1. Emerging Payments Market Developments: Trends and Risks James Van Dyke, President and Founder Presented at the Federal Reserve Bank of Atlanta, November

2. Key Findings: 2009
Trends
Overall “Identity Fraud” Increased in the United States
Average Fraud Amounts and Cost to Consumers is Down
Economic Conditions are a Factor
Fraudsters are Moving Much More Quickly 2
© 2009 Javelin Strategy & Research - Do not distribute or reproduce without permission

3. Key Findings: 2009 Avenues of Attack
Both Low and High Tech and Methods Still Common
“Friendly Frauds”: One-in-Ten Knows the Perpetrator
Account Takeovers Show That Industry Efforts are Working
Criminals Use PINs for Cash Withdrawals 3
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4. Payments Risk from an Ecosystem Perspective
As Pertains to Three Ultimate and Ultimate PII Goals: Cracking, Terrorism, ID Fraud
Significant driver of new technology expense: security, transactional fraud, compliance, etc.
Banks: on top of losses and mitigation costs, security is #1 driver of consumer payment relationship or method
Merchants: absorb majority of costs, on top of systems, staff and cost of goods
Public toll (annually)
4+% of consumers victimized
5+% of SMB owners
$496 and 30 hour cost
$4,849 fraud amount
Law enforcement: Pedestrian aspects, low arrest rate and high visibility
© 2009 Javelin Strategy & Research - Do not distribute or reproduce without permission

5. Key Fraud and Security Trends
Evolving and Quantitative Javelin Data Shapes 48 Banking Scorecard criteria
ID Fraud increased to $48B in 2008
12% have been a victim, 11% have victims in their family
Security and fraud crimes occur via all channels
One in ten victims can identify the perpetrator
Fraudsters are moving more quickly
Accountholders continue to detect half of fraud cases
Emerging channels can enable both risk and safety
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6. Key Trends and Forces
Consumer finance is increasingly fast and complex
Multiple providers, interaction channels and products
More products, but no passbooks or check registers
Are “speeds and feeds” replacing control?
Account- and identity-holders motivated by fear
Top reason for selecting a new issuer or existing card: security
FI’s struggle to prioritize and sometimes work solo
Security and fraud is costly to everyone
Relationships with trusted providers changing rapidly
Criminals are sometimes more informed and organized
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7. Four Times Higher Fraud Victimization Rate among Data Breach Victims
Breach Victims (Notified last 12 months) Fraud Rate vs. All Consumers Fraud Rate

8. Likely Disconnect Between Actual Fraud Caused By Data Breach and Consumer Understanding
Figure 4: Actual Fraud Rates Among Data Breach Victims Last 12 months vs. Fraud Attributed to the Data Breach by Those Notified of Data Breach Last 12 Months

9. Disconnect with Notification May Increase Time to Detect Fraud
Figure 6: Average Dollar Consumer Cost by Detection Time

10. Many Banks Best “Customer Control” Capabilities Actually are About Clean-up
Bank and Credit Union Scores for Prevention, Detection and Resolution™,
© 2009 Javelin Strategy & Research

11. X
Account Takeover: Address Change Controls Lead the Industry-Wide Improvements
Yet With Criminal Methods Changing Rapidly, Where Must Fraud Execs Focus Next?
Records Most Frequently Changed by Fraudsters
2007 Rank
2008 Rank
Add name as a registered user on an account #2 #3
Change the PIN on a card #7
Change the phone number #5 #4
Obtain checks
Change the address on an account #8
Change the physical address #1
Change the password on an online account #6
Obtain a debit or credit card
© 2009 Javelin Strategy & Research - Do not distribute or reproduce without permission

12. Mobile Finance Has its own Complexities…and Opportunities
New risks come with with new opportunities for authentication and detection
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13. Javelin’s Prevention, Detection and Resolution™ Model
How Prevention, Detection and Resolution™ Mitigate Fraud
Average FI Score: 61% 54% %
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14. Identity Fraud Rate Rises, but Mean Fraud Amounts and Consumer Costs Drop
Figure 1: Overall Measures of Impact
¹Past years dollars figures have been adjusted for inflation using the Consumer Price Index (CPI-U) issued by the Bureau of Labor Statistics, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt accessed 01/09/2008.
²Based on US population estimates (age 18 and over), accessed 01/09/2008.
³2006, 2007 and 2008 dollar cost estimates have been smoothed using three-year averaging—refer to Methodology Section for details.
© 2009 Javelin Strategy & Research - Do not distribute or reproduce without permission

15. Selected Payments Regulatory Issues
With regard to individual identity records, what role should companies and individuals have?
Consumers prefer involvement, real-time methods and control
Do notifications and penalties achieve desired results?
If more control were enabled, what would the impact be?
Are we encouraging factual awareness and decisions?
Are fraud costs shared in ways that support action?
Is technology a friend, foe or both?
© 2009 Javelin Strategy & Research - Do not distribute or reproduce without permission

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