Fraud: What Happens When EMV Surfaces? Tracey Black GFH Group Inc. Cardware, June GFH GROUP INC.

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Worldwide EMV Deployment and Adoption: March Source: EMV is becoming the payments standard around the globe GFH GROUP INC.

SEPA EMV Compliance, Deployment : Percent of Total Source: - European Central Bank SEPA Indicators EMV Readinesswww.ecb.int/paym/sepa/about/indicators/html/index.en.html SEPA compliance requires EMV migration by December 31, 2010 GFH GROUP INC.

United Kingdom 5

Annual Fraud Losses on UK-Issued Cards: Annual Plastic Card Fraud Losses UK (Pounds MM) Source: Fraud – The Facts 2010www.financialfraudaction.org.uk 6 Liability Shift – January 1, 2005 GFH GROUP INC.

Fraud Addressable by Chip on UK-Issued Cards: Fraud Losses UK (Pounds MM) 61% 31% -13% 9% -24% 20% -6% 12% -56% -10% Source: Fraud – The Facts 2010www.financialfraudaction.org.uk 7 Percent of Total Fraud 66%67%60%53%48%42%39%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.” GFH GROUP INC.

UK Card Losses by Fraud Type 1999 vs Fraud Type1999 % of 188.4MM 2009 % of 440.3MM Contributing Factors Lost/Stolen42%11%+Chip and PIN +Improved Issuer fraud detection software +Industry Hot Card File -Consumers carry PIN in wallet Counterfeit27%18%+Chip and PIN +iCVV +Increasing penetration of Chip and PIN outside of the UK -ABM skimming and card used overseas Card Not Present16%60%+First decrease ever in Increasing use of scheme and proprietary fraud detection tools by retailer, banks, consumers Mail Non-Receipt8%2%+PINs no longer sent Card ID Theft7%9%+Economic impacts +Increased cardholder awareness of card security 8 Source: Fraud – The Facts 2010www.financialfraudaction.org.uk GFH GROUP INC.

Fraud by Location on UK-Issued Cards: Fraud Losses UK (Pounds MM) Source: Fraud – The Facts 2010www.financialfraudaction.org.uk 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. GFH GROUP INC.

10 UK –issued cards or card details used fraudulently overseas Source: Fraud – The Facts 2010www.financialfraudaction.org.uk Top 5 Countries for UK Fraud Abroad: The proportion of total fraud abroad losses in the USA increased from 14% in 2008 to 17% in 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. GFH GROUP INC.

11 Source: Fraud – The Facts 2010www.financialfraudaction.org.uk Industry Measures to Prevent Payment Card FraudUK GFH GROUP INC.

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 c ont’d GFH GROUP INC.

France 13

14 Initiatives of the ECB Card Fraud Prevention Task Force, March 8 th 2006 GFH GROUP INC.

Payment Card Fraud in France Annual Payment Card Fraud Losses (Euros MM) Source: Observatory for Payment Card Security Reports Liability Shift – January 1, 2005 GFH GROUP INC.

Annual Payment Card Fraud Losses, France: Annual Payment Card Fraud Losses France (Euros MM) 16 Source: Observatory for Payment Card Security 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 GFH GROUP INC.

Australia 17

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 18 Source: *This means that from this date the non-EMV party will be liable for any resulting fraud GFH GROUP INC.

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, Source: GFH GROUP INC.

Payment Fraud Statistics Australia: Source: Australian Payments Clearing Association Ltd. GFH GROUP INC. The latest industry data shows that counterfeit fraud in Australia dropped by 45% between June 2009 and June 2010

Canada 21

Potential Counterfeit Losses in Canada: Losses (Nominal C$MM) Source: Canadian Banker’s Association; Interac Association; GFH Analysis The fraud forecast in Canada from 2006 was gloomy GFH GROUP INC.

Potential and Actual Counterfeit Losses in Canada: Losses (Nominal 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 GFH GROUP INC.

Fraud Addressable by Chip in Canada: Source: Canadian Banker’s Association; Interac Association; GFH Analysis Losses (Nominal C$MM) GFH GROUP INC.

Credit Card Counterfeit Fraud in Canada: Source: Canadian Banker’s Association; GFH Analysis CBA is now tracking cross-border counterfeit fraud GFH GROUP INC. Losses (Nominal 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 26 GFH GROUP INC.

Questions? Thank You 27 GFH GROUP INC.