© Copyright 2011 | First Data Corporation Trends in Card Processing North Carolina Ecommerce Conference Presenter: Susan Peek, First Data October 30, 2012

© Copyright 2011 | First Data Corporation

Trends in Card Processing North Carolina Ecommerce Conference Presenter: Susan Peek, First DataOctober 30, 2012

2 | © Copyright 2011 | First Data Corporation

Agenda

Trends in Card Processing

• Market Trends

• Universal Commerce

• eCommerce

• Mobile Commerce

• New Payment Options

• EMV

• Fraud Protection

• Summary


Market Trends


• Convergence of online & offline commerce

• Increased security threats

• Increased levels of regulatory change

• Changing technologies

• Consumer expectations are rising

• New emerging shopping behaviors

Market Trends

What is Changing?


– Today’s card processing environment is much more sophisticated and complex than just swiping a card at the point of sale.

– Consumers are increasingly expecting an integrated buying experience that is personalized, secure, and smart.

– Today’s customer wants to pay whenever and wherever they want and expect to be able to do so.

– Merchants need to be ready to provide the payment types and payment channels their customers want to use while meeting compliance regulations and protecting against fraud.

– The lines between in‐store commerce, ecommerce, and mobile commerce are blurring. We call this evolution Universal Commerce.

Market Trends


Universal Commerce


Getting started with Universal Commerce

Broaden payment options and build an integrated customer experience

eCommerce Mobile Payments EMV

Integrated Customer Experience


Redefining the POS

Accepting, enabling, and settling any transaction, any service, any technology

What’s your plan to upgrade and take advantage of the Universal Commerce environment at the POS?

Any Payment, Any Technology

Counter Terminal Device

POS Software

Mobile Payments

EMV / Contactless

Online/CNP Payments

Wireless Device

Mobile Acceptance

Devices

CREDIT

DEBIT

PREPAID

Electronic Check

Terminal

PIN Pad + Contactless +

Two-way + NFC + EMV


eCommerce


• Always open for business• eCommerce is a 24 x 7 business. Merchants need the most reliable, highly redundant payment

processing partner in order to ensure that no order is ever lost due to system outage or error.

• Broader range of payment types online vs. POS• To maximize their market, merchants are expanding the payment mix to Alternative payments

including eCheck, PayPal™ and Google Checkout™.

• Expansion to International markets• Merchants are expanding into European, Asian and Latin American markets. Need support for

various currencies, various alternative payments while minimizing processing relationships.

• Merchants own the fraud liability • eCommerce merchants assume 100% of the liability for fraudulent transactions.

• Delivering fraud management tools including Card Verification Service (CVV/CID), Address Verification Service (AVS) and 3D Secure Services (Verified by Visa, MasterCard SecureCode) enables merchants to manage interchange rates and liability associated with chargebacks.

• Flexibility to process in online or batch environment• Depending on the merchant’s business model, batch or online authorization may offer the best

solution at the lowest cost.

eCommerce and Direct Marketing (Mail Order/Telephone Order) merchants have a unique set of payment processing needs and challenges

eCommerce


• Simple interactions between citizens or businesses and government - Check the status of paid or unpaid parking violations by vehicle registration number

- Complete application to secure a building permit

- Research higher education course offerings online

• More complex interactions including making a payment online

- Pay unpaid parking violation or fine online

- Pay building permit fee online

- Pay course registration fees online

• Interface with third party vendors- System interfaces with parking meter hardware and software vendors

- Issue and print the building permit online.

- Interface with third party tuition software vendor for tuition payments

E-government initiatives have moved beyond providing passive, informational web sites to developing the capability to support a variety of interactive, onlinetransactions

eCommerce


eCommerce

Growth forecast of U.S. Consumers Online Activity

Sources: eMarketer 2008-2009; PhoCusWright, 2007-2009; Glenbrook analysis; FDC analysis


Mobile Commerce


The next disruption in payments

The Mobile Commerce Revolution…

Payments 1.0Cards

60’s / early 80’s

Pre Plastic

Magnetic Stripe Card and POS

1981 / 1995

Payments 2.0

90’s to ‘00seCommerce

Chip & PIN, Contactless EMV

New ways to payNew ways to be paid

Ways to do more than pay

Payments 3.0

‘00s

Pay at the Pump

90’s ‘00sCards at QSR


Mobile Commerce

How will your customers access the internet?


