This may surprise those who think the payment world is ruled by credit cards: checks continue to be the most popular and widely available non-cash payment method in the U.S. Last year, consumers and corporations wrote over 68 billion checks with 65% of those written by consumers and businesses to make purchases or pay bills.

Yet, as a form of payment, electronic checks have not gained wide acceptance for the purchase of goods and services online. This will change, according to experts.

"The adoption rate of e-checks for retail Internet purchases will remain low in the near-term because consumers paying on the Internet have accepted credit cards as the standard," wrote Gartner analyst Ken Kerr in a research note. "Adoption, however, will grow in time because the attachment in the United States to check payments will lead many to use this method if it is available. Cost savings will be gained from whatever level of usage is attained in the short-run."

Sales and financial benefits
Businesses and institutions that take payment via electronic check, in addition to other payment options, may enjoy a number of important benefits:

Increased sales and satisfaction. The acceptance of electronic checks, in addition to credit card or physical checks, enhances payment options, convenience and satisfaction. Electronic checks can help increase sales by capturing orders from those over 50 million American consumers who don't have a credit card or who prefer alternatives to credit card payment.

Reduced order and billing costs. The cost to process a check electronically is generally lower than processing the transaction via a credit card. In addition, the use of electronic check services can reduce the need for invoicing and lower the cost of accounts receivable administration.

Faster payment. Checks accepted online enable funds to be deposited in about half the time as that associated with paper-based checks (notification of insufficient funds are also received faster). The ability to accept checks electronically can also increase on-time payments by offering people and businesses an alternative to mail-based payment.

Electronic check applications
Electronic checks are well suited to create or expand online payment solutions for a variety of commercial and government sectors. Applications include:

• Subscription services bill payment (magazines and newsletters)
• Utility services bill payment (gas, electricity, and water)
• Communication services bill payment (telephone, cable, TV, and Internet connectivity)
• Online payment for government and educational services (taxes, business licenses, traffic fines, park use fees, class registrations, tuition and related services)
• Business-to-business bill payment

Sports.com is Europe's leading mobile and Internet provider of European sports content, community and commerce. It offers betting as well as coverage in English of football, rugby, Formula One racing, cricket, boxing, sailing, tennis and golf as well as sports in local languages in France, Germany, Italy and Spain. It turned to CyberSource to solve payment and fraud challenges distinct to this multi-national business.

Searching for a payment solution
Between September 1999, and July 2000, all Sports.com's UK e-commerce transactions were processed in the United States. As a result, payment would appear on customers' bills in dollars rather than pounds, which caused a great deal of confusion. Simon Tarr, finance director at Sports.com explained: "Users were put off by the system, and it didn't fit into our long term plans. Because we operate sites in a number of European countries, we were looking for a multi-currency package that could record transaction in local currency."

After looking at a variety of offerings, the company chose CyberSource Payment Service. Tarr says that CyberSource was chosen because it had a multi-currency offering, and it showed that it truly understood the retailer's business. Furthermore, Sports.com's banking partners, NatWest and Royal Bank of Scotland (RSB), suggested that the company take a look at the CyberSource solution. "Both NatWest and RBS have considerable experience in handling e-commerce transaction and act as clearing banks for the largest e-commerce players in the UK," said Tarr. "If they make suggestion, it definitely comes with a lot of gravitas."

Next step-targeting fraud
During the time that Sports.com was assessing different payment options, it was also laying the groundwork for a betting site, so it made sense to work with a company that could offer both payment and fraud management solutions. CyberSource had expertise in both.

Tarr realized that Sports.com needed to be protected from fraud if the betting site was to be a success. In addition, NatWest was not prepared to endorse the service, which allows users to bet on a variety of sporting events, if Sports.com did not get adequate protection from online credit card fraud.

"Online betting sites suffer from high levels of fraud with statistics indicating as high as 10 percent of transactions are fraudulent," said Tarr. "Our bank warned us of this and told us in no uncertain terms that if fraud rates reached a certain level on our site, they would withdraw their support."

Since the CyberSource fraud screening solution was rolled out in February 2001, there has been a marked impact on fraud. According to Tarr, the level of chargebacks has been very low, and the company has successfully detected a large number of potentially fraudulent transactions.

To find out more about CyberSource Payment Service:
http://www.cybersource.com/solutions/electronic_payment/solutions/service.xml

To find out more about CyberSource fraud screening:
http://www.cybersource.com/solutions/risk_management/fraud_screen/

Or contact a sales representative.

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Fraud Prevention Forum

A: Our in-house fraud management expert, Senior Product Manager Ellen Moriwaki replies: "AVS only looks at the numeric value of the address (first 4 numbers in the street address and 5-9 digits in the zip code). This limited look can reduce the effectiveness of an online merchant's negative list or simple fraud screen tool.

