardholder claims the business billed a transaction to the same account number after the recurring payment plan expired or after the cardholder withdrew permission to charge.

SERVICES NOT PROVIDED; MERCHANDISE NOT RECEIVEDThe cardholder claims the services were not provided or that the merchandise was never received.

DATA ENTRY ERROR: The cardholder claims a data entry error was made at the point of sale. The items incorrectly entered may include but are not limited to: credit entered as debit; debit entered as credit; transaction amount; transaction code; card number; account number; or currency code.

3 Supply compelling evidence to help win fraud disputes

Compelling evidence is supporting information used to prove a chargeback is invalid, the original transaction is valid, and the business followed policies and procedures when processing the transaction.

According to regulations, compelling evidence is not a remedy for a chargeback, however, it will be strongly considered when a cardholder’s bank is deliberating the validity of a chargeback.

Examples of compelling evidence for card-not-present transactions include documentation signed by the cardholder, invoices proving the transaction processed for the full amount, Acquirer Reference Number (ARN) and transaction date plus an IP address, email or physical address, and/or phone number.

4 Stay updated on the latest requirements from card brands

Beginning in April 2020, Mastercard intends to restructure its dispute process through Mastercard Dispute Resolution (MDR). This will eliminate the batch processing system (Image Interface) and introduce an API solution for the U.S., Canada and LAC Regions.

Mastercard Claims Manager will be introduced and will replace the current MasterCom platform with enhanced chargeback rule decisioning. All dispute activity will be managed under a single claim event.

What processes has your business put in place to lower dispute volume and chargeback amounts?

THOUGHT STARTER

We invite you to hear more. For a link to our webinar replay, please click here.

https://register.gotowebinar.com/recording/7462384720909208077


3 unique cases of gift card fraud and how to help protect your business

How many gift cards do you sell and process in a year? The data shows consumers love them, with Americans spending more money on gift cards than any other gift category.9 Unfortunately, criminals love them just as much.

With the gift card industry expected to experience a 10% compounded annual growth rate over the next few years, reaching $750 billion by 2026,10 one main concern for businesses is ensuring their gift card revenue does not end up in the wrong hands.

“If fraudsters are good at anything, it’s finding weakness,” says Jarrod Cohen, vice president, product manager at Bank of America Merchant Services. “As gift card programs reach new levels of maturity, businesses are having to reexamine their fraud prevention to better protect profits and their customer shopping experience.”

To help you strengthen the security of your gift card program, Bank of America Merchant Services identified three ways fraudsters are using gift cards to steal from customers and businesses — and how you can protect against them.

Case 1: Gift cards used for fraudulent cash transfers“What makes gift cards great in the gift space is what makes them so popular with fraudsters,” says Cohen. “They’re fairly easy to transfer from person-to-person, which means the funds are virtually impossible to trace.”

The end goal of any fraud scheme is to transfer money from the intended victim to the criminal, and gift cards are increasingly used to facilitate those transfers. This type of gift card fraud is usually initiated by a phishing email or phone call. Criminals develop elaborate schemes for convincing their targeted victims to load funds onto gift cards and forward the card numbers.

While everyday consumers are mostly affected, business employees are increasingly targeted by some of the more sophisticated criminal organizations.11 Here are a few ways to help protect your business and your brand from this type of gift card fraud.

WH AT TO WATCH FO R

• Phishing emails spoofing internal employees

• Customer complaints and requests for refunds or appeasements

H OW TO P R OT E C T YO U R B U S I N E S S

• Implement internal controls to verify employee expenditures

• Adopt robust customer service protocols for addressing reported fraud

• Educate customers and employees on how to identify and avoid fraud


Case 2: Manipulating gift card infrastructureWhile the first type of fraud targets individuals, our second case involves fraudsters directly attacking your gift card program as a whole. As criminals gain intelligence about how cards are activated and balances are checked, they can manipulate that system, often from inside your organization.

“From my experience, for larger retailers with staff attrition, fraudsters may find it easier to penetrate your organization, learn your policies and procedures and start initiating suspicious gift card-related activities. Obviously, this can affect your customers, brand reputation and ultimately your business,” says Cohen. That is, former employees may leverage insider knowledge to defraud your gift card program.

Businesses with larger footprints will need to monitor gift card transactions to spot out-of-the-ordinary activation, balance inquiries and usage. Here are a few actions to watch for and some strategies for protecting your business.

