Unleashing The Power of Smart Payment - Contactless

Unleashing the Power of Smart
Payment
Brian Russell, Smart Payment Association (SPA) Representative and
Senior Vice President, Payment and Transit, Giesecke & Devrient

April 2013 – V5 (MaMo V2.7)

shaping the future of payment technology

Agenda

1. SPA’s role in shaping the future of payment technology

2. SPA Latest Publications

3. Contactless & Online: The payment market evolution and the accompanying
CNP fraud explosion

4. SPA global smart payment card shipments 2012 – Exclusive Preview

5. SPA on standards to prompt market growth without hampering security

6. Take Away

2 shaping the future of payment technology

Exclusive preview

 Contactless technology was present on 23% of
all payment cards shipped in 2012

 Contactless growth in Western Europe and Asia
exceeded 100%

 Over 220 million contactless cards delivered by
SPA members in 2012

 Shipments of Dual Interface cards,
incorporating both chip and PIN and contactless
technologies, are now growing at 77% year on
year


01.
SPA’s role in shaping the future
of payment


Who we are
The Smart Payment Association addresses the challenges of today’s evolving
payment ecosystem. We offer leadership and expert guidance to help members
and their financial institution customers realize the opportunities of smart,
secure and personalized payment systems and services - both now
and in the future.

Since 2004

Members:


What we do

 The SPA works in partnership with global standards bodies, its own vendor
community, and an expanding ecosystem of established and emerging brands
to offer an ever-growing portfolio of advisory and support services.

Non-
Traditional

Ecosystem Expert Advisor Services
Help shape the future of payments

Customers
Members Customers Services
Bring Value to Financial Institutions

Members Services Fig 1
Trade Organization Extending advisory and
support across the evolving
community, the SPA is
addressing today’s challenges
and shaping the future
Technologies direction of payment
Traditional / Smart Card Advanced/ New technologies, standards and
business models.


How we do it
 By delivering the market’s most accurate barometer of
payment trends
 An annual analysis of payment trends based on actual manufacturer
sales data
 SPA members = 85% of the total smart payments card market

 By supporting the creation and adoption of standards and best
practices
 EPC-CSG/SEPA: Card Representative and Vendor Sector
Spokeperson, Chair of the EPC-CSG Task Force to specify the SEPA
functional and security requirements for emergent & remote
payments (Internet + Mobile), Convenor of the new EPC-CSG Expert
Team on Card Innovative Payments, Member of the Preparatory
Committee of the SEPA Security Certification Management Body
 EMVCo: Technical Associate and Board Advisor for Card Sector
 EMVCo Next GenerationTaskforce: Contributor

 By extending expert advice and support across the payments
ecosystem
 An eye-catching library of expert technical resources and thought
leadership collaterals to shape the future of payment


SPA & its members in the US
 Smart Card Alliance
(http://www.smartcardalliance.org/)

 Cartes America (http://www.cartes-america.com/ )

 EMV Migration Forum (http://www.emv-
connection.com/ )

 ISO:
 Smart cards, electronic authentication, biometrics,
middleware / collaboration with NIST(ISO JTC 1)
 Mobile payments / collaboration with major US Banks &
Federal Reserve (ISO TC 68)

 EMVCo Technical Associate & Board Advisor

 EMVCo NextGeneration Taskforce
 Optimize interoperable processing of contact / contactless
and mobile payment cards*

*tamper-resistant hardware, personal, portable device to execute
8
payments, i.e. ID-1 card contact or contactless, SE (SIM/UICC) shaping the future of payment technology

02.
SPA Latest Publications


SPA latest publications
COMING
SOON
 Biometrics for EMV Payment Cards

 Software to Chip Fallback Solution

 Security Certification for Mobile
Platforms

 Security for Mobile Payments

 PIN by SMS

 Private Label Payment Solutions

 Business Continuity in the Payment
Card Issuance Industry

Download at: www.smartpaymentassociation.com


03.
Mobile & Online: The payment
market evolution and the
accompanying CNP fraud explosion


The payments market is moving to mobile and
online

 Statistics on online/ mobile/ magstripe etc.  Driven by smart devices,
WPR 2011 i.e. Smartphones and
CAGR 09-13 tablets

Non-Bank  Driven by connectivity and
Provider 67.3% convenience

Bank Providers
47.6%  New players and new
usages

 Leading to assymetry and
fragmentation
WPR 2011
CAGR 09-13  Need for accelerated
standardization
Alternative
Payments
67.3%

Bank Providers
18.1%
Source: World Payments Report 2012


So is the fraud!

