The Candy Store Syndrome of Mobile Wallets & P2P

Kevin ChristensenSVP, SHAZAM

Current Landscape & the Anatomy of a Mobile Wallet

Business Case

Wallet Implementations o Open Loop or Closed Loop o Open Technology or Closed Technology

Wallets in the marketplace

Acceptance, trends, future considerations

Agenda

Current Landscape & Anatomy of a Mobile Wallet

April: PayPal acquires Paydiant

July: Apple Pay® debuts in the UK, accepted at 250,000 locations

Sept: Google’s Android Pay®

Oct: Apple announces iOS 9, Passbook transitions to Wallet, iPhone 6s

Financial Institution Entrants

Event tickets, Loyalty cards, membership cards, store/gift cards

Mobile Wallets & P2P in 2015

More Financial Institution Entrants – Focused on Data

May - MCX Dies

June – Card Brands Digital Enablement

July – MasterCard Buys VocaLink

July – Visa / PayPal Partnership

August – Early Warning (ClearXchange) Adds MC & Visa. App (Zelle) in Development

Oct – CFPB Issues Final Rule For Prepaid Cards and expands definition of prepaid to include P2P

But What About Faster Payments

Mobile Wallets & P2P in 2016

Real Time / Faster

Comparison To Other Countries

International Payment Models

Key Attributes:

Credit or debit cards Boarding passes Event tickets Loyalty cards Membership cards Coupons Store/gift cards Control More than just Payment!!

Mobile Wallet

Business Case

Third Party

Acquiring (Merchant) Perspective o Steering and Least Cost Routing

o Security and Fraud Reduction

o Loyalty, Data, and CRM

Issuing Perspectiveo Non-Traditional Revenue Opportunity

o Brand Protection

o Data Driven (Advertising, Promotions)

o New Payment Types (Same Day ACH)

Why Wallet?

Wallet Implementations1. Loop (Open or Closed)2. Technology (Open or Closed)

Open Loop (Card/Payment Based) vs. Closed Loop (Merchant)

Third Party Solutions

o Apple Pay, Android Pay, Samsung Pay, Paypal

Financial Institutions

o Chase Pay, Capital One, Wells Fargo, SHAZAM Bolt$ (FI label)

Merchant and Embedded Solutions

o Starbucks, Wal-Mart, Amazon, Dunkin Donuts, Subway, Uber

Other

o Coin, eWallet, Gyft, Key Ring, LevelUp

Open Loop vs. Closed Loop

THE ONE THAT ENROLLS…….IS THE ONE THAT CONTROLS (R. Crone)

Technology Models

Hardware Based vs. Cloud Based

o Secure Element vs. Host Card Emulation

o Closed vs. Open

o Proprietary Implementation vs. Standards Based Implementation

Secure Element (SE) vs. Host Card Emulation (HCE) Secure Element (SE)

Existing Rails With Evolution

Reliance on core, foundational, payment backbone

Evolution of consumer payment “form factors”o Magnetic stripeo Contact smartcardo Mobile NFC/MST/QR Code

Convergence of evolutionary technologies —magstripe, contactless, NFC, encryption and tokenization — to enroll and complete payment

Security

Layered approach to secure payments

Success dependent on: o Consumer confidence and level of privacyo Merchant, acquirer, payment network and

issuer supporto Strength of payment security

Mobile Wallet Authentication

TouchID Fingerprint scan Customer device Retina scan One-time passcode Geo-location Selfie

Cardholder Verification Methods

EMV CVMso Offline plaintext PINo Offline enciphered PINo Signatureo Online PINo No cardholder verification method

PIN/signature in-store 3D-secure in-app

Introducing CDCVM

Consumer device cardholder verification method (CDCVM)o Supported by Apple Pay contactlesso TouchID or device passcode qualifieso In-app originating from iPhone 6 or later,

