Savantor MarketEye: August 1 - 16 2007

Savantor Limited 68 Lombard St London EC3V 9LJ This is a confidential, high-level industry news and business intelligence Tel: 0870 734 6250 Fax: 0870 734 6251 update bulletin. For further information on any of the items contained email: [email protected] within the bulletin or to discuss the potential impact of these items on www.savantor.com your business, please contact Savantor on our dedicated support centre e-mail address ([email protected]). Click on the Savantor links below for more information about us and our opinions:

Articles Press releases How we work Resource fulfilment

Items in this issue: Savantor’s Views...... 1 Russia's largest credit card acquirer UCS to boycott AmEx...... 4 Products and Initiatives...... 1 China Card system hits half-year milestone...... 4 Lloyds TSB opens bilingual call centre for Polish Paper authentication and ID fraud...... 4 migrants ...... 1 Supermarkets pose threat to bank current account base. 5 Citi launches drive-through ATM in China ...... 2 One in ten bank branches closed since 2002 ...... 5 Nationwide launches new ATM:ad campaign ...... 2 Pressure on UK government to introduce bank data UK banks use passport validation service ...... 2 security law...... 5 Competition for PayPal ...... 2 Faster Payments to arrive six months late ...... 5 Coming to a Coke Machine near you soon...... 3 UK consumers not concerned by Web fraud...... 5 Habib Bank launches pre-paid card in UK ...... 3 Outsourcing, Acquisitions and Deals...... 6 Royal Bank of Scotland introduces m-banking service.... 3 First Data International completes acquisition of Morgan Stanley opens carbon bank ...... 3 POLCARD ...... 6 Co-operative group stores expand POS functionality ...... 3 Capital One to buy prepaid card firm NetSpend...... 6 Market News and Views...... 4 FreeStar Technology enters into agreement with Chinese e Payments provider ...... 6

Savantor’s Views At a time when the UK card market is busy with issuing the second generation of chip and PIN cards as well as launching contactless and prepaid cards now may be a good time for issuers to take a step back and consider their transaction policies. Many such strategies, particularly chip settings on Issuer Action Codes, LCOL and UCOL etc were put in place several years ago and may not have been revised since. This is probably resulting in many transactions being declined for no good reason and resulting in loss of revenue for issuers. As well as looking to update these strategies Issuers need to look ahead to the imminent use of contactless and not too distant use of NFC and have suitable governance in place to regularly review their strategies to take best advantage of these new technologies. Savantor were involved in a review of these strategies recently for a major UK bank resulting in considerable cost savings, so why not call us and see how we can help you realise similar savings whilst also positioning you for the future.

Products and Initiatives

Lloyds TSB opens bilingual call centre for Polish migrants Lloyds TSB has launched a new fast track account opening service for Poles planning to move to the UK. The new service will allow potential customers to set up a bank account by making one free phone call before they even leave Poland. A special call centre operated by Polish speaking consultants has been set up, so all the Polish migrant has to do is call Lloyds TSB to get an account number and schedule a meeting at a chosen Lloyds TSB branch to complete the formalities. To raise awareness about the new call centre, Lloyds TSB has launched a local advertising campaign in Poland.

In the past 12 months Lloyds TSB has launched a range of initiatives to meet Registeredthe growing in England No. 3420260demands of Registered office: 8/10 South Street, Epsom, Surrey KT18 7PF VAT Registered No. 689136196

Whilst Savantor Limited (“Savantor”) has used reasonable efforts to obtain information from sources which it believes to be reliable it does not make any representations or give any warranties or guarantees that the information provided or any opinions expressed herein are accurate, reliable or complete and none should be relied upon as statements of fact. In no event, including (without limitation) negligence, and in no circumstances will Savantor be liable for any loss or damage of any kind whatsoever, including (without limitation) any direct, special indirect or consequential damages, caused by the use of or reliance upon information provided or opinions expressed herein.