 Total level of fraud has
reduced overall for the
SEPA region

 However, card-not-present
transactions now represent
the biggest share and the
biggest growth in terms of
fraud

 Risk with perception of
lack of security of existing
standards

Source: ECB Card Fraud Report 2012


NFC revolution is happening
14

Transport Payment Smart Poster Tags & Cards


Internet payments

 Back in the 50’s

 Card-not-present problem
 3D-Secure brings some improvement

 EMV card enables
 Dynamic card generation
 One-time passwords (e-Banking)

 SPA supports & promotes EMV utilization of technology with
stakeholders
 Use of EMV card with a personal terminal device / NFC Chip
 Scalable, secure
 Interoperable


04.
SPA global smart payment card
shipments 2012 –
Exclusive Preview


975 Million smart payment cards shipped in
2012 by SPA Members*

+9%
+12%
+18%
+16%
+39%
+23%

Mio. Pcs 418 580 675 798 898 975
sold

2007 2008 2009 2010 2011 2012

*includes all chip payment cards – EMV represents more than 90% of SPA shipments


TAM > 1.1 Billion units in 2012*

EUROPE

TAM: 322M NORTH ASIA

TAM: 238M

NORTH AMERICA

CISMEA** & EASTERN
TAM: 84M
EUROPE
TAM: 208 M

SOUTH EAST ASIA

SOUTH AMERICA
TAM: 89M
TAM: 225M

Payment Chip cards deployed
or in advanced deployment

Chip cards in deployment

Chip cards migration initiated * 2012 Estimated Total Available Market (1166 units) by Geographies in Millions – Includes
all chip payment cards
No Chip cards ** Includes Turkey


SPA regional growth 2012 vs. 2011*

SPA
+8%
EUROPE & CISMEA**

• WE: Moving from SDA to highly secure
DDA/CDA
• Accelerating pace of European contactless
card shipments
• SEPA rules enforce chip and PIN
• CISMEA’s EMV growth supported by Russia
+ 1% and newly migrating African countries

SPA
AMERICAS
+24%
• Canada finished migration to EMV APAC
• US EMV migration has been initiated
(Visa, MC, AMEX liability shifts 2015) • China massively migrates to chip based
• LATAM is still SDA oriented payments
(PBOC 2.0 mandate until 2015)
• India initiated move towards EMV
Chip & PIN deployed or in • Strong contactless growth in APAC
advanced deployment
region too
Chip & PIN in deployment

Chip & PIN migration initiated * 2012 SPA Shipments by Geographies Compared to 2011 SPA Shipments – Includes
all chip payment cards
No Chip & PIN ** Includes Turkey


220+ Million increase in contactless payment
card shipments in Europe in 2012, notably
Dual Interface
 Contactless technology =
23% share of smart
Adoption rate 23% payment card shipments
contactless
cards 15%
13%  Dual Interface =
77% YoY growth
12% (represents 89% share of
11% contactless shipments)

8%
Contactless

Contact

418 580 675 798 898 975

2007 2008 2009 2010 2011 2012


SPA regional contactless growth
2012 vs. 2011

CTLES
+106%

CTLES
WESTERN EUROPE +111%

•Contact: 240 Mio.
•Contactless: 62 Mio.

CTLES CT CT
+17% -14 % +1 %
CTLES
+34% ASIA PACIFIC
AMERICAS
CT •Contact: 142 Mio.
•Contact: 205 Mio. +26% •Contactless: 80 Mio.
•Contactless: 54 Mio.

