Emerging Technologies

Mobile Technology We will discuss the mobile/digital Technology/Payments arena next… the words mobile and digit are often used simultaneously…they a mobile payment is a digital payment done via a mobile device (phone, tablet, pc etc). The phone is the most synonymous with mobile.

Mobile Technology Wikipedia: Mobile payment, also referred to as mobile money, mobile money transfer, and mobile wallet generally refer to payment services operated under financial regulation and performed from or via a mobile device. Instead of paying with cash, check, or credit cards, a consumer can use a mobile phone to pay for a wide range of services and digital or hard goods. It does get confusing so let’s explain what this is: Mobile Payment (what is a mobile payment) -Bank mobile app that allows you to check balances, make transfers, conduct bill payments and make deposits. -Mobile payments….physically using your phone to make the payment instead of the card itself. Digit wallet which we will discuss shortly (V.me and Masterpass) Mobile payment is being adopted all over the world in different ways.[2][3] Combined market for all types of mobile payments is expected to reach more than $600B globally by 2013,[4] which would be double the figure as of February, 2011,[5] while mobile payment market for goods and services, excluding contactless Near Field Communication or NFC transactions and money transfers, is expected to exceed $300B globally by 2013.[6] In developing countries mobile payment solutions have been deployed as a means of extending financial services to the community known as the "unbanked" or "underbanked," which is estimated to be as much as 50% of the world's adult population, according to Financial Access' 2009 Report "Half the World is Unbanked".[7] These payment networks are often used for micropayments.[8] The use of mobile payments in developing countries has attracted public and private funding by organizations such as the Bill and Melinda Gates Foundation, USAID and MercyCorps.

Mobile Technology The mobile customer is “Always On” 54% of US Consumers check their phones while lying in bed (before sleeping, during the night, upon waking) NOMOPHOBIA – the fear of being without your mobile phone…the mobile customer is ALWAYS ON. (Source: MC) Related Stats  (Source: Google/Nielsen 2012 Life 360 Mobile Search Moments: Ford Trend Book 2013) 32% of people aged 18-24 use social networking in the bathroom Check Cell Phone: 67% check their cell phone while on a date 45% while at a movie 33% in church Multi-task: While watching TV: 42% are on the internet 29% are talking on the phone 26% are texting or IM’ing Source: Lookout “Mobile Mindset Study” of U.S. consumers, 2012 /MasterCard-The Evolution of Digital Commerce and Mobile Payments”, 2014

Mobile Technology Digital Payments are accelerating across different devices and channels… Payments technology is developing and spreading. Not just on one device (PC, phone, tablet, tablet mounted in a refrigerator!)… but also via different channels (while people are doing other things…not just the point of sale (also via contactless) but, while in the store…looking up prices, or online (PC and tablet) and on the move…the new “computer-type” of glasses: Google Glass is a wearable technology that fits like a pair of eye glasses with a small digital screen in the top right corner. A wearer can swipe the right panel and "talk" to Glass in order to perform a variety of functions - many of which are still being discovered. Google Glass is a wearable computer with an optical head-mounted display (OHMD). It was developed by Google with the mission of producing a mass-market ubiquitous computer. Google Glass displays information in a smartphone-like hands-free format. Wearers communicate with the Internet via natural language voice commands. Source: MasterCard-Keeping the Retail Checking Account Relevant via Digital Commerce; March .

Mobile Technology Mobile Payments Which of the following consumer payments products does your bank currently offer or plan to offer? Mobile Payments Cary’s presentation comments: What’s driving revenue growth? Here are the most profitable payments products on the consumer side. (Size plays a role in profitability for credit cards and also to debit, though not as strong.) Source: 2013 ICBA Community Bank Payments Survey

Mobile Technology What type of mobile payments channels does your bank support? (Check all that apply.) Cary’s presentation comments: Mobile apps weren’t even on our radar 2 years ago – we didn’t even ask if they were supported. Now 95% of banks doing mobile are app-based. Nothing in 2011 and look at where we are 2 years later! Source: 2013 ICBA Community Bank Payments Survey

Digital Wallets

Digital Wallets What is a Digital Wallet? It’s your physical wallet today but deployed (housed) online, on a mobile device or table/PC. It will house your Payments, Loyalty and other Cards/Products. Source: MasterCard-Keeping the Retail Checking Account Relevant via Digital Commerce; March .

Digital Wallets Who Cares about a Digital Wallet? You Should! … Disintermediation! These companies and many other do… Disintermediation: enabling or allowing companies who have NO stake in your Bank’s success; but, want access to your customers and will reach them via a Digital Wallet. Once they have your customer in a Digital Wallet they can market products and services directly to them (DDA, Cards, Savings, Loans, Investments etc. Source: MasterCard-Keeping the Retail Checking Account Relevant via Digital Commerce; March .

