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US EMV Smart Card Migration

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US EMV Smart Card Migration U.S. EMV Smart Card Migration: What Cards Do Merchants Hold in their Hand? Moderator: Claudia Swendseid, Federal Reserve Bank of Minneapolis Panelists: Rue Jenkins, Costco Wholesale Corporation Malcolm Nunes, The Home Depot Gavin Waugh, The Wendy’s Company ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. October 30, 2013 Agenda • Introductions • EMV Overview • EMV Global Deployment & Impact on Fraud • EMV Adoption in the U.S. • Business Case for Merchants • Issues Facing Merchants ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 2 Who We Are – Claudia Swendseid • Senior Vice President of the Federal Reserve Bank of Federal Reserve System: Minneapolis • Establishes & executes U.S. • Serves on the Bank’s monetary policy Management Committee & has • Promotes a stable financial system responsibility for FedACH • Supervises & regulates financial operations & application institutions (FIs) development, Information • Provides financial services to FIs & Technology, Customer Contact U.S. Government Center, & the Payments Information & Outreach Office Mission in payments – To foster integrity, efficiency, & accessibility of U.S. payment & settlement systems in support of financial stability & economic growth ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 3 Who We Are – Rue Jenkins • Assistant Treasurer of Costco About Costco: Wholesale Corporation • Costco Wholesale Corporation • Responsible for a wide range of operates an international chain of Treasury & Cash Management membership warehouses that carry activities including treasury quality, brand name merchandise mgmt. & investment/borrowing • Over 600 warehouses worldwide activities, bank relationships & • $99.1 billion in revenue in 2012 foreign exchange activities • Employs over 107,000 people in • Manages global credit facilities the U.S. ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 4 Who We Are – Malcolm Nunes • Senior Manager of the About Home Depot: Financial Services • World’s largest home improvement Department, the group retailer responsible for managing the — 2,200 locations in the US, Canada cost of acceptance & Mexico • Current focus is on alternative • Home Depot corporate has annual & emerging payments revenues of $70 billion • Employs 325,000 people in the U.S. • Home Depot U.S. processes 2 million card transactions per day; accepts Visa, MasterCard, AMEX & Discover credit cards plus signature & PIN debit • First retailer to accept PayPal at the point of sale ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 5 Who We Are – Gavin Waugh • Vice President & Assistant About Wendy’s: Treasurer for The Wendy’s • World’s third-largest quick-service Company, operator & franchisor hamburger company of the Wendy’s® restaurant brand — 6,500 franchise & company restaurants in the U.S. & 26 countries worldwide • Responsible for capital markets, • Wendy’s corporate has revenues of Treasury operations, & tender $2.5 billion & employs 40,000 people type card programs in the U.S. • Serves on several Treasury • Wendy’s U.S. processes 300,000 card advisory committees including transactions a day & accepts Visa, the AFP Treasury Advisory Group MasterCard, AMEX & Discover credit cards & signature debit (but not PIN debit) “Upgrading the Wendy’s U.S. system to PIN pads inside our restaurants & at the drive -thru would cost more than 12 times the annual amount of post-liability shift fraud.” ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 6 EMV Overview What Why Is EMV EMV? ? EMV Choices ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 7 What Is EMV? • EMV (Europay, MasterCard & Visa) is a set of global proprietary specifications for credit & debit payment cards, point-of-sale terminals & card transaction processing networks based on “smart chip” card technology • Chip cards contain embedded microprocessors that provide EMV chip cards use an stronger security against counterfeit fraud in card-present embedded microprocessor transactions – i.e., card for payment transactions authentication ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 8 Why EMV & Why Now? • Helps reduce counterfeit card fraud by using dynamic data to authenticate card rather than static data as with magnetic stripe card • Doesn’t improve protection against lost & stolen & card-not-present fraud • May facilitate interoperability with global card infrastructure as EMV is adopted worldwide • May help prevent fraud shift from countries with EMV to U.S. • May serve as security foundation for other types of payment applications such as near field communication (NFC) ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 9 Chip Choices Card issuers must decide which EMV smart chip functions to implement Card Interface Card Cardholder Transaction Authentication Verification Authorization Contact Online Online PIN Online Contactless authentication Offline PIN authorization Dual Offline Signature Offline interface authentication No CVM authorization ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 10 EMV Global Deployment & Impact on Fraud ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 11 EMV Around the World 80 Countries Use EMV Payments Europe zone 1: 84.4% of cards Europe zone 2: Canada, Latin 94.4% of terminals 14.5% of cards America & the 68.1% of terminals Caribbean: 41.1% of cards 76.7% of terminals Asia Pacific: Africa & the Middle East: 28.2% of cards 20.6% of cards 51.4% of terminals 75.9% of terminals ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 12 Card-not-Present (CNP) Fraud after EMV 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 (local currency) UK France Canada Australia Sources: Financial Fraud Action UK, The Observatory for Payment Card Security, Canadian Bankers Association, Australian Payments Clearing Association. 2012 France data is not available yet. ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 13 Cross-Border Fraud after EMV 60% 45% 30% 15% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 (% of total fraud) UK France Australia Sources: Financial Fraud Action UK, The Observatory for Payment Card Security, Australian Payments Clearing Association. 2012 France data is not available yet. ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 14 14 Fraud Rates after EMV Results vary by market 12 9 6 3 0 (basis 2006 2007 2008 2009 2010 2011 2012 points) UK France Canada (Interac Only) Australia Sources: Financial Fraud Action UK, The Observatory for Payment Card Security, Interac, Australian Payments Clearing Association ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 15 Global Card Fraud Up 14.6% in 2012 • Acquirers, issuers & Distribution of Card merchants lost $11.27 Fraud Losses billion worldwide due to card fraud in 2012 US accounts for nearly half (47.3%) of world’s total card fraud losses, but only – Issuers averaged fraud 23.5% of total card transactions losses of 6.13 cents per $100 spent – U.S. based counterfeiting crime accounted for over ¼ of global losses Rest of USA, World, 47.3% – U.S. led world in CNP 52.7% fraud losses; as U.S. is largest e-commerce market Source: Nilson Report cited in Business Wire press release, 8/13/2013 ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 16 EMV Adoption in the U.S. ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 17 U.S. Card EMV Smart Chip Migration Roadmap Key Dates October April 2013 October April 2015 October 2015 October October 2017 2012 2013 2016 Visa PCI Acquirers & 3rd party Card-present ATM liability audit processors ATM counterfeit shift relief required to acquirer liability takes Card-present support processors effect counterfeit merchant & sub- excluding liability takes acceptance processors automated effect for of EMV required fuel automated fuel transactions to support dispensers dispensers EMV data (AFD) MasterCard Account ATM Data liability Lost or ADC Compromise shift stolen relief (ADC) relief liability (95% - Lost or (50%) shift for 100%) stolen liability AFD shift Discover PCI audit relief American Express ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 18 EMV Migration Forum • Consortium of stakeholders working together to facilitate the U.S. migration – Card brands, ATM networks, debit networks, issuers, merchants, acquirers, processors, equipment & card manufacturers, consultants, & others; about 220 in total – Members pay fees to Smart Card Alliance – Entire group meets about every 3 months ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 19 EMV Forum Working Committees • Debit • Testing & Certification • ATM • Card-Not-Present • Communication & Education • EMV Deployment Coordination – Orlando, FL chosen as test city ©2013 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 20 Issuers Slow to Issue EMV Debit Cards When Do You Plan to
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