Savantor MarketEye: October 1 - 14 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]).

Items in this issue: Savantor’s Views...... 1 SEPA - more than just a compliance issue ...... 3 House of Lords to decide if the law extends to Products and Initiatives...... 1 purchases abroad...... 3 LogicaCMG and Swift team up for Sepa testing service.. 1 Jump in card fraud abroad drives up UK losses...... 4 New two-factor authentication scheme launched ...... 2 EC fines Visa EUR10.2m for exclusion.. 4 Dutch grocery shoppers in NFC trial...... 2 Outsourcing, Acquisitions and Deals...... 4 Nationwide calls for order on credit cards...... 2 Visa Inc. Completes Global Restructuring...... 4 Fair Investment launches comparison VocaLink secures payments processing deal with service...... 2 Sweden's BGC ...... 4 Market News and Views...... 2 Discover signs issuer processor deal with Tsys...... 5 Cash on credit card...... 2 Dresdner Bank outsources to Atos...... 5 Banks not ready for Sepa deadline...... 3 European payment processors in interoperability pact .... 3

Savantor’s Views Not much to report in the product launch section in this edition presumably due to the fact that Cartes is on the horizon. However, one item of interest looking to the future is the NTT DoCoMo concept to one day sell a handset that lets you make electronic payments while the phone stays in your pocket. Using mobile phones to pay for goods electronically is common in Japan, the world's biggest market of 3G mobile users, where phones are swiped at ticket gates or vending machines to pay for train fares or drinks. Use of phones rather than contactless cards in this context has been responsible for Japan being the first country to experience a decline in the number of coins produced. The phone, which uses a sensor made by start-up Kaiser Technology, sends electric signals through the human body to transmit data, enabling electronic payments or data transfer at the touch of a finger. Doors to secure areas would open as your phone transmits your ID code through your feet, or you could get in a car and have the car instantly adjust the seat and steering wheel to the perfect angle. But it will take several years before the new touch-sensitive handsets are ready, reliable and safe for market. This is all well and good and I’m sure it will appeal to someone but as far as the near future is concerned it is far more likely that NFC enabled mobiles will allow us to do things like choose to pay by debit or credit and verify by PIN or fingerprint, automatically set up a with another NFC mobile by touching rather than by the tedious Bluetooth method (does anyone do that more than once?), wave the phone over a terminal to pay for low value items and allow me to top up my prepaid card on the phone from my also on the phone thereby removing the need for ATMs. Give us that on mobiles rather than making doors open and the business case takes care of itself.

Products and Initiatives

LogicaCMG and Swift team up for Sepa testing service Swift and LogicaCMG have decided to join forces in their testing programmes for Sepa rather than run two competing initiatives. LogicaCMG had set up a payments version of its TestFrame methodology which it launched at the 2006 Sibos event, while Swift subsequently launched its own Sepa Testing Programme. Under the new agreement, the two partners hope to offer clients a single approach to Sepa compliance. While Swift will aim to ensure banks' systems conform to the European Payments Council's rulebook, LogicaCMG will address the wider issue of testing the entire payment process across multiple nd currencies. (Source date: 2 October, 2007) Registered in England No. 3420260 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.

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New two-factor authentication scheme launched A new system to provide an alternative to chip and PIN and other two factor auth schemes has been launched. GriDsure relies on the human ability to recognise patterns to offer an alternative to token or card reader-based schemes. GrIDsure, a UK company, says its system can be used anywhere a PIN, password, passcode device or is normally used, without having to carry extra hardware, whether buying online, at a shop till or cash point. Users create a simple pattern by choosing a set number of squares on a grid, in a shape of their - such as an 'L', square or tick. A grid filled with random numbers is presented to the payee at authentication time for them to provide a unique, one-time passcode to authorise a transaction. GrIDsure claims its approach is nearly 40 times more secure than Chip and PIN and, being non- language dependent, it can be used by those with low literacy rates or disabilities. (Source date: 4th October, 2007)

Dutch grocery shoppers in NFC trial A small group of Dutch grocery shoppers have begun using contactless mobile phones in one of the latest tests of Near Field Communication technology. In this test, scheduled to last until early 2008, 100 customers will use Samsung SGH-X700 phones to make purchases at a C1000 supermarket in Molenaarsgraaf, near Rotterdam. The phones will store customers' debit account information. Customers will tap the phones on readers at point-of-sale terminals and then enter personal identification numbers. The pilot ties into the most common payment method and infrastructure in the Netherlands. Also involved in the test are Rabobank, NXP Semiconductors, Dutch mobile network operator KPN and RFID Platform Nederland, a Dutch group that studies and promotes smart card technology. The NFC trial is one of dozens that has launched over the past two and a half years around the world, most testing mobile and transit ticketing. The latter application is expected to take off first in Europe, once NFC phones become available and service providers and mobile network operators work out fee arrangements. (Source date: 10th October, 2007)