AppleWatch, iPad Pro, iPad Air 2, iPad mini 3 or later

EMVCo brand supporto Visa CPS 2.1 and latero MC reader specification 3.0 and later (ODCVM)

Introducing CDCVM

EMVCo brand support (continued)o Discover contactless D-PAS terminal application

specification 1.0 and latero AMEX ExpressPay 3.0 and later

Debit support will need to reinstate flexibility and choice for merchant routing options of CDCVM verified transactions

Enrollment Process

When cardholder enrolls a card in Apple Pay, the token service creates and loads a token card number into the iPhone’s secure element

Electronic vs. Customer Service Verification (ID&V)

o Issuer or processor (e.g. SHAZAM) verifies cardholder-provided information

o In some cases, issuer or processor will contact the cardholder directly to help issuers minimize fraudulent enrollment

Cardholder provides credentials such as:

o “Real” PAN

o Expiration date

o CVV2/CVC2

o ZIP code

Enrollment

Main Street Wallet Support

NFCTerminal Acquirer Issuer

2 3 6

789

Token Service Provider

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Wallets in the Marketplace

Open Loop

Apple Pay

Apple Pay announcement: Sept. 9, 2014 Uses near field communication (NFC) technology Wave your iPhone 6/7 over a contactless reader

with your finger on the touch ID Requires initial enrollment into Apple “Wallet” Uses tokenization for added payment security Supports Visa, MasterCard, American Express, and

Discover

Apple Pay

Apple’s brand loyalty and strong reputation adds legitimacy to the mobile wallet

Apple Pay reinforces support for NFC and EMV contactless in the marketplace

As merchants upgrade equipment for EMV, they will likely include NFC compatibility, too

Apple Pay’s touch ID & tokenization security

Usage – 19%-15%, Curiosity 22%-20%

Awareness – 88% - 84%

Apple Pay

Visa / MasterCard

o Residency & Token management services

o Effective January 1, 2016

Apple Pay Fees

o Monthly participation

o Apple Pay per transaction fee

o Call center for each token related call if issuer.

Participation Fees

Android Pay

Enroll existing “card” credentials into the wallet by entering or taking a photo

Uses Host Card Emulation (HCE) instead of a physicalsecure element, with tokenized credentials stored at a central server

4-digit code to access wallet

Uses one-time card number to make payment

Merchant never sees “real” card number

Android Pay

Samsung Pay (NFC & MST)

Samsung acquisition of LoopPay provides Magnetic Secure Transmission (MST) in addition to NFC

Broader coverage of terminal acceptance due to MST supporting traditional non-NFC terminals, with magstripe-only support

S6 and S6 Edge devices

Tokenization and biometrics for added payment security

Samsung Pay (NFC & MST)

PayPal (Paydiant)

QR Code based payments “Check in” at the store Pay with One Touch Cashier involvement In-app purchases —

checkout with PayPal

PayPal (Vodafone)

NFC based Later in 2016

Chase Pay

Open Loop with Closed Loop Advantage o Chase as Issuer & Merchant Processoro Lower Transaction Fees

Available on Most Devices QR Code “Problem” Use in Starbucks App, Chase Merchants, & Online

Capital One / Wells Fargo / US Bank

First U.S. Banks to release tap and pay functionality Builds on consumer trust of banks No competition among other cards Data!!!

SHAZAM Wallet Support

Apple Pay, Samsung Pay, Android Pay Support Interface with Your Mobile Banking Application Card Control Step-up authentication

o IVR/Customer serviceo One-Time passcode

In-app purchaseso CNP, PINless support

HCE Contactless support for SHAZAM participants

SHAZAM Wallet Support

Mobile P2P supporto Funds Transfer Debit/Credit transaction supporto BOLT$ P2P SHAZAM to SHAZAM/non-SHAZAM

customerso Integration services/APIs to send money (coming

soon)

Continue investment in security, authentication and tokenization

Closed Loop

Mobile accounts for 20 percent of transactions!!

