Fraud: What Happens When EMV Surfaces?

Tracey BlackGFH Group Inc.

Cardware, June 2011

1GFH GROUP INC.

2

Worldwide EMV Deployment and Adoption: March 2011

3Source: www.emvco.org

• EMV is becoming the payments standard around the globe

GFH GROUP INC.

SEPA EMV Compliance, Deployment : 2006-2010

4

Perc

ent o

f Tot

al

Source: www.ecb.int/paym/sepa/about/indicators/html/index.en.html - European Central Bank SEPA Indicators EMV Readiness

• SEPA compliance requires EMV migration by December 31, 2010

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United Kingdom

5

Annual Fraud Losses on UK-Issued Cards: 1999-2009

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

100

200

300

400

500

600

700

Lost/Stolen

Counterfeit

Mail Non-Receipt

Card ID Theft

CNP

Annu

al P

lasti

c Ca

rd F

raud

Los

ses

UK

(Pou

nds

MM

)

317.0

411.5 420.4

188.4

504.8

439.4

535.2

424.6

609.9

440.3427.0

Source: www.financialfraudaction.org.uk Fraud – The Facts 20106Liability Shift – January 1, 2005GFH GROUP INC.

Fraud Addressable by Chip on UK-Issued Cards: 1999-2009 F

raud

Los

ses

UK

(Pou

nds

MM

)

61%

31%

-13%9%

-24%20%

-6%

12%

-56%

-10%

Source: www.financialfraudaction.org.uk Fraud – The Facts 20107

Percent of Total Fraud

66% 67% 60% 53% 48% 42% 39% 37% 37% 22%69%

“The introduction of chip and PIN means that lost and stolen card fraud is now at its lowest level since the collation of industry losses began in 1991.”

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UK Card Losses by Fraud Type 1999 vs. 2009Fraud Type 1999

% of 188.4MM

2009% of

440.3MM

Contributing Factors

Lost/Stolen 42% 11% +Chip and PIN+Improved Issuer fraud detection software+Industry Hot Card File-Consumers carry PIN in wallet

Counterfeit 27% 18% +Chip and PIN+iCVV+Increasing penetration of Chip and PIN outside of the UK-ABM skimming and card used overseas

Card Not Present 16% 60% +First decrease ever in 2009+Increasing use of scheme and proprietary fraud detection tools by retailer, banks, consumers

Mail Non-Receipt 8% 2% +PINs no longer sent

Card ID Theft 7% 9% +Economic impacts+Increased cardholder awareness of card security

8Source: www.financialfraudaction.org.uk Fraud – The Facts 2010

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Fraud by Location on UK-Issued Cards: 1999-2009 F

raud

Los

ses

UK

(Pou

nds

MM

)

Source: www.financialfraudaction.org.uk Fraud – The Facts 20109

317.0

411.5 420.4

188.4

504.8

439.4

535.2

424.6

609.9

440.3427.0

Fraud Abroad fell by almost 50% in 2009, partly due to the banks’ fraud detection systems. The countries where fraud is occurring on UK-issued cards have changed markedly over the past five years, since other countries began using chip and PIN.

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10UK –issued cards or card details used fraudulently overseasSource: www.financialfraudaction.org.uk Fraud – The Facts 2010

Top 5 Countries for UK Fraud Abroad: 2006-2009The proportion of total fraud abroad losses in the USA increased from 14% in 2008 to 17% in 2009. Fraud on UK-issued cards in Australia and Canada also decreased significantly – by 53% and 46% respectively – due to these countries introducing chip and PIN.

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11Source: www.financialfraudaction.org.uk Fraud – The Facts 2010

Industry Measures to Prevent Payment Card FraudUK

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• DCPCU (Dedicated Cheque and Plastic Crime Unit)– Special police unit sponsored by the banking industry

• FISS (Fraud Intelligence Sharing System)– Established in 2008, allows the banking industry to share information on

confirmed, attempted and suspected fraud using a centralized database• NFIB (National Fraud Intelligence Bureau)

– Payments industry and City of London police work together to reduce fraud leveraging data from FISS

• IHCF (Industry Hot Card File)– Database containing information on more than 6MM cards; 60,000 retailers

subscribe to this electronic file– Participating retailers check all transactions against the file. Increasingly used

by CNP merchants– Prevented more than 900,000 cases of attempted fraud in 2008 and 2009