WH AT TO WATCH FO R

• Associates purchasing items with gift cards

• Irregularly high volume of gift cards issued or redeemed by associates

• Gift cards issued and redeemed in the same day and same store

• Register shortages with matching gift card purchases

• Non-swiped gift card redemptions (hand-keying gift card numbers)

• Excessive balance inquiries


• Use in-store security to monitor irregular customer and employee activity

• Work with HR to strengthen hiring practices

• Use gift card reporting to monitor excessive balance inquiries and inquiries on zero-balance cards

WH AT TO WATCH FO R

• Excessive number of gift card balance inquiries

• Customer complaints about $0 balances

• When multiple gift cards are used for a single purchase


• Identify and implement thresholds to freeze gift cards with irregular activity

• Enable the usage of PINs for requesting the balance of a card

• Regularly review high-risk and inactive cards for attempted usage

• Flag excessive balance inquiries

• Monitor gift card status changes

• Implement proprietary account number schemes

• Adopt an algorithmic methodology for mag stripe encryption

Case 3: Remotely attacking gift card balancesSome of the more insidious threats involve criminals targeting gift card balances through highly technical hacking and querying techniques. Protecting your business from these types of attacks takes extensive monitoring and controls and may require outside expertise.

Depending on your business needs, you’ll need to develop and implement fraud monitoring tools to help you flag suspicious gift card activity. Some of the more state-of-the-art solutions use machine learning and predictive algorithms that respond to new fraud activities in real time.

Some tactics criminals use can be as simple as stealing gift card numbers in-store before they’re activated, waiting for the cards to be activated through legitimate purchases, and then transferring the funds. Other tactics involve stealing large swathes of card numbers by penetrating corporate networks or predicting card number schemes with sophisticated algorithms.

Either way, there are several strategies at your disposal for combating these advanced techniques. Here are some places to start.

Regardless of the risks, gift cards continue to appeal to customers, and their application as branding and customer retention tools will increase their importance for the foreseeable future. The rise of self-purchased gift cards alone tells us that customers are discovering new benefits in loading branded cards for themselves. As you and your business take advantage of these emerging trends and changing behaviors, it’s important to make sure your business and customers are as protected as possible from potential gift card fraud.

How are you protecting your gift card program?THOUGHT STARTER


MethodologyBank of America Merchant Services SpendTalk report does not indicate nor represent Bank of America Merchant Services’ financial performance.

SpendTalk is provided as a courtesy and is to be used for general information purposes only. No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. Bank of America Merchant Services assumes no liability for loss or damage as a result of your reliance on information in this publication. Our goal is for the content within this publication to be accurate as of the date this issue was printed. We do not guarantee the accuracy or completeness of the information presented and assume no obligation to update or otherwise revise these materials.

About Bank of America Merchant ServicesBank of America Merchant Services connects businesses and their customers by doing payments better. The company delivers payments, eCommerce and security solutions, as well as consultation services, to businesses throughout the United States, Canada and Europe. It processed more than 17.3 billion transactions at more than 700,000 merchant locations as of March 2019.13 The company is a joint venture that combines the technology and innovative products of Fiserv with the relationship strength and prominent global brand of Bank of America. To learn more, please visit merch.bankofamerica.com.

Learn more

http://merch.bankofamerica.com

https://merch.bankofamerica.com/enterprise-merchant-services/solutions/

© 2019 Banc of America Merchant Services, LLC. All rights reserved. All trademarks, service marks and trade names referenced in this material are the property of and licensed by their respective owners. Merchant Services are provided by Bank of America, N.A. and its representative Banc of America Merchant Services, LLC. Banc of America Merchant Services, LLC is not a bank, does not offer bank deposits, and its services are not guaranteed or insured by the FDIC or any other governmental agency.

CM-BAMS-WP-SpendTalk Winter 2020-2839179-12/19

1 McKinsey, “Thinking inside the subscription box: New research on e-commerce consumers.” February 2018. https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers

2 McKinsey, “Thinking inside the subscription box: New research on e-commerce consumers.” February 2018. https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers

3 National Retail Federation, “NRF forecasts holiday sales will grow between 3.8 and 4.2 percent,” 2019.4 Salesforce Research, “State of the Connected Consumer,” 2018.5 Business Insider Intelligence, “The Emerging Tech Survey 2019: Cashierless Checkout,” 2019.6 Forrester, “The Digital Store Playbook for 2019,” 2019.7 Seeking Alpha, “Office Depot (ODP) Q3 2018 Results - Earnings Call Transcript,” 2018.8 Forrester, “How To Transform Your Retail Store,” 2019.9 Fiserv, “TRENDING: #brandedcurrency,” 2019. https://www.firstdata.com/en_us/all-features/consumer-insights.html10 Credence Research, “Gift Cards Market By Type,” 2018.11 Newman, Lily. “Email Scammers Ditch Wire Transfers for iTunes Gift Cards.” Wired. August 2019. https://www.wired.com/story/email-scammers-gift-cards-

nonprofits/12 Fiserv, “TRENDING: #brandedcurrency,” 2019. https://www.firstdata.com/en_us/all-features/consumer-insights.html13 Per the Nilson report, March 2019, Issue #1147 and Bank of America Merchant Services Data, March 2019.

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