Memorial University

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An Update on Chip

September 26, 2007

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What is a Chip Card?

• A microchip embedded in a debit or credit card

• Chip cards can store and process data securely

• The data on the chip is extremely difficult to copy or change providing increased protection against counterfeit and lost and stolen card fraud

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Defines how debit and credit payment applications work – Some mandatory requirements and a wide range of optional features and characteristics

Basis for chip migration by payment schemes in markets around the world

The established standard for chip cards and terminals was developed by Europay, MasterCard and Visa to ensure interoperability

What is EMV?

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What is Different About Chip?

• Card inserted into chip-reading terminals rather than swiped

• Terminal checks to see which payment applications are supported

• Entering a PIN replaces the need for a signature• Chip validates the cardholder’s identity via PIN

Memorial University

of Newfoundla

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Why Chip and Why Now?

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FraudIncreasing

The Debit Card Fraud Problem

94.6

$60

$44

$0$10$20$30$40$50$60$70$80$90

$100

2003 2004 2006

Losses ($ Millions)

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Fraud in Canada (All Credit Cards)

0

20

40

60

80

100

120

140

19992000

20012002

20032004

Source – CBA Payment Card Partners Credit Card Statistics (VISA CANADA ; MASTERCARD CANADA ; AMEX CANADA)

Credit Card Losses(CDN$ Millions)

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Global Migration to Chip

EMV Smart Cards

(MasterCard & Visa)

EMV Terminals

(MasterCard & Visa)

December 2005 (projected) 553M 9.7M

EU

LAC

AP

CEMEA

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Protect integrity of payment card system

• Increase customer confidence

• Enhanced security - data on the chip is extremely difficult to copy or change

• Counterfeit and skimming growing

• Fraud Management costs

• Pre-emptive strike against fraud migration to Canada societal impact

Key Chip Drivers in Canada

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Key Chip Drivers in Canada

Innovation

• Keep pace with global movement in card payment technology

• Chip provides a technology platform for new product and service offerings from Issuers, Acquirers and merchants

Efficiency

• Consistent payment experience for credit and debit

• Reduce chargebacks

• Increase POS checkout speed – PIN faster than signature

• A single chip card can offer multiple applications, such as debit, credit, other payments and non-payment services

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Current Landscape

• VISA Canada was the first to announce the move from magnetic stripe and signature based authentication to chip & PIN

• Effective October 1st, 2010, Visa Canada has mandated that liability for Visa Card face-to-face fraud default to the party that is not chip compliant

– A chip card is presented at a retail location and the merchant’s POS is not chip compliant. Should fraud occur, the merchant, not the issuer will be deemed responsible for the fraud due to non-compliance

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Current Landscape

• Interac Debit has mandated Chip in phases beginning in 2010 with completion by 2015

• Interac will not allow for fallback to mag stripe with chip

• MasterCard has 12 issuers and 5 acquirers including Moneris committed to introducing EMV chip cards to the marketplaceby 2010

• AMEX has made no formal commitments to chip at this time

• New chip cards will operate on the EMV international standard with PIN authentication

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Interac Migration Update

Interac has committed to the following timeline for Chip migration:

Segment 31-Dec-10 31-Dec-12 31-Dec-15

Deposit Taking ABMs 90% 100% 100%

Other ABMs 50% 100% 100%

POS Devices excluding AFDs 35% 60% 100%

AFD Devices 0% 25% 100%

Debit Cards with PINs 65% 100% 100%

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Interac Migration Update

• Interac has implemented financial sanctions for those that miss chip migration targets

• Sanctions will be levied annually on a per card and per device basis until targets are achieved

SegmentMiss Target

1st Time

Miss Target

2nd Time

ABMs $100 +$400

POS Devices $10 +$50

Debit Cards with PINs $0.10 +$0.40

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Multilateral Approach

• VISA, MasterCard, Interac and AMEX are working collaboratively to ensure inter-operability and to minimize rollout impacts for issuers, acquirers, cardholders and merchants

• Each card scheme has their own policies, rules and regulations as well as migration timelines

• Associations are committed to a multilateral approach and have established committees to work towards the following common objectives:

– Ensure Chip readiness

– Reducing impediments for Members and participants

– Communications & stakeholder relations

– Trial in the fall of 2007

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Multilateral approach

• Each scheme is strongly committed to:

– Supporting ABM and POS acquirers’ ability to roll out infrastructure efficiently and in accordance with their business objectives

– Ensuring domestic and international interoperability

– Harmonizing technical policies to achieve efficiencieswherever possible

• Inter-scheme coordination is needed to:

– Reduce impediments to acceptance of chip during stagesof implementation

– Ensure technical interoperability across platforms and brands

– Facilitate aspects of launch/trial for those who wish to participate

– Provide a multi-stakeholder forum where common issues can be raised and addressed

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Moneris and the Associations

• The four payment schemes have put in place a structure to provide this needed coordination:

– Centralized facilitation and project management provided by the schemes and contracted resources

– Issuer/Acquirer input from both debit and credit perspectives

– Working Groups to resolve issues as they arise

• Scope includes:

– Addressing common technical and policy issues as they arise

– Aligning testing and certification requirements/procedures to the extent practicable

– Facilitating 2007 chip trial

– Providing effective stakeholder engagement

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Moneris and the Associations

• Moneris has senior level involvement in all of these working groups to ensure that acquirer and merchant needs are addressed

• As an example to the work that is being done, all associations have agreed to work in an off-line PIN environment at the POS, which is a change in policy for Interac who today conduct on-line PIN

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Kitchener Waterloo Update

• All card schemes are working together to facilitate the start of a chip trial in the fall of 2007

• Market trial to take place in Kitchener Waterloo

• Associations pilot objectives are as follows:1. Verify the shared infrastructure

– Confirm inter-operability of technology

2. Verify effectiveness of communications messages – Ensure merchants and consumer messages are clear

3. Assess acceptance and adoption by cardholders and merchants– Highlight training needs

4. Develop and share ‘best practices’ learned

5. Measure and determine the impact of Credit & Debit fraud up to and through the launch

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Kitchener Waterloo Update

• Moneris is committed to participating in Kitchener and Waterloo and is already rolling out VISA capable devices in the area

• Moneris already has a VISA/MasterCard/Interac integration specification ready for merchants who wish to participate in Kitchener-Waterloo

• Key benefits to merchants who participate will be as follows:

– Understand infrastructure requirements

– Store staff training requirements

– Consumer impacts

– Cost implications:

• Will provide cost swag for implementation

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Moneris Update

• In June 2005, Moneris was officially certified by VISA for EMV PIN based credit card transaction

• Moneris was the first acquirer capable of conducting a full data VISA EMV PIN based transaction

• All new Moneris Devices are being certified for EMV standards and will be inter-operable with MasterCard and Interac standards

• Moneris has developed EMV-PIN based technology on IP Private WAN, IP Public and 3101 communication protocols

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Moneris Update

• Currently Moneris has no plans to develop EMV on 3201 communication protocol, believing that 3201 technology is being superseded by IP and that this change in payment technology provides an opportunity to our merchants to upgrade and gain the benefits of the cost reductions associated with IP technology

• Moneris is currently developing to Interac and MasterCard specifications for the purpose of certifying Moneris terminalsand Base 24 host systems

• Moneris is planning to certify and launch both Interac and MasterCard solutions at the same time targeted for Q3 2007