CT
CISMEA & EASTERN
-4 % EUROPE

•Contact: 164 Mio.
Chip & PIN deployed or in •Contactless: 29 Mio.
advanced deployment


Chip & PIN migration initiated

No Chip & PIN


More convenient payment options

 Contactless: fast, secure and convenient
technology
 Bring convenience to cardholder
 Undisputed advantages for issuers, able to increase card
usage and ticket size
 Combined with transit features, grants issuers “Top of Wallet”
benefit

 Pave the ground for mobile payments
 Contactless payment infrastructure (terminals, POS, etc.) in
deployment
 End user education to pay contactless with cards or others
form-factors (stickers, …)
 Accelerate NFC introduction to mass market

 Migration to contactless: a reality
 Spreading in more than 30 countries on all continents
(Canada, UK, Turkey, Poland, France, Australia, ...)
 220+ Million contactless cards delivered by SPA members in
2012
The Next Payment Evolution: From
Contactless to Mobile Payment –
December 2010


More than half of shipments are DDA

 DDA Growth in 2012: +28%

21% 26% 32% 41% 47% 56%

DDA ADOPTION

418 580 675 798 898 975

2007 2008 2009 2010 2011 2012


SPA DDA regional growth
2012 vs. 2011

DDA
+6%
WESTERN EUROPE
•DDA: 258 Mio.
DDA •nDDA: 43 Mio.
+60% DDA
DDA +45%
nDDA +69%
-33% nDDA
+7%
AMERICAS ASIA PACIFIC

•DDA: 39 Mio. •DDA: 117 Mio.
•nDDA: 220 Mio. •nDDA: 105 Mio.

nDDA CISMEA & EASTERN
EUROPE
-7%
•DDA: 133 Mio.
Chip & PIN deployed or in •nDDA: 60 Mio.
advanced deployment

nDDA
Chip & PIN migration initiated
-18%
No Chip & PIN


More secure ways to pay

 Big payment schemes pushing for DDA/CDA
 DDA/CDA reducing fraud
 Mature markets now migrating to DDA/CDA
technology
 Majority of Dual-Interface cards using DDA
technology

White Paper Available on DDA Migration
April 2010


05.
SPA on standards to prompt
market growth of secure,
interoperable contactless payments


SPA on convergence of contactless standards

 INTEROPERABILITY of any contactless device is KEY to deploy applications

 SPA considers the way forward to be through Common Testing Methods

 SPA supports EMVCo convergence project with NFC Forum and ISO 14443
 A first analysis performed by EMVCo in order to identify gaps and overlaps
 Consistency between ISO standards and EMV specs to be managed
 With regards to NFC Digital Protocol, the objective is that NFC devices may pass the L1
EMVCo certification


SPA on interoperability as a driver for security

 Interoperability can’t be achieved at the price of
weakening the security of the overall payment
processing chain

 Best technology to secure Mobile Devices through
adoption of the Trusted Executing Environment as
standardized by GlobalPlatform

 Common Certification practices based on PCI &
EMVCo specifications

 Optimization of Mobile Payment Platform
certification practices

 Migration towards Elliptic Curves Cryptography

 Promotion of Biometrics as a standard Cardholder
authentication method in EMVCo

 Chip to Software secure fallback solution pushed in
SEPA and EMVCo


SPA proposal for EMV2.0
1. Seek the interfaces for interoperability most needed to maximize the number
of transactions

2. Identify those technologies and services that should remain in the competitive
space

3. Standardize peripherals to be integrated on the smart card body to support
new card functionalities

4. Establish a well-designed policy to address IP

5. Carry out a comprehensive risk analysis method for new payment instruments

6. Enhance mechanisms to facilitate free choice by the cardholder of the payment
instrument

7. Carefully plan technology migrations and introduce a card fallback mechanism

8. Facilitate central acquiring by adopting new ISO message structures and data
elements
AVAILABLE ON
9. Revisit appropriate Cardholder authentication methodologies and standardize a DEMAND
Biometrics profile for Payment Applications