Savantor · Confidential 1 Savantor MarketEye: August 1 - 16 2007

the Polish community. At the beginning of the year, it opened the UK's first international banking store, which specialises in serving customers from overseas. It has also recruited over 180 fluent Polish speakers in branches across the UK. (Source date: 1st August, 2007)

Citi launches drive-through ATM in China Citibank says it has become the first bank to provide a drive-through ATM in China after unveiling a new machine in the upper-east area of Beijing. Under Chinese regulations the ATM - along with Citi's 94 other cash machines in the country - can only be used by customers holding cards issued outside of China. Citi says it intends to make its cash machine network available to local residents holding debit rd cards issued in China if and when the rules change. (Source date: 3 August, 2007)

Nationwide launches new ATM:ad campaign Nationwide Building Society is using the ATM:ad system to run a campaign promoting its new 'Sponsored by You' initiative which gives Nationwide customers the opportunity to see their child help lead out the national team, see their name displayed on perimeter advertising boards, receive tickets to international football matches, enjoy VIP hospitality packages, watch exclusive team training sessions together with many other 'money can't buy' opportunities. The ATM:ad campaign features across 697 through-the-wall cash machines at Nationwide Building Society branches, in a campaign that kicked off for a week in July and is running again from 30 July - 12 August. (Source date: 3rd August, 2007)

UK banks use passport validation service UK Financial Services firms are using a passport validation service to screen and security check their customers. Reports first appeared in 2005 that the UK's passport office was working with Abbey and HSBC to set up a service that will enable banks to cross-reference passport details with information held in the passport database. Although the Data Protection Act prevents the passport service handing out data, banks are now able to use a call centre to check passport details provided by customers. The service has now been running for one year and has been a success. Firms regulated by the Financial Services Authority (FSA) are able check and validate passports provided by customers by calling a special hotline. In one case, a check on a customer applying for a business loan from a bank showed the passport had been forged, even though the customer had passed other checks. Several arrests have been made and 211 forged or stolen passports have been seized, he adds. (Source date: 6th August, 2007)

Competition for PayPal There are potential competitors to PayPal emerging in the form of Google's Checkout system and now Amazon have launched their Flexible Payment Services, a complete set of API's for developers to integrate payments functionality. Key features include: • Send and receive money using credit card, bank account or Amazon Payments balance transfer as payment methods. • Create 'Payment Instructions' to define conditions and constraints desired for a given transaction, and programmatically obtain payment authorizations or 'tokens' that represent these Payment Instructions from customers. • Execute one-time, multiple, or recurring payments on behalf of customers. • Aggregate micro-transactions into a single larger transaction using Prepaid and Postpaid capabilities. • Build payment applications where you are neither the sender nor the recipient of funds. You can build marketplace applications that enable the movement of money between two third parties. • View account balances, transaction histories, and transaction details online • Utilize the Amazon FPS sandbox to build and test applications without using real money or incurring any transaction charges. (Source date: 6th August, 2007)

SavantorSavantor Ltd. · Confidential Confidential Page 2 2 Savantor MarketEye: August 1 - 16 2007

Coming to a Coke Machine near you soon. On the basis that what happens in the US happens in the UK soon afterwards it is worth noting that MasterCard Worldwide and USA Technologies have announced the installation of a number of cashless payment terminals into Coca-Cola Enterprises vending machines. Coca-Cola Enterprises Inc. will install the new terminals in selected vending machines in the Atlanta, Boston, Chicago, Denver, Las Vegas, Miami, New York and Seattle markets. The deployment of up to 7,500 G-6 e-Port terminals represents the broadest single deployment of the cashless vending terminals to date, and more than doubles the number of e-Port terminals installed in Coca-Cola system vending machines in the United States. In addition to providing greater speed and convenience for consumers, e-Port and PayPass help vending machine operators improve efficiency by allowing companies to monitor and manage their vending machines online. The United States is rapidly becoming a cashless market, with most quick service restaurants and convenience stores now accepting payment cards. The latest deployment confirms an accelerating trend in the vending industry to convert to cashless transactions. (Source date: 6th August, 2007)

Habib Bank launches pre-paid card in UK PrePay Technologies have signed a contract with Habib Bank AG Zurich for the launch of their innovative e-money card, a UK first for retail banking. Aimed at Habib account holders living or working in the UK, the new card will be launched in August 2007 supported by a seven-figure advertising campaign on digital TV channels. Cardholders can reload the card's stored value at any branch of Habib Bank AG Zurich, online, or at over 34,000 top-up locations across the UK. Once loaded, the Habib Bank AG Zurich e-money card is accepted in the UK and worldwide wherever the Maestro acceptance mark is displayed and can be used to buy in-store, by phone, via the internet or used at ATMs. (Source date: 9th August, 2007)