Nationwide calls for order on credit cards Nationwide Building Society is calling for a positive order of payments to be introduced on all credit cards. Research from the Society reveals that seven out of ten (69%) of those questioned do not know the correct order in which their repayments are allocated to their account. However, 66% of credit card holders think it is important to find a credit card provider that allocates their repayments to the most expensive debt first. On average people stay with their credit card provider for six years - even if the proposition is poor. The Department of Trade and Industry recently announced that, from 1 October 2008, all credit card providers will have to draw attention to the order of payments they use. While this is a step in the right direction, Nationwide believes it does not go far enough as order of payments is not well understood by consumers, and is adverse to their best interests. (Source date: 10th October, 2007)

Fair Investment launches credit card comparison service Consumers can now compare credit cards from around 60 providers using more than 15 different search criteria categories, thanks to a new comparison tool from independent online finance portal, Fair Investment Company. Search categories within the new tool include 0% balance transfer deals and interest free purchase cards, cash back and prepay cards, charity and football club cards and deals for people with bad credit. The advanced search option allows consumers to narrow their search even further so that the system only displays cards that offer specific features, like reward schemes, airmiles, green credentials, or online . (Source date: 10th October, 2007)

Market News and Views

Cash on credit card UK consumers are using their credit cards to take out £8.3 billion in cash each year. Newly published research from Moneysupermarket.com reports one £20 cash withdrawal a month can lead to consumers paying £65 in fees over the year, even if they pay off the balance at the end of the month. The average

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amount paid for 12 withdrawals of £20 would be £36 over the course of a year. Credit Action reports that 4.1 million credit card bill payments were missed in the first six months of this year. It says the average fee charged for missed payments is £12. (Source date: 1st October, 2007)

Banks not ready for Sepa deadline European bankers are pessimistic about their ability to meet the initial January 2008 deadline for first stage implementation of the Single Euro Payments Area (Sepa), according to research conducted by Finextra. Furthermore, the vast majority of banks do not expect their corporate customers to be fully Sepa-compliant until after 2010. Only eight per cent of respondents are already fully Sepa-compliant and over half do not expect to be able to meet the New Year deadline for Sepa credit transfers. In other findings, direct debits - which are slated for introduction in 2009 - were also highlighted as a 'major concern' by 35% of banks, while 44% believed they would be 'difficult to manage'. (Source date: 1st October, 2007)

European payment processors in interoperability pact European payments processors Equens, Iberpay, Seceti Stet and VocaLink have jointly agreed to establish bilateral interoperability for the exchange of Sepa payments. The processors forming the agreement handled over 18 billion in direct debit and credit transfer payments in 2006. The group says it has commenced testing over SwiftNet FileAct and each company is making the necessary arrangements to ensure interoperability is achieved in time for the launch of Sepa in January 2008. The agreement will also see the first implementation of version 3.0 of the Technical Interoperability Framework, which was approved by the European Automated Clearing House Association (Eacha) in August. The framework was designed to help establish interoperability between banks and ACHs, as well as interoperability between European payment processors. (Source date: 2nd October, 2007)

SEPA - more than just a compliance issue Over 60% of payment professionals expect their payments business to look different by 2010, according to an industry survey on SEPA from SAP. This finding comes from respondents who believe the Payment Service Directive (PSD) and SEPA (Single Euro Payments Area) are catalysts for industry change that will provide business opportunities for standardising their payment systems. The survey also revealed that 39% of European banks will have a single enterprise-wide payments hub by 2010 to build standardised interfaces to other systems to support all payment types. On the other hand, 48 percent will implement a shared platform for their payments business that will link together SEPA payment on a common infrastructure, but still maintain some separation. Other key findings include: • 37% of respondents have yet to fully map out the implications of SEPA for their corporate customers, as they are still formulating their own strategies. • More than 93% of respondents will have signed the SEPA Credit Transfer Adherence Agreement by January 2008. • Over 15% of payment professionals don’t understand the implications of PSD, but the majority of respondents agreed that it is a catalyst for industry change. The remainder of the respondents (24%) sees the PSD as a “tick box” requirement for achieving SEPA compliance. (Source date: 2nd October, 2007)