Digital Wallets - V.me by Visa Cross Channel Payment Solution Visa’s payment strategy is to provide consumers a consistent payment experience across channels V.me is a new service from Visa that lets cardholders check out online without re-entering their payment and shipping information. For shoppers, it’s a great way to manage online shopping with a single account that they use anywhere that accepts V.me. Cardholders can add Visa, MasterCard, American Express or Discover credit or debit cards to their V.me account. V.me can be accessed using any web-enabled device. Today with some online merchants, you will seen the Checkout With V.me logo. A click on this logo takes you to your V.me webpage where you can make a seamless purchase with little hassle.

Digital Wallets Empowers your customers to shop with confidence Ease, confidence, convenience.

123 First Lane Loading the card art to enable your card to be “top of wallet” Opportunity to reinforce branding throughout enrollment, registration, and purchase Payment method (card) visualization Issuer branding at checkout further reinforces the association with the plastic card in the consumer’s physical wallet 09/99

- Loyalty Part of the allure of the digital wallet is that companies can gain loyalty by offering rewards, discounts and offers to the customer via text, email or via apps. After one purchase on Shoebuy.com, I now receive cost saving coupons on future purchased enticing me to come back and shop again.

Digital Wallets - MasterPassTM MC has also introduced their digital wallet, MasterPass. MC has already partnered with thousands of merchants to accept the digital payment form on their websites.

Digital Wallets Physical and Digital Worlds are Converging MC has an offer too….

Opportunity The checking account (DDA) is the Center of the financial relationship…all other products should revolve around it… You have an opportunity to reach your customers, especially engaging the Gen X, Y’s and Millenials, with digital offerings. Your DDA is the center, and you build from there: credit/debit cards, e-banking, mobile app, digital wallet and for businesses, the ability to accept these cards in all forms (contact and contactless). DDA has always been your core customer product and that will NOT be replaced; these can enhance the relationship. Source: MasterCard-Keeping the Retail Checking Account Relevant via Digital Commerce; March

EMV (Chip Cards) A small number of issuers including BofA, Citi, and Chase have issued EMV enabled cards (both PIN and Signature based) primarily to affluent international travelers.

What is EMV? EMV stands for Europay, MasterCard and Visa, the payment networks that originally developed the specifications EMV is the global standard for inter-operation and governance of chip cards at POS terminals and ATM’s for authenticating credit and debit card transactions EMV creates a stable foundation for chip-based payments across many payment methods (contact/contactless/mobile) EMV: Acronym comes from the initials of the three networks that originally developed the specifications (Europay, MC & Visa). Note also supported by Discover, Amex and JCB. First version released in 1996. Europay International SA was absorbed into MasterCard in 2002. Has an embedded microprocessor that contains the information needed to use the card for payment, and is protected by various security features. EMV stands for Europay, MasterCard and Visa, a global standard for inter-operation of integrated circuit cards (IC cards or "chip cards") and IC card capable point of sale (POS) terminals and automated teller machines (ATMs), for authenticating credit and debit card transactions. The standard is now defined and managed by the public corporation EMVCo LLC. JCB (formerly Japan Credit Bureau) joined the organization in December 2004, and American Express joined in February 2009. In May 2013 China UnionPay was announced as its latest member[1] with UnionPay now having an equal 1/5 interest in the standards body along with Visa, MasterCard, American Express and JCB. IC card systems based on the EMV specification are being phased in across the world, under names such as "IC Credit" and "Chip and PIN". The EMV standards define the interaction at the physical, electrical, data and application levels between IC cards and IC card processing devices for financial transactions. There are standards based on ISO/IEC 7816 for contact cards, and standards based on ISO/IEC 14443 for contactless cards (PayPass, payWave, ExpressPay).

Why EMV? Fraud Reduction Movement to NFC & Mobile (Card Present) Enhanced Transaction Processing Security Worldwide Interoperability Movement to NFC & Mobile Magnetic stripe cards can be susceptible to fraud through skimming, where a card is swiped through a magnetic stripe reader to record the information needed to use the card for payment. The cardholder gets the card back and is unaware of the risk of fraud. The data stolen from the card can be written to another magnetic stripe card, effectively creating a duplicate that can be swiped to make a fraudulent purchase at an unsuspecting merchant. NOTE: EMV does not protect against CARD NOT PRESENT FRAUD (ONLINE) Tokenization efforts NOTE: Reduced card issuer risk – 23% fraud decline in the UK (Source: FIS)

Citibank: 10 million cards issued Source: CPI Card Group

EMV Liability Shift The party that hasn’t upgraded to chip technology will be liable for card-present fraud (counterfeit) that could’ve been prevented by the use of chip technology. Source: Shazam , “EMV- Where Are We Now?”, 2014 Forum

Automated Fuel Dispense EMV Key Dates Fraud Liability Shift Policy Definition: transfer liability for certain types of fraudulent transactions away from the party that has the most secure form of EMV technology. ATM POINT OF SALE (POS) Automated Fuel Dispense October 2017 October 2015 April 2013 Specific to cross boarder Maestro transactions where the issuer is non-US at a US ATM. October 2016 All transactions on any MasterCard network. Discover and American Express published dates not represented here.