Royal Bank of Scotland introduces m-banking service Royal Bank of Scotland (RBS) Group is launching a mobile banking service for its 13 million debit cardholders. The new service runs on the MoniLink mobile banking network, which has been set up by Morse spin-off Monitise and VocaLink. RBS and NatWest customers signing up to the new service will be able to access account balances and view mini-statements on their mobile handsets, as well as receive SMS balance alerts. Customers with a pre-pay mobile phone account will also be able to use the service to buy airtime. The group plans to add new services - including payments and fund transfers between accounts - in the future. This will be available to all current and savings account holders that have a debit card. Alliance and Leicester (A&L) has also signed up to Monilink to provide its customers with on-the-go banking. HSBC and its subsidiary first direct also provide banking services over the MoniLink secure network. (Source date: 13th August, 2007)

Morgan Stanley opens carbon bank US bank Morgan Stanley is establishing a "carbon bank" aimed at clients that want to offset their emissions. The Morgan Stanley Carbon Bank is being offered in conjunction with Det Norske Veritas (DNV), an international provider of emissions data certification. Under the new service, clients will calculate their carbon footprint using the standards of the Greenhouse Gas Protocol Initiative. DNV will then verify the emissions and calculated carbon footprints. Morgan Stanley's commodities group will then procure and cancel carbon credits equivalent to a client's verified carbon footprint. The bank says clients will be able to select their preferred sources of carbon credits from various emissions-reducing programmes, although all carbon credits will be generated according to the standards of the Kyoto Protocol. (Source date: 14th August, 2007)

Co-operative group stores expand POS functionality Using technology from Smart Technology Solutions Limited (STS), the Co-operative Group has expanded the functionality on its POS chip & PIN payment terminals to gather customer feedback and improve the customer experience. When paying for goods by credit or debit cards, a sample of the Co- operative Group's customers are presented with a multiple-choice question on the PIN pad asking for their views on the store, the retail experience or aspects of their lifestyles.

SavantorSavantor Ltd. · Confidential Confidential Page 3 3 Savantor MarketEye: August 1 - 16 2007

This result is that the retailer is now able to survey up to 300,000 customers at stores across the country. Responses are returned to the Co-operative Group's data centre within 24 hours. Information gathered by the Co-operative Group includes customer perception of their local store, waiting times, frequency of visits, along with information on customers' lifestyles. The Co-operative Group is using the responses to enhance the physical retail environment, to better serve its customers' needs, and to increase the effectiveness of its marketing campaigns. (Source date: 16th August, 2007)

Market News and Views

Russia's largest credit card acquirer UCS to boycott AmEx American Express clients will find their cards rejected at around 50% of outlets in Russia as of August 7, following a decision by the country's leading processor of credit card transactions, UCS, to boycott AmEx. United Card Service (UCS), which accounts for around half of all merchant credit and debit card processing in Russia, first announced its decision in mid-July after American Express agreed to give Russian Standard Bank (RSB) the exclusive right to issue and service AmEx cards in Russia, but a few days later resumed cooperation, saying that negotiations with RSB were underway. The head of UCS said progress at talks had stalled, and that RSB had failed to put forward an acceptable business offer to UCS, and had rejected all reciprocal proposals. UCS services cards in 40,000 outlets, including large hotel chains, supermarkets, and travel agencies. Last year the acquirer earned between $320 million and $330 million from servicing AmEx, and accounts for at least 50% of the U.S. card company's sales in Russia. UCS serviced over 18.5 million transactions at 21,000 outlets in 2006, and its annual acquiring sales exceeded $2.5 billion. . (Source date: 2nd August, 2007) China Card system hits half-year milestone China UnionPay (CUP) issued 10.21 million credit cards in the first six months of this year in China, up nearly 200 percent on the same period of 2006. Chinese newswire Xinhua reports that the national bankcard scheme also issued 127 million debit cards in the first six months of 2007, up 113.7 percent year-on-year. The expansion in credit and debit card issuing by CUP has mainly been driven by the acceleration in consumer spending. Credit card marketing strategies, such as gifts for making card payments, also contributed to the surge in card issuance. The CUP credit cards are not affiliated with either Visa or MasterCard. China's total sales of consumer goods reached 4.2 trillion yuan (US$555 billion) in the first half of 2007, up 15.4 percent on last year, according to official figures. During the first half of this year, 95,700 stores were connected to the CUP network. Also, 162,500 point-of-sale terminals were added to the network, while 9,300 ATMs were connected. CUP currently has 616,700 merchants and nearly 1 million POS terminals on its network. (Source date: 3rd August, 2007)

