5. e-Payment and e-Purse : a Reasoned Approach André-Jacques Selezneff Vice-President Low Value & Proximity Payment Solutions MasterCard Europe

6. Summary  Review of electronic payment means for individual card holders  An approach of costs  Evolution Perspectives for payment techniques and consequences on costs

7. Review of electronic payment means for individual card holders

8. Existing electronic payment means  MasterCard Credit Card :  does not allow transactions anonymity  “Classical” Maestro Debit Card :  problem if no banking account  Maestro “Pre-Paid” :  communication cost might be too high for low value transactions

9. Market situation for e-Payment Means  Market pulls card transactions towards low value amounts  e-Purse World Market unclear:  multiple incompatible national solutions  no cross-border inter-operability  e-Purse Choice too often technical  Security is important when business exists

10. MasterCard's Low Value Payments offer  Pre-Authorised Debit on M/Chip4:  standard EMV debit transactions,  no on-line authorisation  Clip e-Purse:  derived from existing transactions processing tools  dedicated infrastructure  Mondex:  THE MasterCard solution for "electronic cash"  dedicated infrastructure

11. Future for Electronic Payment  EMV (M/Chip 4 in MasterCard) offers members multiple features for debit / credit and for low value payments  M/Chip 4 incorporates known needs for face-to- face payments, as well as new needs like :  distant payments (on Internet, through GSM, …)  low value payments (e-purse type)  payment means for new customers (youth, newly employed, partners' clients…)

12. An approach of Costs

13. Principle of cost structure per scheme type Total Cost Volumes The Dream !

14. Actual Cost Structure with successive scheme types Total Cost 1 1 2 2 The hard facts of life Learning Time Learning Cost

15. Actual Cost Structure with successive scheme types Total Cost Learning Time Learning Cost

16. Transaction Cost : hard facts  debit/credit needs telecommunication   cost = telecomm and authorisation + processing  commissions just allow Bank to cover costs on LVP  e-Purse needs neither telecommunication nor on- line authorisation  allows Bank to make money  estimated minimum transaction value  0,10 €

17. Evolution Perspectives for payment techniques and consequences on costs

18. e-Payment: infrastructure issue  Comparable to  Fortresses of XVI th century  Railways of XIX th century  Tap water of the 50's  Electricity of the 60's  Highways and Nuclear Plants of the 70's  Telephone and Prestel/Minitel/BST of the 80's  Pay-TV and Payment Cards of the 90's  Internet and ADSL in this early XXI th century

19.  e-Payment  e-Authentication  Needs a new technical infrastructure  Long Return on Investment:  Characteristic of infrastructure  Amortisation increases cost to charge  Bank  complex job, difficult communication  Tariff per transaction well accepted for credit / debit e-Payment and Transaction Costs

20.  Issue : Users have for centuries considered cash as « free »  difficult to charge e-purse « service » to card holder  necessary to reduce costs  Answer : Shared Infrastructure  decreases per-application costs  opportunity to offer new applications  Marketing issue, not technical one e-Payment and Transaction Costs

21. Other issues to address  e-Purse « limited » to low amounts  Undefined Risks?  Yet undefined Market?  Deployment complexity?  Lack of trust in technology?  Time required by users to get to grips with a new product? ? !! ? ! !!

22. Suggestions  Shared Infrastructure  Rely on EMV deployment  Debit / Credit EMV allows DDA  Same security than for e-Purse  A brand  A brand is NOT necessary for Low Value Payment products, IF solution is independent from the underlying technology

23. The EMV obligation (1)  EMV-based LVP solution is an absolute necessity to compensate for reduced revenue due to new interchange rates regulation

24. The EMV obligation (2)  EMV-based LVP solution is an absolute necessity to allow exploring new "low value payment" market, while  limiting required initial investment,  accessing an immediately available acceptance infrastructure,  guaranteeing cross-border interoperability.

25. The EMV obligation (3)  EMV-based LVP solution is an absolute necessity  to help Members amortise EMV investment  whilst fully leveragin efforts spent at the occasion of EMV deployment

26. Proposed Approach  Pre-Authorised Debit on M/Chip4 allow quick access to interoperable pre-paid market  Acceptance rules based on existing programmes  Adaptation of e-Purse solution on EMV once business is existing Results in  solution available today  consistent Card products offer with guaranteed future.

27. Questions? Fragen? Questions? Andre-Jacques_Selezneff @ Mastercard.com MasterCard Europe Tel. +32 (0)2 352 5275