EMV Defined. Near Field Communications (NFC) Card brand mandates and incentives for EMV Allegiance s EMV plans

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2 EMV Defined Near Field Communications (NFC) Card brand mandates and incentives for EMV Allegiance s EMV plans 2 2

3 EMV Defined

4 4 EMVCo s primary purpose since 1994 is to define a global standard for credit and debit payment cards based on chip card technology. Goal is to ensure that standards for chip card-based payments are globally interoperable Data is more secure on a chip-embedded card that utilizes dynamic authentication, rather than on a static mag-stripe card. Unlike a mag-stripe card that can be copied ( skimmed or cloned ), chip technology combats counterfeiting by assigning a dynamic value for each transaction. Four main functions: Card authentication to protect against counterfeit cards Cardholder verification to protect against lost/stolen cards Terminal authentication to prevent against Trojan Horse hacks Transaction authorization and authentication using issuer-defined rules

5 5 Authentication and Authorization Online requires the transaction to be sent online for the issuer to authenticate the card and authorize the transaction just like mag-stripe transactions Offline is done between the chip card and terminal (there are various methods defined by EMVCo) Cardholder Verification Methods (CVMs): None (usually used for low value transactions) Offline PIN (entered and stored PIN are compared offline) Online PIN (PIN is validated online like PIN debit) Signature Verification (requires physical signature comparison) Visa and MasterCard mandate global interoperability, meaning POS solutions must be able to support all card and cardholder authentication Mexican chip card will prompt for signature Canadian chip card will prompt for PIN

6 The U.S. is been in last place for EMV adoption.. and the fraudsters know it! 84.4% of cards 94.4% of terminals 14.5% of cards 68.1% of terminals 20.6% of cards 75.9% of terminals 28.2% of cards 51.4% of terminals 41.1% of cards 76.7% of terminals VeriFone Systems, Inc. 6

7 Fraud on debit and credit cards fell by more than a quarter in 2009 Counterfeit card fraud skimming and cloning fell by over half Fraud on lost and stolen cards is at its lowest level in 10 years Source: The UK Card Association 7 7

8 A smart (chip) card is a device that includes a secure, embedded integrated circuit chip (ICC) The ICC may include a microprocessor and memory or just a memory chip Has the ability to read and write information to the chip The microprocessor performs functions that validate, store, and encrypt data These functions are used to perform financial and other types of transactions The chip may be embedded in cards, key fobs, stickers, mobile phones, etc. How the chip functions is determined by the EMV and NFC standards

9 9 There are two primary types of smart (chip) cards : Contact Chip is embedded in a card A contact card must be inserted into a smart card reader When the card is inserted, the contact points on the chip make contact with the card reader Contactless The chip may be embedded in cards, key fobs, stickers, mobile phones, etc. A contactless chip requires only close proximity to a reader less than 4 inches Both the chip and the reader have an antenna and they use an RF (radio frequency) signal to communicate

10 10 NFC (Near Field Communications) is a radio-based interaction protocol compatible with existing contactless payment standards It uses the same radio frequency as contactless chip cards, but is a more interactive and multi-use technology NFC chips can be embedded in mobile phones and allow the phones to act as either a card or a reader

11 NFC-enabled mobile phones will driving the acceptance of NFC; however, there are many other players required to push this technology forward Interest in NFC soared in 2011 as Google introduced Google Wallet Additionally, AT&T, Verizon Wireless, and T-Mobile formed a joint venture called Isis with a similar concept that has just launched a two-city pilot VeriFone Systems, Inc.

12 There are many companies entering this technology space Each of these companies brings their own interpretation of the virtual wallet experience Right now, companies and technologies are jockeying to become the dominant players; however, NFC has emerged as one of the technologies poised to promote consumer acceptance of virtual wallets VeriFone Systems, Inc.

