Northwest Card Association Acquirer Update January 2012

Topics  Visa April 2012 Interchange Changes  EMV – Europay/MasterCard/Visa  1099 Reporting Update  Post Durbin in the Acquiring World

2012 Visa Interchange  Consumer Cards  Visa Debit Structural Changes to support PIN Authenticated Visa Debit Transactions  New POS Interchange Fee Program to identify PIN-Autheticated Visa Debit Transactions  Travel Services – Passenger Transport, Hotel, Car Rental and Restaurant  Quasi-cash Debit Transactions are Eligible for Custom Payment Service (CPS) Program and Interchange rates  CPS Retail 2 – Emerging Segments No Longer and Eligible Payment Service for Certain Transactions  Consumer and Commercial Card Transactions

2012 Visa Interchange (cont.)  New CPS / Passenger Transport Interchange Fee Programs for Card-Present and Card-Not_Present Transactions  Existing CPS Passenger Transport rate to be replaced  2 New Programs – Debit Only  Card Present  Card-Not-Present  Credit Rates remain the same

2012 Visa Interchange (cont.)  New Visa Business Debit Interchange Fee Programs  Visa working on creating changes to Visa Business Debit  Current rates mirror business credit  Utility and Travel Service will remain the same  Visa Large Purchase Advantage (Purchase Cards)  US Issuer and Acquirer  Greater than $10,000 – Card Not Present - CPS  No Travel, Cash Advance or GSA

EMV = EuroPay, MasterCard, Visa  Visa has created mandate in the US  Differs from Europe where it is described as Chip & Pin  Will be Chip and Signature in US  Acquirers must be ready by April 2013  Automated Fuel Terminals October 2017  Merchants must be ready by October 2015  Liability shift for Non EMV transactions – back to merchant in card present scenarios  Positive PCI Implications for merchants with 75% or more of EMV transactions

EMV = EuroPay, MasterCard, Visa (cont.)  Costs to Implement impact both Issuer, Acquirer and Merchants  Issuers have not full embraced Chip Card  Wells and JP Morgan issuing to select markets  Acquirers have much work to do to update Authorization and Settlement Systems to Accommodate  Most Importantly Acquirers have not begun to prepare for the adoption of new Point of Sale Devices  There are some devices currently out there that support, however very few of those use the smart card readers or are enabled for use

1099 Reporting Update  The 1099’s will soon be in the mail!  January 27 th is deadline for mailing  Sent to merchants who had more than 200 transactions in 2011 or $20,000 in gross receipts  Intent of Regulation is to report when merchant took transaction as opposed to when they settled  Much work done and some still needed to validate Tax ID’s  IRS provides site to validate individually or in batch  Many 1099’s will go out with incorrect Tax ID’s and continued work will be needed to validate these

1099 Reporting Update (cont.)  Watch for client confusion  Why is my processor reporting to the IRS and sending me 1099  1099’s must be mailed unless there is an electronic delivery acknowledgement specifically for 1099’s on file from the merchant  Why are totals by month not matching my statements  Wrong Tax ID indicated on 1099  Still time to correct  Reporting by Processors to the iRS is Match 15  If changes made to 1099 a new 1099 must be issued  Back up withholding does not begin till January 2013

Post Durbin  Durbin Requirements implemented in Fall of 2011  Most merchants saw no impact to their pricing/expenses  Some passing of cost savings done on Signature Debit  Small accommodations on PIN Debit due to separate networks which are more difficult to program  Income lift to Acquirers has been Significant  Will see competitors start to pass cost savings to merchants in new sales efforts

Post Durbin (cont.)  National Retail Federation still not happy!  Claims changes did not do enough to address second highest operating cost for merchants, behind labor  The NRF contends the Fed went beyond the scope of the regulation which addressed the costs of providing the transaction, Authorization and Settlement and included such elements as Fraud Loss, Chargebacks, Network Fees and Fraud Monitoring Costs  Also some articles appearing that address the Regulated level of Assets

Questions ?