House of Lords to decide if the law extends to purchases abroad The House of Lords is to decide if credit card companies must refund customers when goods bought abroad are damaged or are not delivered. The Consumer Credit Act suggests that cover applies on goods worth between £100 and £30,000, just as it does to goods bought in the UK. But banks, led by Lloyds TSB, are challenging this. The card companies argue that they are being placed in the position of an insurer for possibly millions of foreign suppliers of whom they may know nothing. A further complication has been thrown up by the increasing purchase of goods over the internet, where credit cards are used where it is not obvious where the supplier is based. (Source date: 2nd October, 2007)

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Jump in card fraud abroad drives up UK losses A massive rise in fraud committed on UK cards abroad pushed up industry losses in the first half of the year, even though domestic card fraud levels fell during the period, according to APACS. Total losses increased by 26% to £263.6 million in the six months to June 2007, compared with £209 million in the first half of 2006. The rise was mainly driven by the rise in fraud committed on UK- issued cards abroad, which jumped 126% to £108.8 million in H1, from £48.1 million a year earlier. Highlights include: • UK card fraud losses fell 4% during the period from £160.8 million to £154.8 million. • Losses at UK retailers fell 11% to £37.5 million • ATM fraud was down 57% to £17.1 million. • 157% rise in Internet shopping contributed to a 44% jump in card not present (CNP) fraud, which rose from £95.3 million to £137 million. • The fraud to turnover ratio on online card transactions has also decreased - down from 0.7 per cent in 2004 to 0.5 per cent in 2006 • Internet banking losses fell 67% from £22.4 million to £7.5 million, even though phishing incidents rose by 42%. • Counterfeit card losses grew from £52.8m to £72.3m. • Lost and stolen card losses fell from £36.1m to £30.7m. • ID theft increased from £15m to £18.7m over the last year (Source date: 3rd October, 2007)

EC fines Visa EUR10.2m for Morgan Stanley exclusion The European Commission has fined Visa EUR10.2 million for refusing to let Morgan Stanley access its credit card payment network in the UK. The antitrust originally broke out in 2000 when Visa denied Morgan Stanley access to its card network in Europe on grounds that the investment bank runs the Discover card network in the US in direct competition with Visa. Morgan Stanley filed a compliant to the European Commission, which opened an investigation and eventually charged Visa with a breach of competition rules in August 2004. The credit card firm appealed the ruling and has since been waiting for this latest decision. The two firms settled the dispute in November 2006 when Visa allowed Morgan Stanley to become a member of its card network. The bank then withdrew its compliant against the card network. But although the complaint was withdrawn and the infringement ceased, the EC says it decided to impose a fine as Morgan Stanley was excluded from the UK acquiring market for six and a half years. Visa's behaviour was found to have prevented Morgan Stanley from providing services to merchants as regards Visa transactions (which represent about 60% of the market), but also as regards other payment cards transactions. Visa will appeal the latest decision. (Source date: 4th October, 2007)

Outsourcing, Acquisitions and Deals

Visa Inc. Completes Global Restructuring Visa Inc. has announced the completion of its restructuring, having received broad member approval for the series of transactions by which Visa Canada, Visa U.S.A. and Visa International have become subsidiaries of Visa Inc. Visa Europe will remain a membership association and will become a licensee of, and own a minority interest in, Visa Inc. (Source date: 3rd October, 2007)

VocaLink secures payments processing deal with Sweden's BGC Bankgirocentralen BGC has partnered with VocaLink to help manage its future payments business. VocaLink will work with BGC to provide payment services and handle the processing of its domestic automated payment schemes. The collaboration will cover the entire bankgiro system and its payment products, including Autogirot. BGC - which processes transactions totalling Skr25-50 billion daily and is owned by SEB, Swedbank, Handelsbanken, Nordea, Danske Bank, SkandiaBanken, Kaupthing Bank Sverige and Länsförsäkringar

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Bank - will retain its current role and responsibilities to Swedish banks, firms and public agencies. (Source date: 11th October, 2007)

Discover signs issuer processor deal with Tsys Services has announced it has signed an issuer processor agreement with Tsys to begin processing prepaid and credit card transactions on the Discover Network. The agreement, which will provide issuers with more options in choosing a preferred processor on the Discover Network, is part of the Discover Network's commitment to offering payment solutions that deliver significant value to issuers. (Source date: 11th October, 2007)

Dresdner Bank outsources to Atos Dresdner Bank is transferring 200 IT staff to Atos Origin as part of a deal that will see the bank outsourcing some of its central applications. 90 applications, primarily in retail banking, will be outsourced to Atos. The service starts on 1 December and the IT staff will be transferred then. The staff affected come mostly from Frankfurt, with a few more based in Hamburg. They are a mixture of developers and project managers. Atos Origin takes over the maintenance and development of IT applications within private and business banking of Dresdner Bank as part of the seven-year agreement. (Source date: 11th October, 2007)

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