Mobile CommerceIt’s been a question of when, not if…until now…

Share by Major PlayerSmartphone Adoption Curve

Javelin Research 2009-forward


Mobile Commerce - Smart Devices

Devices enabled with the latest integrated, cloud-based applications and the most advanced security capabilities

Mobile DevicesAccept credit and debit payments using your

smart phone or tablet

Mobile DevicesAccept credit and debit payments using your

smart phone or tablet

Smart DevicesSmart

Devices

Global TerminalsAccept virtually any type of payment, plus gift

and loyalty cards securely with EMV and TransArmor® solutions

Global TerminalsAccept virtually any type of payment, plus gift

and loyalty cards securely with EMV and TransArmor® solutions

Multi-function PeripheralsTake the PIN pad beyond debit acceptance to

enable current and future technologies like contactless, offers and mobile payments

Multi-function PeripheralsTake the PIN pad beyond debit acceptance to

enable current and future technologies like contactless, offers and mobile payments

Contactless TerminalsAllow your customers to check out with a

single tap of a mobile phone, card or fob

Contactless TerminalsAllow your customers to check out with a

single tap of a mobile phone, card or fob


Mobile CommerceIntroducing Google Wallet

Make your phone your wallet


A Revolutionary PartnershipGoogle, First Data, Citi, and MasterCard collaborated to bring the latest innovation in commerce to life…together, we’re launching Google Wallet to millions of tech savvy consumers and merchants

• Initial Network Brand• Terminal & Merchant Funding Support• Value Added Services

• Initial Consumer Credit Accounts• New Accounts/Apply Now• Consumer Marketing Funding

• Lead Merchant Acquirer• TSM/OTA Services (Citi & Google)• Merchants/Contactless Readers• Prepaid “Card” (by Money Network)• Merchant Marketing Funding• Welcome Kit Fulfillment

• Open Mobile wallet and offers platform• NFC Android Handset(s)• Google Terminal Specification• Marketing Funding

• NFC Android Handset Distribution• Consumer Marketing Funding


New Payment Options


Ecommerce and Mobile commerce require a comprehensive suite of paymentcapabilities including alternative payment types and advanced services designedspecifically for ecommerce merchants to help grow their business while providingthe payment options today’s customers expect and demand. These paymenttypes and advanced services may include:

New Payment Options

– PayPalTM – Multicurrency processing

– Bill Me Later® – Dynamic Currency Conversion

– Google CheckoutTM – Fraud Protection Tools

– Acculynk PaySecure – Hosted Recurring Payments

– eCheck/ACH – Robust Electronic Reporting Tools

– Gift or Loyalty Cards

– Level III processing

– Retail/Card Present processing

– Encryption and Tokenization Solutions


EMV


• Global interoperable standard for chip-based payment cards created by Europay, MasterCard and Visa - Now maintained by EMVCo, LLC

• EMV payment cards improve security over magnetic stripe technology through an embedded computer chip.

- Interacts with EMV-enabled POS terminal

- Validates the card is legitimate, protecting against counterfeit cards

- Cardholder verification authenticates the cardholder, reducing fraudulent transactions resulting from lost or stolen cards

- EMV standards support either contact (insert) or contactless (tap)

- Authentication can be either “chip & PIN” or “chip & signature”

- Supports issuer options to allow offline authorization with PIN validation

•

What Is EMV?