• CIFAS (The UK’s Fraud Prevention Service)– More than 265 members across multiple industries (banking, credit cards,

asset finance, retail, credit, mail order, insurance, telecommunications, factoring, share dealing) share information about identified frauds 12

UK Industry Measures to Prevent Payment Card Fraud cont’d

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France

13

14http://ec.europa.eu/internal_market/payments/docs/fraud/taiex_seminar/sarazin.pdfInitiatives of the ECB Card Fraud Prevention Task Force, March 8th 2006

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Payment Card Fraud in France 2002-2009

15

Annu

al P

aym

ent C

ard

Frau

d Lo

sses

(Eur

os M

M)

Source: Observatory for Payment Card Security 2003-2009 Reports

Liability Shift – January 1, 2005GFH GROUP INC.

Annual Payment Card Fraud Losses, France: 2003-2010An

nual

Pay

men

t Car

d Fr

aud

Loss

es F

ranc

e (E

uros

MM

)

16Source: Observatory for Payment Card Security 2003-2009 Reports; GFH Analysis

Liability Shift – January 1, 2005

• Although overall fraud is increasing, fraud addressable by chip is decreasing• Fraud migration to CNP and increases in foreign fraud are very apparent

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Australia

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EMV Migration Milestones MasterCard - Australia

MasterCard• October 2011: All new and reissued MasterCard cards issued

by Australian banks must be EMV capable, with all Point of Sale terminals EMV compliant by April 2012*

• April 2013: All cards and payment terminals will need to be EMV capable

• April 2013: Online merchants must provide either MasterCard SecureCode Authentication or the equivalent for transactions over $200

• At the end of 2015, all ATMs in Australia must be EMV enabled

18Source: www.mastercard.com*This means that from this date the non-EMV party will be liable for any resulting fraud

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EMV Migration Milestones MasterCard - Australia

Visa• All Visa cards to be issued on chip by April 1, 2013• Signature no longer accepted from April 1, 2013• All merchant acceptance terminals must be chip-activated by

April 1, 2012• All new ATMS deployed after January1, 2011 must be chip-

capable• All Visa cards must be enrolled in Verified by Visa by April

2012• All merchants who take online transactions must check the

CVV2 by January1, 2011

19Source: www.visa.com

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Payment Fraud Statistics Australia: 2006 - 2009

20Source: Australian Payments Clearing Association Ltd. www.apca.com.au

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• The latest industry data shows that counterfeit fraud in Australia dropped by 45% between June 2009 and June 2010

Canada

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Potential Counterfeit Losses in Canada: 2007-2012

$0

$200

$400

$600

$800

$1,000

$1,200

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

22

Loss

es (N

omin

al C

$MM

)

Source: Canadian Banker’s Association; Interac Association; GFH Analysis

• The fraud forecast in Canada from 2006 was gloomy

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Potential and Actual Counterfeit Losses in Canada: 2007-2010

$0

$100

$200

$300

$400

$500

$600

$700

2003 2004 2005 2006 2007F 2008F 2008 2009F 2009 2010F 2010

23

Loss

es (N

omin

al C

$MM

)

Source: Canadian Banker’s Association; Interac Association; GFH Analysis

• Although the liability shift is not yet reflected in these numbers, Canada has already seen declines in fraud addressable by chip and PIN

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Fraud Addressable by Chip in Canada: 2003 - 2010

2003 2004 2005 2006 2007E 2008 2009 20100

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000

Interac Debit

Counterfeit

Stolen

Lost

24Source: Canadian Banker’s Association; Interac Association; GFH Analysis

Loss

es (N

omin

al C

$MM

)

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Credit Card Counterfeit Fraud in Canada: 2008-2010

25Source: Canadian Banker’s Association; GFH Analysis

• CBA is now tracking cross-border counterfeit fraud

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Loss

es (N

omin

al C

$MM

)

Conclusions

• EMV is truly becoming the global payment standard• The positive impact of EMV on reducing counterfeit and

lost/stolen fraud has been consistently demonstrated• Later adopters of EMV are less likely to see migration to CNP

fraud due to the introduction and adoption of enhanced security measures to address this type of fraud

• Robust fraud tracking is an indisputable asset that supports more accurate business decision making– The UK is a clear leader in fraud reporting, and in industry

coordination to address payment card fraud• Early EMV adopters are becoming less tolerant of foreign

fraud and implementing stronger measures to address foreign fraud, despite possible increased impact to cardholders

26GFH GROUP INC.

Questions?

Thank You

27GFH GROUP INC.