EMV Recent Impacts Target Breach – November 2013 Judge Leon – March 2014 These events have accelerated the movement of EMV issuance for both credit and debit in the US. Target breach: Target The Nation’s # 2 General Merchandise Retailer; all stores, 41000 POS devices; 11/27-12/15/13; 40+ million cards; 70+ million names, addresses, phone numbers, emails; credit and debit cards. Impacted more debit than credit. Hackers infiltrated their network. Increased consumer awareness; put a crack in the trust of the payments system. 60-70% of FIS’ reissuance requests came from CH’s not FI’s. Judge Leon. In July of 2013, Judge Leon (a federal district judge) overturned the role saying the Fed hadn’t followed Congress’ intent (in both pricing-said the cap should be 7 cents or lower and the Fed should have required each debit card to access more than 2 unaffiliated networks ). Merchants who had initiated a multi-year lobbying effort to impose price controls, sued the Federal Reserve Board in an effort to lower the Board’s caps even further. While arguing that consumers would benefit from lower retail prices, there is no evidence that prices have come down as a result. The original ruling provided: Debit card interchange rates are capped at 21 cents plus 0.05% of the transaction, with the possibility of an additional cent if certain security criteria are met. Each network must be able to be processed on two independent networks, one for signature debit and one for PIN. However, on March 21, 2014 a three-judge panel on the federal appeals court in Wash DC upheld the Federal Reserve Board’s controversial rule implementing the Durbin Amendment’s debit card provisions in 2010. The appellate court stated that “even if issuers and networks are responsible for maintaining pin/signature routing options, a point they strongly dispute, merchants, not issuers or networks, limit their own options when they refuse to accept PIN debit, and cardholders, not issuers or networks, limit merchants’ options when given the ability to choose how to process the transaction. Putting this behind us, the industry is now able to move forward with EMV preparations.

Common AID Licensing Agreements EMV New Developments Common AID Licensing Agreements Visa and MasterCard have agreed to share their common application identifier technology (“common language so that all processors, issuers, networks can communicate globally), enabling EMV-chip based debit transactions to originate from a single application while allowing merchants a choice of networks for routing. The agreement is a major step toward resolving a longstanding dispute within the payments industry over how to adapt EMV payment technology to U.S. regulation. The licensing agreement between the two major card brands provides for "a multi-access common AID that all others can adopt" and supports the single-code recommendation of the EMV Migration Forum, says Stephanie Ericksen, Visa's head of authentication product integration. The agreement comes less than a week after the Secure Remote Payments Council, representing independent debit networks, announced what it considered a major concession in agreeing to allow Visa and MasterCard applications on their debit cards after earlier committing to Discover's common AID. The debate over EMV debit routing has raged for more than a year as debit networks preparing for EMV smart cards in the U.S. deal with Durbin amendment requirements that call for at least two network options. The U.S. is the only country with multiple debit networks and federal mandates for routing. Networks are now entering licensing agreements with the Associations for use of these AIDs. 4/16/14 Shazam and Visa 4/3/14 Star and MC 4/1/14 NYCE and Visa

EMV What to Do Socialize & Educate EMV at your bank Perform analysis Key operational areas EMV migration team Attend Bancard webinars Perform analysis International transactions Fraud System/processor capabilities Determine desired capability Signature authentication PIN authentication Offline capabilities Source: Fred Csaky, CSCIP/P: EMV 101: What all Banks need to know NOW!, March 2013

EMV What to Do Define initial and long-term issuance plans Review/redesign plastic Employee / traveler/ ATM pilot Mass / Accelerated / normal reissue / selective Pricing: Replacement card fees Outline training & communication plans Internal Clients Cardholders Develop Budget ATM hardware/software and testing Plastics & internal hardware (instant issue) Education and training Brand & Processor implementation fees Look at ch transactions and access ch’s that travel overseas. That could be your test group. Not a mass reissue initially. Start out slow. See how it works. Source: Fred Csaky, CSCIP/P: EMV 101: What all Banks need to know NOW!, March 2013

Opportunity EMV Cards provide security and gives you the ability to compete with the national issuers. You have an opportunity to reach your customers, with the latest in security. Be competitive in the market place, deliver a superior product to your travelers, businesses and VIPs…compete with the National Issuers!

Thank You Questions? Julie Hanson Vice President Card & Payment Products ICBA Bancard and TCM Bank, N.A. julie.hanson@icba.org Made possible by our generous sponsors