Assembly Banking and Finance Committee

March 16, 2015

Innovation and Transformation in Payments Technology

Retailer’s Bank

The Payment Ecosystem

Customer’s Bank

Card Network

Retailer Customer

• Provide processing technology and operational systems

• Set standards and rules of the road

• Build and manage global brand to promote usage

• Develop new marketplace opportunities and promote acceptance

Payment System Benefits

Role of Networks

Retailer Benefits

• Reliability

• Security

• Efficiency

• Guaranteed Payment

• Increased Sale Potential

• More Business Channels

• Access to More Customers

Customer Benefits

• Convenience

• Security

• Fraud Protection

• Global Acceptance

• Reliability

• Budgeting

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EMV, Tokenization, and Encryption

are technologies designed to reduce

risk from payment data being stolen

and devalue the data if stolen80+% of fraud in US

US Payment Card Fraud

Data theft causes over 80% of payment card fraud in the US

What is EMV Chip Card Technology?

• EMV chip or “smart” cards are payment cards that have an embedded microchip

• Microchip generates a dynamic one-time use code (a cryptogram)

• Microchip contains the same data as a magnetic stripe, with the addition of the dynamic one-time use code

• Prevents the data being re-used to create counterfeit cards

How does EMV chip technology work?

Because the cryptogram changes with every transaction, even if the card data is stolen, the information can’t be used to create counterfeit cards because the cryptogram would have already “expired”

Card number Name Expiry Service

code

CVV

(STATIC)

4 0 0 0 1 2 3 4 5 6 7^ J OHNDOE^ 0 1 2 0 1 2^ 1 0 1^ 2 1 7^�

Card number Name Expiry Service

code

iCVV

4 0 0 0 1 2 3 4 5 6 7 ^ J OHNDOE^ 0 1 2 0 1 2^ 2 0 1 ^ 3 8 6 ^

Cryptogram

(DYNAMIC)

1 5 1 8 7 3 2 83 1 0 2 8 2 9 18 2 1 8 4 3 8 49 1 0 6 3 1 4 28 5 6 3 8 6 0 91 5 7 4 3 0 1 7 ^�2 4 8 0 1 8 0 31 5 1 8 7 3 2 83 1 0 2 8 2 9 18 2 1 8 4 3 8 49 1 0 6 3 1 4 28 5 6 3 8 6 0 91 5 7 4 3 0 1 72 4 8 0 1 8 0 34 3 1 2 3 6 8 93 6 7 9 4 5 1 03 4 9 1 5 2 3 85 8 3 6 8 1 2 7

Card number Name Expiry Service

code

iCVV

4 0 0 0 1 2 3 4 5 6 7 ^ J OHNDOE^ 0 1 2 0 1 2^ 2 0 1 ^ 3 8 6 ^

Cryptogram

(DYNAMIC)

1 5 1 8 7 3 2 83 1 0 2 8 2 9 18 2 1 8 4 3 8 49 1 0 6 3 1 4 28 5 6 3 8 6 0 91 5 7 4 3 0 1 7 ^�2 4 8 0 1 8 0 31 5 1 8 7 3 2 83 1 0 2 8 2 9 18 2 1 8 4 3 8 49 1 0 6 3 1 4 28 5 6 3 8 6 0 91 5 7 4 3 0 1 72 4 8 0 1 8 0 34 3 1 2 3 6 8 93 6 7 9 4 5 1 03 4 9 1 5 2 3 87 3 2 5 6 0 0 3

Domestic Counterfeit Fraud-- % Change from Q3 2008 to Q3 2013

Impact of EMV on Counterfeit Fraud

Brazil Mexico Hong Kong Canada

Counterfeit -87% -77% -69% -83%

2011 2012 2013 2014 2015 2016 2017

APRIL 2013

Acquirers and sub-

processor mandates to

fully process EMV

transactions

OCTOBER 2015

Liability shifts take

effect for face-to-

face (excluding

fuel)

OCTOBER 2016/2017

Liability shifts take

effect for ATMs OCTOBER 2017

Liability shifts

take effect for

automated fuel

dispensers

Roadmaps Announced

US Roadmaps to EMV Chip Technology

Source: EMVCo, Q4 2013, data combined from Visa, MA, Amex and JCB

Global EMV Adoption Rates

EMV Global Migration Progress

Current State

37Mterminals

2.4Bcards

Nine of the country’s largest payment card

issuers estimate that they will have issued

more than 575 million chip-enabled payment cards

by the end of 20151

Source: 1Payment Security Taskforce press release, August 13, 2014. 2Payment Security Taskforce press release, October 17, 2014

Forecast of participating acquirers estimated that at

least 47 percent of U.S. merchant terminals will be

enabled for EMV chip technology by the end of 20152

Progress on U.S. EMV Chip Migration

Payment Security Taskforce projections for U.S. EMV chip migration

Tokenization minimizes data risks by digitizing a single card

number into tokens on each separate device. The process of

digitization is what makes transactions secure.

How Tokenization Works

Merchant/

Cardholder

How Tokenization Works

Acquirer Network Issuer

Token

Token

Token

Token

PAN

PAN

Network Solutions

(3D Secure, Fraud Scoring, etc.)Improves Payment Authentication

PCI

Secures Data at the Point of Transaction

EMV Chip

Authenticates the Card

Tokenization

Minimizes Use of PAN Authenticates Mobile/CNP

EMV

****

Encryption

Tokenization

Encryption

Secures Data During Transmission****

Multi-Layered Protection

“Chip cards and tokenization are among the most promising tools for protecting retailers and

consumers from the theft and abuse of payment card data.” Attorney General Kamala Harris, California

Data Breach Report, October 2014.