A perfect AVS match does not guarantee the validity of a transaction, nor does it remove an online merchant's liability for a fraudulent one. CyberSource recommends that online merchants use a variety of tools such as CVV/CID and a fraud screen as well as their own business rules to help deter fraud.

Delivery Address Validation not only validates that an address is deliverable but corrects and formats the address based on address files from postal administrations worldwide. This makes it more difficult for fraudsters to manipulate address information when attempting a fraudulent transaction. Example: 1295 Charleston Rd (the real address), 1295 Charleston Dr, and 1295 Charleston Blvd appear as 3 different addresses. Employing delivery address validation would correctly identify those as one address and therefore prevent the transaction from bypassing a negative list or simple fraud screen tool."

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Another sign of the improving U.S. economy, statistics now coming in show that online merchants experienced healthy sales growth in the first quarter of 2002. Data released at the end of May by the U.S. Department of Commerce reveals a preliminary estimate of 19% year-on-year growth in online sales by U.S. retailers for the first quarter of 2002. This is slightly higher than the 18% year-on-year revised growth they report for the peak fourth quarter 2001 Holiday sales period. In addition, online sales by U.S. retailers maintained their record pace of 1.3% of total retail sales achieved in the final quarter of 2002. The preliminary Commerce Department estimate of total online sales by U.S. retailers for the first quarter was $9.85 billion.

CyberSource merchants as a total group (including non-retailers) saw year-on-year order volume growth approximately double that of Q1 2001 and in March order rates were only a few percent below the peak December sales period. The online research company comScore estimates that online merchant revenues (including travel purchases) experienced a year-on-year increase of 48%, rising to $17 billion for the first quarter of 2002.

So it appears that online sales are off to a strong start for 2002. By the time of our next issue in September, we will have data for online sales for the first half of 2002 and, based on our analysis of seasonality patterns discussed in our previous Journal issue, we should be able to dust off our crystal ball and make a projection for total 2002 online sales and growth for the all important fourth quarter online Holiday selling season.

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Bookmarklets are simple tools that extend the surf and search capabilities of Netscape and I.E. Web browsers. And they're free! Bookmarklets allow you to:

• Modify the way you see a Web page — change colors, zoom on an image...
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To download Bookmarklets for free, go to http://bookmarklets.com/

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The new CyberSource International Services Suite features over five essential international services and real-time order validation functions, including fraud detection, consumer geo-location, delivery address validation, export compliance, and payment.

"Fraud attempts are 40 percent higher for international orders than U.S.-based Internet orders," says Jeff King, CyberSource Director of Product Management. "Our new suite provides the essential services merchants need to automatically transact and validate orders originating from international locations and also helps them to comply with export regulations."

The suite includes:

CyberSource Advanced Fraud Screen enhanced by Visa provides fraud risk prediction scores by assessing over 150 order variables such as international address validation, international IP address verification and order velocity. Highly accurate risk scores are typically calculated in less than 2 seconds using industry-leading CyberSource technologies, including the patent-pending Fusion Scoring technology. The service is further enabled by Visa's patent-pending Virtual Intelligence Risk Technology, providing continuous model updates which employ global fraud trends and online and offline payment card usage patterns to improve fraud detection accuracy for card-not-present merchants.

CyberSource Geo-location can confirm a consumer's specific geographic location by automatically cross checking email, phone and physical address information against multiple international data sources and IP address data.

CyberSource Delivery Address Validation (DAV) validates, corrects and/or formats customer addresses in real time for over 200 countries worldwide. DAV, which leverages Group 1 Software's CODE-1 Plus International address data quality solution, verifies addresses prior to fulfillment, thereby reducing merchant costs associated with incorrect shipping and post-order address correction.

CyberSource Export Compliance helps merchants comply with international distribution agreements and U.S. Government export regulations by monitoring order acceptance in real-time against distribution restrictions and an ever-changing list of denied countries, businesses, or persons. CyberSource Export Compliance leverages data sources from XPORTA Inc., a provider of global resource management software.

CyberSource Payment and CyberSource Tax authorizes and settles electronic payments worldwide through built-in connections to U.S. and international processors and merchant banks. CyberSource Payment supports over 120 currencies worldwide. The suite also includes CyberSource Tax, a real-time, worldwide tax calculation service which leverages Taxware's WorldTax System to support sales/use tax and VAT in over 100 countries and approximately 60,000 jurisdictions.

Implementation Options
The CyberSource International Services Suite, can be integrated with current merchant systems or added as a module to the CyberSource Risk Manager.

For more information, call 1.888.330.2300.

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