EMV• $8.6 billion – Estimated total cost of fraud per year in the United

States (0.4% of the $2.1 trillion card payment industry)

• 32% - Lost/Stolen, Counterfeit & Non-receipt fraud account for 32% of 2008 US fraud losses, representing approximately $2.9 billion

• 95% - EMV deployment in the US is estimated to eliminate 95% of lost/stolen fraud

• 90% - An estimated 90% of counterfeit card fraud could be eliminated with EMV deployment in the US

Source: Aite Group, “Card Fraud in the United States” – The Case for Encryption, January 13, 2010


EMV

Important dates to remember: • October 1, 2012 - Visa will expand its Technology Innovation Program (TIP) to

the U.S. TIP will eliminate the requirement for eligible merchants to annually validate their compliance with the PCI Data Security Standard for any year in which at least 75 % of the merchant’s Visa transactions originate from chip-enabled terminals. To qualify, terminals must be enabled to support both contact and contactless chip acceptance, including mobile contactless payments based on NFC technology. Contact chip-only or contactless-only terminals will not qualify for the U.S. program.

• April 1, 2013 - Visa will require U.S. acquirer processors and sub-processor service providers to be able to support merchant acceptance of chip transactions no later than April 1, 2013

• October 1, 2015 – Visa intends to institute a U.S. liability shift for domestic and cross-border counterfeit card-present point-of-sale (POS) transactions. Currently, POS counterfeit fraud is largely absorbed by card issuers. With the liability shift, if a contact chip card is presented to a merchant that has not adopted, at minimum, contact chip terminals, liability for counterfeit fraud may shift to the merchant.


Fraud Protection


Fraud Protection

• $139 Billion lost to Fraud in 20091

• For every $100 in fraudulent transactions, retailers incurred $310 in total losses1

• While EMV is a global standard that is proven to reduce card fraud, it isn’t the all-encompassing security remedy that the payments industry would like to have

• Additional layered safeguards are still needed—in particular for data security beyond the POS, and also for eCommerce and other card-not-present (CNP) situations

• Merchants are looking for solutions to lower their PCI compliance costs and responsibilities

1LexisNexis, 2nd Annual True Cost of Fraud Study


• 78% of breaches focused on stealing payment card data in 20101

• 900+ breaches occurred between 2004 and 2009 - with another 760 happening in 2010 alone

• In 2010, the average cost of coping with a data breach rose to $214 per compromised record2

• Merchants have spent more than $1B on PCI-DSS compliance3

1 Verizon, 2011 Data Breach Investigations Report, Verizon Business RISK Team in cooperation with the U.S. Secret Service, 2010 2 Ponemon Institute, LLC, 2010 Annual Study: U.S. Cost of a Data Breach, March 20115 Letter to Bob Russo of the PCI Security Standards Council from the National Retail Federation, et. al., June 9, 2009.

PCI Compliance requires significant – and on-going – effort and is no guarantee of security against a breach

Fraud ProtectionIndustry Trends


Fraud Protection -TransArmorMove burden of protecting payment card data to First Data using a multi-level defense

The Solution

• Combines encryption and tokenization to protect data at every processing stage

• Complimentary to Card Authentication technologies

• Removes payment card information from merchant by replacing Permanent Account Number (PAN) with a ‘Token’

• Maintains all the merchant’s business benefits of storing the payment card data without the associated risk

• Warrants Token against compromise and fraudulent use

The Opportunity

•Reduce number of places where card data exists

• Point-of Sale systems

• CRM systems

• MIS databases / reports

•Remove burden of protecting payment card data from merchant

•Reduce Card Data Environment and PCI compliance efforts


What is the TransArmor Solution?

• TransArmor is a combination of encryption and tokenization technologies

• Secures the transaction with encryption

• Removes card data from the merchant environment with tokenization

• Works as a part of the payment transaction

• In most cases, does not require merchant to buy new systems


Summary


Join the Universal Commerce RevolutionPlease stop by the First Data table to receive more information on solutions to meet all of your Universal Commerce needs

All trademarks, service marks and trade names used in this material are the property of their respective owner.


Thank you for your time and attention today!

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© Copyright 2011 | First Data Corporation Trends in Card Processing North Carolina Ecommerce Conference Presenter: Susan Peek, First Data October 30, 2012