Paper authentication and ID fraud A report published by Experian reveals businesses are partly to blame for the growth of identity fraud in the UK because they continue to rely on fraud-friendly paper documents to authenticate a person's identity. Identity fraud is one of the fastest growing forms of fraud around the world and costs the UK economy £1.7billion a year. Even though, 71% of companies surveyed named identity fraud as a significant challenge to their business, half of companies interviewed still rely heavily on paper when it comes to authentication: • 70% of financial services companies • 36% of retailers • 40% of telecommunication companies The report reveals that consumers are calling out for businesses to change their ways: * 70% believe that it is easy to forge utility bills and bank statements and nearly a half think the same about driving licences * 68% of consumers also find it inconvenient having to provide paper based documents * Nearly a third of 18 to 24 year olds have either delayed or given up on applying for a new account due to difficulty in providing the necessary paper-based document as proof of identification. (Source date: 6th August, 2007)

SavantorSavantor Ltd. · Confidential Confidential Page 4 4 Savantor MarketEye: August 1 - 16 2007

Supermarkets pose threat to bank current account base UK supermarkets have the potential to take millions of UK current account holders away from banks according to research conducted by personal finance Web site Motley Fool. Almost half of the 1000 Fool subscribers questioned say they believe supermarkets like Tesco and Sainsbury's sell value for money financial products and 50% want the stores to offer more of these services. Whilst one in five shoppers has a supermarket credit card less than one in 200 has a current account and only one in 300 get their mortgage off-the-shelf from the retailer. (Source date: 8th August, 2007)

One in ten bank branches closed since 2002 Around one in ten of the UK's bank and building society branches has closed in the past five years due to increasing use of Internet banking services and general cost cutting, according to research by Locallife.com. In 2002 there were 11,640 branches in the UK, but this fell nearly 11% to 10,423 by 2007. The decline in branches increases to almost 12% when the numbers are looked at in relation to the population. The numbers fell to an average of 2.13 branches to every 10,000 people in 2002, to just 1.88 per 10,000 this year. The data also shows that urban areas have seen the biggest decline in branch numbers, rather than rural areas as is generally thought. The number of bank offices in London has dropped by almost a fifth, while in the densely populated Midlands the fall is almost 15%. However East Anglia, Wales and Scotland saw a much smaller contraction in the number of banks, falling by 5.8%, 6.5% and 8.2% respectively. A recent survey by consumer group Which? found that about half of UK customers now bank online although around 90% do still visit branches. The survey also found that Internet banks were rated higher than their high street rivals for customer satisfaction. (Source date: 8th August, 2007)

Pressure on UK government to introduce bank data security law The UK's House of Lords is calling on the government to introduce new laws requiring financial services firms and online retailers to notify the public of any data security breaches. Reporting on its inquiry into personal Internet security, the House of Lords science and technology committee has criticised what it calls the "laissez-faire attitude" towards Internet security displayed by a number of groups, including the government, ISPs and hardware and software vendors. The report says the government's insistence that individuals are responsible for their online security is "inefficient and unrealistic". The committee has put forward a number of measures following the inquiry, including the establishment of a data security breach notification law. This would provide an incentive to banks and other companies trading online to improve the data security, says the Lords. The committee has also called for implementation of measures that would establish legal liability for damage resulting from security flaws. The government should also review "as a matter of urgency" a decision to require online frauds to be reported to banks rather than the police in the first instance. Victims of e-crime should have acknowledgment from law enforcement bodies that a serious crime has taken place, says the committee. Other recommendations include increasing resources available to the police and criminal justice system to catch and prosecute e-criminals. This follows on from claims made by Microsoft and members of the open source community that police in the UK lack the skills and expertise to deal effectively with cases of cyber crime. (Source date: 10th August, 2007)