Closed Loop (For Now?)

Uses Existing POS System

Order and Pay Ahead

o Avoid the Lines!!!!!

Rewards

Starbucks

MCX ?, Paydiant Wallet

Merchant Customer Exchange (MCX):the merchant conglomeration with its own mobile wallet — CurrentC

QR Code/Cloud wallet technology

Coupons and offers

Large merchant base

Slow adoption

Requires merchant and mobile software

Chase Pay?

MCX, Paydiant Wallet

Walmart Pay

iOS, Android support

Walmart Pay

Open: visit any register, open the Walmart app and choose Walmart Pay. Activate the camera

Scan: at checkout, scan the code displayed at the register

Done: associate scans and bags itemso An e-receipt will be sent to the app and can be viewed

at any time

Kohl’s

Scan: at checkout, scan the code displayed at the register

Incorporates Rewards & Coupons

Others

Microsoft Windows 10 Wallet

Credit/debit cards Boarding passes Event tickets Loyalty cards Membership cards Coupons Windows Store and Xbox

gift cards

Others

Coin o Physical, electronic card and connects with your phone via Bluetootho The card has both a magnetic stripe and an NFC chip, which means that

after you load your credit and debit cards on it, you can use it on most terminals

eWalleto Store and access all of your sensitive payment and personal informationo No ability to pay at retail locations using phone o Secure all information with 256-bit AES encryption, and grant you instant

access to them using a single password or touch ID

Gyfto Keep track of and spend them gift cards . It works on Apple and Android

phones as well as the Apple Watch

Others

Key Ring o Shoppers who want to maximize their loyalty perks without having to carry

around a stack of cards in their wallets. You can use it to store your membership and loyalty cards, create and share shopping lists, and find deals at your favorite stores.

o 12 million users. The electronic wallet can also hold your gift cardso No ability to hold debit or credit cards

LevelUpo Loyalty-based digital mobile wallet app o Provides rewards for shopping with participating businesses o Receive starting credit for using the app to payo Provided digital receipts and lets you track purchases and rewards

Mainstream Wallet Comparison

Mobile Wallet Acceptance

Acceptance Challenges

Acceptance trumps all Merchants have most successful apps POS technology and eCommerce changes What would move the needle

o Tender Reciprocity - FI cards in merchant apps and vice versa

o Lower Processing costs

o Sharing data

Acceptance Challenge

Issuer enrollment to multiple wallet programs Issuer card provisioning

on multiple wallets Agreement with each

wallet provider Agreement with each

token service provider

Acceptance Technologies

Card presento Magnetic stripe

o EMV contact/contactlesso NFC — SE & HCE

o MSTo QR Code

o Bluetooth Low Energy (BLE), iBeacon

Acceptance Technologies

Card not present

o Mail/telephone order

o eCommerceo Person-to-person payments (P2P)

o In-app purchases

Square Reader (Contact/Contactless)

Considerations for Issuing Financial Institutions

Thank You!

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The Internet of Things (IoT)

What is the “Internet of Things?”

Intelligent connectivity of physical devices driving massive gains in efficiency, business growth and quality of life Connected people, data, devices, processes, etc. Moving toward Payments by “Things”

oWearableso TVsoDishwashers

oRefrigerators oCars

Payments by Wearables

“Nod to pay” “Pay with Wallaby” Internet “glass” banking

Smart Refrigerators

IoT is Here…and Growing

Rapid Adoption Rate of Digital Infrastructure:

5X Faster Than Electricity and Telephony

50 Billion

“Smart” Objects

7.26.8 7.6

25

12.5

InflectionPoint

TIMELINE

50

2010 2015 2020

0

40

30

20

10

BILL

ION

S O

F DE

VICE

S

World Population

IoT Growth

The Internet of Things – The Connectivist based on Cisco data

IoT Top Security Challenges

The Gartner Hype Cycle

Gartner Hype Cycle

Wearables

Thank You!

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