10. Revisit privacy protection practices in the light of mobile payment adoption and
upcoming regulation


06.
Take Away


Take away

 Smart payment card shipments hit the one billion mark
in 2011, and exceeded 1.1 billion in 2012

 Ever increasing penetration of contactless payment
(23% in 2012)

 Move towards more secure ways to pay (DDA more
than half of shipments)

 EMV is a truly established, global secure & interoperable
infrastructure, and NFC is the contactless extension
paving the ground for the evolving connected world

 SPA plays a key role in shaping the future of smart
payments through recommendations and strong
involvement in SEPA, EMV and ISO Standards


One Address:
www.smartpaymentassociation.com

Contact: info@smartpaymentassociation.com


Appendix


SPA Market Data Monitoring Process
 The figures in this presentation are actual shipments published by SPA.

 Actual shipments data, segmented by region and by interface, are sent
on a quarterly basis by SPA members to an independent third party.

 There is no direct exchange of data between SPA members. Consistent
with SPA's practices for the exchange of historical data, the third party
aggregates and anonymizes the data so that no SPA member is able to
identify another SPA member's contribution.

 The data is published on an annual basis, at the end of the first quarter
of the following year.

 Once a year, total market estimates by region are also sent by SPA
members to this independent third party to evaluate TAM (Total
Available Market).


Comparing Market Figures

 Cards in circulation / installed card base:
 Cards in circulation means that all cards that have been
issued in the current /covered year, as well as all
previously issued cards that are still valid, are taken
into account.
 Card validity differs across markets, typically between 2
Source 2010* 2011* 2012* Growth
to 5 years.

 Total Available Market (TAM): EMVCo
Cards in 1,083 1,340 1,549 16%
 Only cards issued in the current / covered year are Circulation
counted (new cards, replacement cards, re-issued
cards) – this number is estimated by SPA. SPA
Estmated 916 1,036 1,166 13%
 Actual shipments: TAM

 Actual shipments data, segmented by region and by
interface, are sent on a quarterly basis by SPA members SPA Actual
798 898 975 9%
Shipments
to an independent third party who aggregates and
anonymizes the data so that no SPA member is able to
identify another SPA member's contribution.

 Differences in card types counted:
 EMVCo reports on EMV payment cards only.
 Other reports may include local / domestic schemes and
other non-EMVCo member payment chip cards. *In million units


Alternative Payment Options

 Checks  QR code
 Less and less utilization  Appealing:
 Small checks replaced • (almost) no infrastructure needed
by debit cards  Optical reading:
 Large checks replaced • Not-fast, light ambience
by money transfer dependent
 No standard, dependent on
issuers
 Cash  Apps dependent
 Still most convenient for small  Security: genuine codes are
payment amounts checked inside phone apps
 Legal value money  User recurring costs (SMS)
 It is there to stay  Slowing down NFC deployment
 Cash virtualization could happen
 Pre-loaded mobile
 Cloud-based currencies


The NFC Deployment
 NFC technology based on Secure Element

 NFC Contactless technology is not just for mobile payments

 NFC deployment is happening beyond Mobile Handsets and
NFC POS
 Many devices will be NFC capable

 NFC transactions
 Not just payments

 Co-locating with other services

 Get ready to exploit NFC pervasiveness

 Strong Standardization effort: ISO, EMVCo, NFC Forum


Are EMV Cards Protecting You?

5.2 Billion Payment Cards  EMV deployment is pushing
fraudulent transactions out
shipped in 2011 of EMV countries

 Good implementation of
EMV proven to significantly
reduce fraud

 25% are private label cards:
Retail, Airlines, Petrol,
Transport, ...

Source: EMVCo & Nilson Report


SEPA

 SEPA = Single Euro Payments Area

 There are 17 countries that are members of the European Union (EU) and
use the Euro currency

 There are 10 countries that are members of the EU and do not use the Euro
currency

 There are 3 European countries (Liechenstein, Island and Norway) that are
not members of the EU and do not use the Euro

 + Switzerland & Monaco


Thank You
www.smartpaymentassociation.com


Unleashing The Power of Smart Payment - Contactless

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