Faster Payments to arrive six months late The UK banking industry has set the end of May 2008 as the revised deadline for the introduction of the new faster payments scheme, six months later than originally scheduled. The multi-million pound central system is being developed by VocaLink and backed by 13 clearing bank members. The banks were forced to scrap the original launch date and revisit the schedule in June, after VocaLink slipped its deadlines for delivering a complete working system in time for user acceptance testing. (Source date: 14th August, 2007)

UK consumers not concerned by Web fraud Half of UK adults (51%) are "not concerned" about Internet banking fraud, according to research commissioned by British banking group Lloyds TSB. Despite this, the study of 1400 people conducted

SavantorSavantor Ltd. · Confidential Confidential Page 5 5 Savantor MarketEye: August 1 - 16 2007

by Tickbox.net found that the vast majority of adults - 93% - realise that Web banking fraud is not a victimless crime. The lack of concern about Internet fraud seems to be driven by the belief that little can be done to prevent it. Around a quarter of respondents (26%) say Internet fraud does not concern them because "these things happen", while 39% are not concerned because their bank will reimburse any losses. Almost half (48%) feel the convenience of Web banking outweighs the risk of fraud. Nine out of ten respondents (90%) to the survey said they have done all they can to avoid becoming a victim of online banking fraud, although only a fifth (20%) feel they fully understand how to stay safe on the Internet. Almost a quarter (24%) say they could be better informed about online security. The study also found that older people feel more informed about online fraud than younger people. Just 15% of 18-25 year olds feel "very well informed" about cyber crime, compared to 22% of 35-50 year olds and 29% of people over 65. (Source date: 15th August, 2007)

Outsourcing, Acquisitions and Deals

First Data International completes acquisition of POLCARD By acquiring POLCARD, First Data is now strongly positioned in Poland, a market with an expanding payments infrastructure and significant growth potential. The Polish economy is rapidly growing, and total payment cards increased by 58 percent between 2003 and 2006(a). The acquisition also positions First Data to support multinational merchants and financial institutions extending their presence across Central and Eastern Europe, and it further expands the infrastructure that First Data is putting in place to facilitate the requirements and regulations of the Single Euro Payments Area. As a result of the transaction, POLCARD's 245 employees will join First Data International. (Source date: 1st August, 2007)

Capital One to buy prepaid card firm NetSpend Capital One Financial Corporation has announced that it has entered into a definitive agreement under which it will acquire NetSpend Holdings, the parent company of NetSpend Corporation, a leading retail marketer of prepaid debit cards, for $700 million in an all-cash transaction. The prepaid debit market is experiencing significant growth and is attractive to a wide range of consumers, and leverages Capital One's core strengths in credit cards and banking. The acquisition will expand upon the company's existing strategic partnership with NetSpend and further Capital One's ability to offer consumers a broader range of payment solutions while extending its brand through NetSpend's retail presence. Under the terms of the agreement, NetSpend will become a subsidiary of Capital One, N.A. The transaction, which was approved by the board of directors of Capital One and NetSpend is subject to customary regulatory approvals and notifications and is expected to close in the fourth quarter of 2007. (Source date: 8th August, 2007)

FreeStar Technology enters into agreement with Chinese e Payments provider FreeStar Technology Corp. has announced that its Finnish-based, wholly owned subsidiary, Rahaxi Processing Oy, has entered into an exclusive distribution agreement with Spectra Technologies Holdings Co., the Greater China leader in design and development of electronic transaction solutions. Under the terms of the agreement, Rahaxi Processing Oy will exclusively distribute and market Spectra Technologies' technologies including EMV- and PCI-certified Point-of-Sale payment terminals in Norway, Finland, Sweden, Ireland, Iceland, Estonia, Latvia and Montenegro. (Source date: 15th August, 2007)

SavantorSavantor Ltd. · Confidential Confidential Page 6 6