13 13 M E R C H A N T Fewer fraud-related chargebacks due to stolen cards/skimming Increase in international customer satisfaction B E N E F I T S Helps foster the adoption and integration of other payment technologies such as contactless and mobile (via NFC) C A R D H O L D E R Peace of Mind (fraud reduction) Never lose sight of their card Global interoperability (e.g. European travelers will be able to use their chip cards in the U.S. and vice versa) Will support payments via mobile devices utilizing NFC as those solutions take hold

14 Card Brand Mandates

15 2012: TECH Innovation Program (TIP) - PCI validation relief for Level 1 and Level 2 merchants that adopt dual-interfaced solutions in any year that at least 75% of the merchant transactions originate from a chip enabled terminal Note: must be capable of actually processing EMV cards and NFC contactless payments; merchants cannot just install EMV ready equipment....so, not really happening! 2013: Acquirer Chip Processing Mandate - Acquirers and processors must demonstrate the ability to process EMV transactions and NFC contactless payments 2015: Liability Shift from Issuer to Merchant - Merchants of any size, will be liable for domestic and cross-border counterfeit fraud committed at the point of sale if they are not using a compliant EMV & NFC POS solution (Automated Fuel merchant liability shift in 2017) VeriFone Systems, Inc.

16 A non-compliant merchant is liable for fraud that occurs on any chip card used on a magnetic swipe terminal, with the liability for the chargeback belonging to the merchant. A non-compliant issuer is liable for fraud that occurs on any magnetic stripe card used on a chip card-enabled terminal, with the liability for the chargeback belonging to the issuer

17 17 EMV is essentially a standard that dictates the interaction between a smart (chip) card and a POS payment technology The chip stores encryption data that is used during the transaction to prove the card is authentic and prevent cloning of the card EMV chips can be either contact or contactless and are read & write capable NFC (Near Field Communications) is a radio-based interaction protocol NFC-enabled devices are driving interest in acceptance The Card Brands have announced EMV incentives (carrots and sticks) that encourage issuers, acquirers/processors and merchants to adopt EMV 2012 VeriFone Systems, Inc.

18 Allegiance s Plans

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20 20 NOTE: VeriFone wireless to be available once 3G solution on the market

21 21 We are working to release applications for Retail and Restaurant with support for credit, PIN debit, EBT and gift card in December 2012 The terminals will be EMV capable, meaning that we will be able to enable EMV remotely through a download once that functionality is certified on our host and becomes available. Beta targeted for May/June; typically runs days Subsequent development to support ECS, DCC and Lodging is being defined. Legacy terminals will not be upgradeable (can t add a PIN pad) 2012 VeriFone Systems, Inc.

22 Encompass 4 and ISO 8583 message specifications are being updated to support the requirements. Certification Note: EMV requires true end-to-end certification: from the device, through the POS payment app, up to the authorization host and then on to the card networks. Elavon NA development utilities like viaconex are being updated to support the E4 revisions that include the U.S. EMV/Contactless mandates We are still defining our roadmaps for software solutions VirtualMerchant will be enhanced, no delivery date defined VirtualMerchant Mobile release dependent on VirtualMerchant updates No plans to add EMV to viawarp VeriFone Systems, Inc.

23 We are exploring innovative security and mobile solutions, such as mobile wallets, that will allow Allegiance and our partners to tap into new revenue and growth initiatives as these technologies take hold in the industry We will take a wait and see approach to Pay-at-the-Table solutions in the U.S. VeriFone and Ingenico have short range wireless models that are compatible with our payment application; software components not yet developed End-to-end Encryption will be added as part of a secure terminal solution, it will require a different process to inject the encryption keys and sign the app, which may also differ based on encryption method (i.e. VSP or Voltage) We are still defining functionality, process and delivery method/timeline 23 23

24 Chargeback liability shifts are just over two years away, now is the time to get ahead of the curve and ensure your payment hardware investment is capable of carrying you into the future. Technology changes rapidly and Digital Wallet s are emerging. Are you prepared to accept your customers payments? Are you doing everything you can to protect both your customer and yourself? Make sure your POS is capable of taking advantage of the latest security features such as EMV, card encryption & signed applications VeriFone Systems, Inc.